Supply Chain Design
ALIGNING THE INBOUND SUPPLY CHAIN WITH COMPANY REQUIREMENTS
Eye For Transport January
By THOMAS CRAIG
President LTD Management
CEO's and CFOs have to ask themselves four questions.
1) Are we satisfied with our inbound supply chain design?
2) Are we satisfied with the costs of our inbound supply chain design?
3) Are we satisfied with the performance of our inbound supply chain design?
4) Is our inbound supply chain design secure for Homeland Security?
Supply chain success begins at the origin, with suppliers. The impact on costs,
inventory and service can be significant if the inbound supply chain does not
Managing and reducing the cycle time--from purchase orders are placed on suppliers
through to inventory and shipments are delivered through to sales and cash--has
profound bottom line impact. This in turn impacts shareholder value and builds
The outbound, delivery part of the supply chain design gets much attention. Delivering
the perfect order to customers is a key metric. Software focuses on warehouse
management and on domestic transport management. Collaboration discusses domestic
transport cooperation to reduce costs. Articles highlight domestic supply chain
But the perfect order requires the right inventory-right as
to SKU/item level and right as to quantities needed. Making sure that products
are positioned where they should be when they originate and are sourced in another
country is a challenge. Since so much of the U.S. consumer goods and economy
reflects foreign manufactured goods and since so much originates in Asia, then
the issue is managing a global supply chain.
How do you manage the critical inbound half of a global supply
chain? How do you direct suppliers and transport providers thousands of miles
away in different countries and time zones? You cannot run a global supply chain
on emails. So what do you do? Creating a supply chain design that is built on international
sourcing is complex.
Possible organization difficulties add to the difficulties managing
the inbound supply chain. Two key issues are present. First, supply chain management
is a process whose success crosses horizontally across an organization that
is built vertically with functional responsibility silos. Second, performance
is driven by financial measures based on an accounting system that has its origins
back to the Model A, while business is now dealing in global competition.
The organization can create a fragmented approach, even create
a disconnect, to the supply chain with each group looking at their activity
and not at the total supply chain, as to cost, time and results. The real purpose
is to correctly place inventory when it should be and where it should be. This
goes beyond supplier prices and freight costs. Inventory flow and time are important
Logistics executives, sourcing executives, CEOs, CFOs and CIOs must understand
the Asia supply chain design and its impact on their company success. They should see
the dynamics and vagaries that are the reality of their business operation.
Sourcing from China and other countries in Asia means a longer
lead-time than with U.S. manufacturers. Transit times, depending on the origin,
destination and ports used, can range from 13 days to 40+ days. Ocean carriers
have designed varying schedules and services with different port calls in Asia
and in the U.S. But, unlike with U.S. transport, the ships do not move from
and to major ports on a daily basis. Plus there are many different touches of
the container movement, trucker at the origin, origin port, perhaps a freight
forwarder, the steamship line, perhaps a transshipment from a feeder vessel
to the main ship, destination port, trucker to move the container from the port,
the railroad to move it inland, the trucker to deliver it and the important
customs broker. All these, whether a physical or documentation interaction,
affect the speed of the container and hence the time inventory is not available.
There is an inventory bunching because there is not a continuous,
daily flow of product into the supply chain. There can be pronounced gaps in
container-and inventory-- arrivals. Bunching of inventory and of containers
impacts distribution center receiving, labor utilization and cost, warehouse
space and layout, service performance, inventory stockout occurrences or excess
inventory levels and capital tied up.
Since shipping schedules and transit times create gaps with
inventory replenishments, this supply situation increases the difficulty in
managing inventory placed at the right warehouses with the right quantities
and right mixes down to the item level. All this has impact to sales and to
profits. The cycle time between placing an order on a supplier in Asia and delivery
of the container adds to the total time to turning a purchase order into inventory
and into cash.
Long replenishment times can contrast with the dynamics of sales
as to what products are needed, the mix, the volumes and which warehouses and
stores should be stocked. Inventory is not the end; it is a means to the end,
sales and profits. Increased replenishment time can magnify differences between
what the sales plan and forecast and what is now occurring and needed. Amending
and reprioritizing purchase orders and the product items add to the challenge
of managing the supply chain. The defacto result can be a static inventory replenishment
activity to meet the needs of a complex, dynamic sales environment. Short product
life cycles can further exacerbate the situation.
Supply chain security has added to the delivery time with imports.
Ocean carriers must have the containers, and documentation, available before
a ship arrives at the port. This has meant some suppliers have not been able
to make shipments as quickly as needed to meet the advanced manifest requirements.
As a result, containers have moved on other carrier services, perhaps with longer
transit times, or been delayed till the following week's vessel. All this further
increases the inventory replenishment cycle time.
Positive Actions. Cycle time must be compressed. Time
must be reduced both externally and internally. Doing this takes numerous actions;
there is rarely one change that can create ongoing improvements.
1). Build the inbound supply chain design backward from the customer
or store. Do not have it as a separate subset of the overall supply chain. Design,
align and streamline it with the corporate requirements. Get company wide buy-in,
at the top and at the key points of supply chain contact and interface so everyone
is on the same page and concurs.
2). Incorporate the three keys of process, people and technology
in your supply chain. All three are needed. Identify gaps and redundancies.
Analyze outsourcing as an option to developing what is needed for your supply
chain. Look at 3PLs and 4PLs. Look for lead logistics providers that will focus
on the supplier and the entire supply chain and not just want to manage shipments
and, as a result, miss the real need and the real issue.
Having an effective product flow requires managing a process,
not a series of transactions, such as purchase orders or shipments. Orders and
shipments are standalone items, not a process with a purpose. The transaction
view and approach is reactionary and reinvents each purchase order and shipment
instead of incorporating them into an ongoing process.
3). A supply chain design should be flexible and agile. The long
cycle time could be accepted in a perfect world with complete certainty. But
that is not the real world. The supply chain must recognize and accommodate
dynamic changes in priorities and needs. Frequent expediting and using premium
freight can be a sign that an inbound supply chain has problems.
For example, for multiple container size orders, prioritize
and release finished items as they are ready instead of holding until the entire
purchase order has been completed. Not every order is hot. Not every product
can carry higher freight costs. Use a mix transport approach. Blend different
price and transit time steamship line services, carriers, ports, MLB, all-water
and other options.
4). Focus on suppliers and purchase orders. Supplier performance
is critical to supply chain results. Freight is a derivative of the purchase
orders and supplier performance.
5). Make your supply chain design visible. Place and manage purchase
orders, suppliers and transport providers online, at the factory and from the
factory to your door. Do this down to the SKU and item level. Use exceptions
and event management to monitor, control and manage key needs.
6). Collaborate with all key parties in the supply chain, both
external and internal. Work with suppliers and transport providers so they understand
what you are doing. Share your plan. Be open that to their operations and to
input they have. Each party has a responsibility and role in the supply chain
and its success. Collaboration-and integration--is good for lean organizations
to share resources toward a common goal.
7). Measure your supply chain. Have a solid metric. The metric
should be part of your plan that has been agreed to by the corporation. Delivering
the perfect order-complete, accurate and on time-is good for the outbound supply
chain. Reverse it for the inbound portion. Or consider an inventory related
metric since having inventory properly positioned is the purpose of this endeavor.
Measure days of inventory held or inventory turns and improvements from the
present supply chain performance.
Conclusion. The inbound supply chain has a critical role
in a company's success. This success has significant impact on profits and on
corporate viability. Executives must understand and demand high performance
from their supply chain. The supply chain must be aligned, designed and managed to meet the
corporation's requirements. There are no silver bullets or shortcuts to leading-edge
Success begins at origin with suppliers. The supplier and managing
his performance in a dynamic and complex environment is vital.
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