LTD Management
Logistics & Supply Chain Management Consulting Global Solutions That Work

ARE YOU A SUPPLY CHAIN PARTNER FOR YOUR CUSTOMERS?

By THOMAS CRAIG
President LTD Management
www.ltdmgmt.com

Supply chain management (SCM) is a paradigm driving many businesses, and in turn business relationships, today. Customers are dictating how their orders and shipments will be handled. They want to drive out excess inventory and costs. They want their orders shipped complete, accurate, on time and in the manner they require. Compliance means continued business. Non-compliance means financial penalties and possible loss of business. This is significant in terms of sales revenues and operating costs for their suppliers. Supply chain management competence can build competitive advantage.

Unfortunately many businesses, especially small-medium enterprises, do not understand supply chain management. It is no longer shipping and receiving. It is logistics. It is supply chain management. And the supply chain runs from your vendors through to your customers' doors.

Ask yourself these questions? Do you understand supply chain management, what is required and the impact to you? Do you know how effective your supply chain management program is? If you do not know, why don't you? How does your logistics operation measure up? Do you understand what each of your customers requires? Do you understand the operational and financial impact with more orders, smaller orders, shorter lead times, information technology requirements, inventory reduction and other demands? Do you measure your SCM compliance-by customer? Are you committed, as both a strategy and practice, to supply chain management and being an excellent supplier to your customers? Do you get repeat orders because of your service or in spite of it? Do your customers consider you a best of class supplier? How well does your information technology service your customers' requirements? Is your information system enterprise wide or are their critical gaps or problems?

You should both understand and measure how well you perform in meeting each customer's requirements. Some of the requirements customers may have include-
*Receive orders via EDI
*Stencil cartons with special information
*Remove consumer packages from shipping cartons and place directly on pallets and shipped as floor-ready displays
*Use special spec/grade or type of pallets or slip sheets
*Place his internal bar codes on shipping cartons
*Put shipping labels on cartons
*Require EDI transmittal of Advance Ship Notice
*Ship via the carrier he specifies
*Require delivery by certain date with carrier required to make delivery appointment
*Place additional information on the bill of lading
*Place a copy of the bill of lading with the shipment
*Send invoices via EDI

You should measure your performance as to each customer's requirements. Measures should include-
--Supply chain cycle time that runs from the time the customer sends the order until you ship it.
--Orders shipped complete and accurate as to all item and all quantities. No partial orders or backorders should occur.
--Shipments are delivered at/by the date required
--Costs to meet each customer's requirements
--Inventory levels
--Accuracy and timeliness of system information as to order status, inventory levels, shipments, purchase orders and other keys to supply chain success

Distinguish between basic needs, such as delivery on time, and advanced functions, such as order on-line or total cycle time control. Basic needs are generally attained and are mandatory, whereas advanced needs give a competitive advantage.

Since SCM is a different way of doing business, look at benchmarking. Look at the best practices. See what works and why and how you compare. Breakdown some factors, such as logistics cycle time. Look at your order processing time, time to send confirmed order to the warehouses, time to prepare and ship regular orders, time to prepare and ship special orders and other details. What percent of regular orders are shipped same day or within 24 hours of order receipt? If you are involved with repairs or replacements, analyze and breakdown your total customer satisfaction response time. Look hard at your information technology. Is it enterprise wide or are there critical gaps or problems? The issue is not just to identify problems. It is to understand what the best practices are, how your performance compares, why it may not be competitive, what must be done to improve it and implementing changes.

Supply chain management success just does not happen. Reengineering is needed. It takes work. Six key issues must be recognized. These are-
*Logistics Capabilities
*Accounting Silos
*Organization Silos
*Tailored versus Standard Practices
*International Impact
*Vendor Cooperation

Logistics Capabilities. Logistics competency is the key to supply chain management. It can create competitive advantage. The emphasis must be on-
· The movement of product. The modes and carriers must complement the supply chain strategy. It must be fast, reliable and responsive to the requirements of customers. The transport methods must also move materials and products quickly into your company so you are able to react to customers.

· The movement of information. Information technology is vital, even critical, to be a supply chain partner. This is a key issue to effectively reducing lead times, to reducing inventories, to better forecasting, to improving productivity, to customer responsiveness and to product/market agility. Information technology must be enterprise wide, since supply chain management is an enterprise wide process. On-line/real-time information is necessary. EDI (or internet) acceptance of orders and transmission of shipment information and invoices are basic needs. The technology must also be internal to a company. Complete order and shipment visibility is important. Warehouse management systems, with bar coding, to capture data to accurately know inventories and order status are fundamental; and these must be integrated within the company information system. Purchase orders and receipt of material must be done through information technology.

· Cost. This is the cost of the entire supply chain. It is not just the cost of discrete factors such as freight or warehousing. Knowing the total supply chain cost is fundamental to being able to understand SCM, the impact of SCM to your organization and to making changes. You must know the total cost if you are to make changes to your present operations.

· Time / Service. SCM effectiveness requires responsiveness to each customer and each customer order. To gain competitive advantage, time compression is mandatory. The primary cycle time for customers is the time from when they submit an order until they receive it. That is logistics cycle time. It is the time to keep customers replenished and inventories under control. Segments within logistics should be reviewed. Warehouse locations, for example, should be aligned to meet customer delivery requirements and inventory velocity. Or, information technology to promote cross-dock can reduce supply chain cycle time and costs.

· Integration. The integration of systems and people is necessary for everything to work as an effective process. Customer compliance is not just a logistics responsibility; it is a company wide and supply chain wide responsibility. This integration is both internal to a company and external. It must include transport carriers and vendors. If there is not complete integration, there are gaps. These gaps are potential trouble spots for delays, errors and supply chain failures.


Accounting Silos. Accounting techniques have their origins back to the Model T. Yet the business world is very much different now. Logistics suffers from these practices. Logistics costs are placed into accounting silos that do not properly identify the enterprise wide cost. SCM is definitely enterprise wide. Costs for freight-outbound, inbound and intracompany--and warehousing-for raw materials, work in process, finished goods, repairs and returns--may be on the P&L. Inventory is on the Balance Sheet, as are other logistics assets. Service shows nowhere, despite its critical importance. Proper identification of the costs of service is needed to know what improvements are needed. All this makes it hard to properly identify logistics-related costs, both for discrete functions and especially company wide. The difficulties are compounded with international activities. As a result, cost/service trade-offs are lost. The financial impact of SCM is lost. The cost of servicing specific customers and specific orders is lost. Activity based costing (ABC) is a way to overcome some of the shortcomings of standard accounting practices. ABC must be utilized to properly implement and practice SCM and how it extends the enterprise. Otherwise accounting silos will trap costs and the meaning of them will be missed. Activity based costing permits proper identification of the present cost of SCM, a starting point for SCM improvements. With this cost foundation, you can see the financial impact of supply chain programs as to revenue growth, asset utilization and cost reduction. ABC permits customer profitability and order profitability analysis. It permits non-traditional analyses such as performance measurement, partnering or outsourcing so important to competing.

Organization Silos. Organizations have been created from the inside out. It has been slotted into vertical groupings that reflect traditional business practices. SCM is new; it is not traditional. Standard hierarchical organization formats hinder SCM implementation. They can be hindrances, if not barriers, to supply chain effectiveness. Supply chain management requires that an organization be built from the outside in, from the customer inward to what is required to meet his needs. SCM is not functional; it is a process that horizontally crosses the company. Everyone in the company must work as a team, not as separate subgroups, to respond to each customer's requirements. Information and product must flow horizontally. Vertical organizations create barriers or gaps to these flows. The limitations of the organization chart must be recognized and overcome to be a quality SCM partner.

Tailored versus Standard Practices. Tailored, customized responses are necessary. Each customer has different requirements with his orders. Standard practices for logistics, manufacturing and other functions are based on traditional, internal bases. They must recast into a customer procedure for each customer. If not, then each customer is being diminished. SCM is about each customer and his requirements. It is not about manufacturing set up times, about sales call reports or other practices and procedures. Segmenting customers can find common needs to develop "standard" service and cost improvements while not losing the unique requirements to each customer.

International Impact. International sourcing and sales greatly extends the enterprise and its supply chain. SCM must truly be viewed as part of the corporate culture to work globally. Customers, competitors and suppliers are worldwide; it is a global market. There needs to be a global supply chain strategy that everyone agrees to; this enables decentralized tactical flexibility. Consider that you ship orders every day from your facility in the U.S. to customers in the U.S. Yet, if you source internationally, that ship from Hong Kong sails weekly, not daily. This means having a weekly flow of products to meet daily demands. It also means time that inventory is tied up and an inability to respond to changing market and customer demands. Supplier management has greater meaning globally. If you sell internationally, it has similar impact. You must satisfy customer demands or replenish overseas warehouses weekly while orders are being placed daily. This time factor increases the importance of all the SCM and logistics issues. Satisfying customers worldwide requires strong logistics capabilities, both strategic and tactical.

Vendor Cooperation. Vendors are key to the supply chain. This includes the transport carriers, warehouses and other service providers. They provide the raw materials, parts, finished goods or ultimate service that your customers are buying. Vendors must understand what you are doing and why. Look beyond prices and assess each vendor's reliability and performance. Each must be made a partner to the process. Otherwise you will be expediting and reacting instead of managing a flow of material. Your vendors must understand what is required of them. They in turn must go to their vendors to explain what is required of them. Vendor cooperation must penetrate the entire production process. There must be working alliances throughout the supply chain.

Take a practical view of your supply chain; see it with your customers' eyes. Do what they need to do business with you and do it well. Examine your processes within the company and with customers and suppliers. Make value-added activities efficient. Give employees the information and skills they need to manage effectively in the supply chain.

Supply chain management success goes straight to the bottom line, as does SCM failure. Doing it right takes time and effort. There are no quick fixes. But the financial rewards of increased sales and lower costs are there for the taking.