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


World Wide Shipping June 2003
President LTD Management

Wholesalers, distributors and other middle parties-between customers and suppliers-fight the challenge of being price competitive and service responsive, while making a profit. The traditional role of middlemen has changed. Customer base, customer locations and market size have expanded. More is expected and required. With all these pressures to compete and to differentiate yourself, there is one approach that some have successfully implemented as part of their strategic business plan and tactical operation while others have given token recognition to-supply chain management.

Supply chain management (SCM) is a necessity in today's business. It is a driving issue. It is the centerpiece of key issues such as the global marketplace for sourcing and sales and with outsourcing. Customers are pulling inventory through their supply chain; middlemen and suppliers are not pushing production and sales through to customers. Supply chain management seeks to reduce inefficiencies as to time, inventories and cost.

What do your customers say about your logistics capabilities? How well do you perform-and we mean more than anecdotal stories? Do you measure your supply chain success? If so, how do you measure? What are the metrics? How often do you ship customer orders as complete, accurate and on time? Do you comply with customer orders handling and shipment requirements? Are you reactive or proactive to customer inquiries and needs with orders, inventory and supply chain management? Are you reactive to competitors, or are competitors reactive to you?

For those looking at SCM, to create competitive advantage or to just stay competitive, here are points to consider:
*The need. SCM is not an option in many cases; it is a requirement demanded by customers. So your choice is to do it and do it right, or face losing customers. It is a means to differentiate your company from competitors. Why do your customers do business with you? How susceptible are you to competition? How do you position yourself with customers and in the market?

*The benefits. Retain present customers and gain and hold new customers. Drive out inefficiencies. Reduce costs. Accelerate cycle time. Reduce capital tied up in inventory.

*A process. SCM is not just about freight; it is much more. Supply chain management is a process that crosses the organization. Do you have a real process? How do you manage it? What metrics do you use? Are there gaps in your process? What about inefficient redundancies? How long does your process take to replenish inventories? How long does your process take to receive and order, prepare it, ship and deliver it? How much of the total time, for the inbound supply chain and for the outbound supply chain is consumed internally? Do you manage by exceptions? If so, what triggers exceptions?

The chain extends from each of your customers' doors back through your facility to your suppliers. Each customer has different requirements. Supply chain management is not a cookie cutter; it is tailoring to each customer. That means purchase orders, for example, are not a series of stand-alone transactions; they are part of the process of serving customers. The challenge is making a horizontal process work in a vertical organization, across different responsibilities. Successful processes require the right people and technology to be effective.

To effectively implement supply chain management, you should question and challenge as to:
*Visibility and information technology. Visibility here pertains to your supply chain and especially to inventory, all inventory in the total supply chain. Visibility should be both internal and external. That required technology. You should be able to see within your organization and between your customers and you and between your suppliers and you. How well and how readily can you see what inventory you have? How well can you see where inventory is located? Is your inventory management system a viable easy-to-use operations tool; or is it financial software that hinders inventory and supply chain management? Technology alone, without a process, will not succeed.

How well can you look at customer orders and how you will fill them? How well can you look at purchase orders and the implied inventory that infers? How well can you look at your purchase orders and customer orders while in-transit-and this means more than emails and spreadsheets and more than using a forwarder or carrier's portal to track shipments? Do you share the visibility with customers? Do you share visibility with suppliers? How do you share visibility? How well are your internal systems integrated? Do you integrate with customers? Do you integrate with supplies?

Visibility leads to other questions. Now that you see the chain, what do you do about it? How well do you manage your supply chain? Or does your supply chain manage you? Do you measure your supply chain performance? How do you measure your supply chain; what metrics do you use and why? Do you use events management to control the process? How do you reduce the supply chain cycle time, from purchase orders to being paid by customers? Do you carry too much inventory? What are your turns; turns are vital to profitability? How do you manage inventory? How do you forecast and how accurately? How do you manage the inbound supply chain from suppliers, the critical part that replenishes your inventory?

*Collaboration with trading partners--both suppliers and customers. Collaboration is a way for trading partners to mutually meet each other's requirement. Doing more with less is a fact. Working together for the common purpose shares existing resources, including people. But why should customers, especially key ones, collaborate with you? What do you offer them? How do you collaborate? Does your customer share sales forecasts and/or point-of-sales information with you to help you manage inventory? Do you manage customer inventory? Do you provide on-line inventory information? Do you present solutions to customers, based on your observations, and solutions, to problems they may have that will improve their supply chain and profits? Do your suppliers understand your business? Do you share forecasts with them? Do you work with suppliers the same way you want your customers to work with you? Collaboration is a sensible way to function in a lean environment.

*Outsourcing. Outsourcing has two versions here. You outsource all or part of your outbound and/or supply chain to an outside logistics service provider firm. This should be done to gain capabilities that you are unable to develop internally. The outsourcing decision should be done with a lot of analysis. Understand how you operate now, the strengths and weaknesses in your capabilities and your requirements and needs. You should know the process that is required, whether that is how you operate or not. Without that understanding, you will struggle to make the proper selection and decision. You should not just "dump" it off on to someone else. The risks are too great as to the impact on your business.

Customers may also look to outsource parts of their supply chain to key suppliers who have demonstrated skill in SCM. This positions those designated suppliers to be a key, critical part of the customer's business. That is a competitive advantage.

*Cycle time / lead-time. Time is an important factor in servicing customers and in your supply chain. E-commerce has dramatically sped up the time demand. Turning customer orders into cash; turning purchase orders into sales orders; turning inventory over and over-all involve cycle time. Improving your lead times and responsiveness does not mean carrying additional inventory. Reducing cycle time means have a process and managing it. It means managing the total supply chain, not just the outbound portion to customers. It means using process, technology and people.

Do you know and understand the internal and external components of your process? Do you know the times each requires and find ways to reduce them? Reducing time with an effective supply chain means less inventory can be carried, less money is tied up in inventory, less obsolete inventory and fewer write-offs occur. Less inventory means better utilization of warehouses because excess and obsolete items and not taking up valuable space and forcing employees to use more travel time in the warehouse to pick orders. Do you manage purchase orders, and in turn, shipments from suppliers? Do you understand the freight cost and transit time options, especially for imports? Do you care about how long your inventory is in-transit? Do you look only at the freight price? Do you just place purchase orders with suppliers and give them a delivery date? The latter is not a process. The latter means your suppliers are managing you. There is no process. You are being dependent upon the kindness strangers.

*Distribution network configuration. Traditionally a wholesaler/distributor was the local supplier to local customers. That continues to change as middlemen are and become regional, national and international suppliers. Service responsiveness demands speed, your ability to receive, process and ship and deliver an order. That also means distance between your customers and customers you to reduce time. To timely deliver orders, to not use up precious customer service time with shipments being in transit, the network of warehouses should be set up to maximize supply chain effectiveness. What is your distribution network? Is the present network configured from the view of servicing customers? How many warehouses do you have? How many do you need? Where are they located? Why are they there? As you expand your network, how to determine what inventories should be placed there and to properly allocate and manage on-hand inventories must be considered. Customer service requirements will increase as they use key suppliers to manage their supply chains. Distribution network is an element of that management.

*Inbound supply chain. Much manufacturing has moved overseas, especially to China. That production transfer continues for both consumer products and industrial goods. The inbound is overlooked with much focus being put on the outbound part. What Incoterms do you use and why? Do you have global, online visibility to your purchase orders? Do you have global online visibility to your shipments as they move from supplier to final destination? How do you manage purchase orders, beyond placing them on suppliers? How do you manage suppliers? Do you benchmark supplier performance? How do you view in-transit inventory? How do you make your freight selection? Is based on price only? What about transit time options, which impact how long your inventory is in-transit and not available for sales? The inbound supply chain is critical to your customer service. It should be viewed as a process, not as placing purchase orders, stand-alone transactions. Transport costs and service, price and performance options, are a derivative of the process-or lack of.

CONCLUSION. Supply chain management is a fact of doing business with many industries and customers. No matter how you view it or what you call it. Customers demand it. The needs you deal with can vary depending on the industry you served, customer scope and more. There is no "standard", single way to do supply chain management, especially well. If there were, then everyone could do it. SCM is dynamic. You customize to each customer. Success can be elusive for those who do not pursue SCM as an active, aggressive part of their business. The rewards-and the business--are there for those who commit to supply chain excellence.