MAKE YOUR SUPPLY CHAIN BETTER - Assess It
World Wide Shipping
By THOMAS CRAIG
President LTD Management
Supply chains are dynamic and complex, reaching
into many customers and back into many suppliers throughout the world. A supply
chain strategy also needs to be dynamic. Suppliers change; customers have new destinations
and new shipping rules. Responsiveness increases; time compresses. Agile and
lean are not options; they are mandatory. Collaboration and integration are
ways to accomplish the needed result in a joint effort. Supply chain visibility
is necessary; exception management and event management let you focus limited
Against this background, you need to assess your supply chain
capabilities and performance. You need to understand what works and does not,
Strategy. In assessing your supply chain, start with
your supply chain strategy. The strategy is the foundation to your supply chain
tactical efforts. It sets out the what, why and how of your supply chain. It
is the blueprint. Do you have a supply chain strategy? Or is there a collection of parts
built on reactions to customer complaints, to costs or to other demands that
masquerade as a strategy? Or, are you rehashing an out-of-date supply chain strategy and
trying to breathe life into an approach that is no longer valid?
The supply chain strategy should complement and be aligned with the company's
direction. Supply chain management (SCM) should be an integral part of the company's
drive and direction. SCM represents the way to customer retention and growth,
competitive advantage and profitability. Successful supply chains have top management
approval and support.
Supply chain strategy, with its objectives and plans, should
integrate the corporate strategic program and provide means to its accomplishment.
This design needs to include the tools to make it work-process, technology and
people. The supply chain strategy should be current to reflect industry and business changes
and to reflect where the company is going, not where it has been. The strategy
will also define your resource needs to support the corporate direction.
A good supply chain strategy should not be an across-the-board approach.
One size does not fit all. Instead it should reflect the company's position
and its products' positions in its markets, distribution channels and industry.
It should differentiate by placing the varying emphasis on costs and service.
Today's distribution network may not meet tomorrow's customer needs as they
grow, expand and add stores and warehouses. Do not be caught unprepared.
Mapping. Map your supply chain operation, the total process,
from suppliers, internal and to customers. Visually see and understand the interfaces
and exchanges with others inside and outside the company. Look at flow across
various functions, at gaps and redundancies in the integrated process; look
at time required. Map the actual process, not what each function says occurs.
Watch the organization silos; they can be process dead-ends where doing the
work takes priority over what and why the work is being done-for your customers.
Analyze for bottlenecks and any operations that are non-value added. Identify
critical activities, improvement opportunities (including outsourcing) and redesign
Performance Measures. An important part of assessment
is measurement. You should measure your supply chain performance. These must
be credible measures that top management believes in and have corporate impact.
Measures for the sake of measure do little to raise executive support for supply
chain management. Likewise having no measures, because of time consumed in fighting
fires or other tasks, hurts also.
Accounting measures such as freight as a percent of sales have
little value because they include an item that is beyond the control of logistics.
Sales can change as to product mix, order size, customers and where they are
located. Distance is a big factor on transport costs. Customers at further distances
distort the measure, as do smaller orders (shipments) and changes by customers
in mode or carriers to be used. Warehouse throughput measures are similarly
not appropriate since logistics does not control sales volume. These are not
supply chain measures as much as they are, if anything, sales measures.
For valid metrics, look at critical issues. For example, your
customers expect you to deliver their orders as complete, accurate, on time
and in good condition. Analyze how well you are meeting that goal, both in total
and for key customers. While you are doing this, talk to some of your key customers;
talk to your supply chain counterparts. See how they view you. Find out how
they perceive your supply chain performance. What a great way to understand
how well you are doing, and just maybe you are exceeding customer expectations.
Consider an inventory measure. Inventory is critical to customer
satisfaction, whether you are a wholesaler, manufacturer or retailer. Inventory
velocity is key to profitability. And inventory management is a cross-functional
process, when done properly. Look at how your inventory categories-A, B, C,
D(dog) and Seasonal-and the dollars tied up in each. Analyze turns overall and
by category. Look at SKU rationalization.
Drill down for out of stock occurrences on orders or available
for stores; determine why these happened. Out of stock is a business killer
situation. Look at the quantity and timing of arrivals of in-transit/inbound
products in regards to both inventory availability and total inventory carried.
Transit time, especially for imports, create gaps and spikes in inventory availability.
Minimizing the gaps and spikes is important to inventory management and supply
If you have multiple warehouses, determine if you have inventory
positioned in the right location. Where inventory is placed affects ability
to ship orders complete and on time. Analyze how much of warehouse space is
taken up by C, D and Seasonal (after the season is over) items-and any obsolete
inventory you may still have in stock--and the impact on layout and order picking
and the impact this has on warehouse productivity and cost.
Measure supplier performance. Supplier performance is
very important to strategic sourcing and to inventory availability and, as a
result, customer satisfaction. Analyze quality; analyze reliability. Review
the purchase order (inbound) replenishment cycle time. The better suppliers
do, the better the entire supply chain functions. Analyze open purchase orders
at suppliers. You should have visibility to your inbound supply chain, including
purchase orders at vendors. Inbound transportation costs, in-transit inventory
out-of-stocks and customer service are derivatives of and hidden costs of supplier
Conclusion. Assessing supply chain performance leads
to identification of problems and opportunities. Having a supply chain strategy and measuring
key parts are necessary to understand and take control of your supply chain.
Put the process, people and technology in place to create competitive advantage,
both for today and tomorrow. If you do not, a competitor will.
Top of Page |
LTD HOME PAGE