In Part I, we defined Supply (Chain) Network Optimization as the optimization of your global distribution network to minimize costs while controlling risk to an acceptable level, discussed the various costs involved in a supply chain network, outlined some of the questions you should be asking, and outlined some of the complexities associated with Supply Chain Network Optimization.
In Part II, we reminded you that supply network optimization, of which freight / transportation cost optimization is a significant part, does not belong as part of a standard sourcing project (since only freight rates, and not total costs, can be fixed and freight costs will always be an approximation anyway) and that if you are considering an award where freight dominates the cost, then you should be optimizing your transportation cost and estimating your unit cost (based upon quoted rates and expected discounts from pre-qualified suppliers in the region), since the largest savings are generally achieved from optimizing the component of spend that makes up the majority of spend, not the minority.
Today, we going to discuss some of the challenges of global distribution, as highlighted in the ESYNC white-paper, Strategic Assessments (registration required) that prompted me to white this series of posts. Even though the white paper itself did not live up to the promises implied by its title (it’s sorely lacking on the distribution network front and the strategy front), the Operation’s Analysis & Opportunity Assessment table on page 2 and 3 did a good job summarizing the challenges with (global) distribution and outlining why you need appropriate supply chain information technology to help you manage your global supply network.
|Short Shipments|| Inadequate Inventory Management, Missing Stock and Poor Warehouse Management,
Picking, Packing, and Staging Errors
|Shipping Errors||Loading and Carrier Errors, Poor Product / Packing Identification Processes|
|Operator Productivity||Facility Layout, Material Flow, Processes, Procedures & Systems|
|Late Deliveries||Weak Scheduling and/or Carrier Selection|
|Tracking Data Integrity||Disconnect between shipper and carrier information systems|
|Customer Service Responsiveness||Weak / No Link between call center & fulfillment systems|
|Returns Processing|| Ill-defined processes and procedures; incomplete/non-existant interface between
call center & fulmillment system
|Costs||Facility & Equipment; Labor; Shipping; Outsourcing|
The table also included an “ESYNC Approach” column which, predictably, revolved around AIDC, WMS (Warehouse Management Systems), TMS (Transportation Management Systems), and RFID – technologies that ESYNC sells or integrates with. These are good suggestions, but they don’t completely address the problem. You need IMS (Inventory Management Systems) that go beyond the warehouse and integrate with forecasting systems; GDM/GTM (Global Data Management / Global Trade Management) systems that help you comply with all of the regulatory requirements of the countries you operate in, all of the import and export customs requirements, and all of the taxation laws (including those that allow you to claim refunds under certain conditions); and proper modeling and optimization tools to make sure you have the right network in the first place.