Daily Archives: April 21, 2008

Actions for Big Supply Chain Improvements

Supply Chain Digest recently ran their top 10 list of the easiest actions for big supply chain improvement. Leave off the “easy” and I’ll agree, since some of the actions they recommended weren’t that “easy” and they left off a couple that were.

Their list was the following:

  • Centralize Transportation Management
    (At least they admit this isn’t easy!) As the author notes, the potential freight and overhead savings are huge – and you can make better informed sourcing decisions.
  • Take Control of Inbound Freight
    There is money to be saved on both inbound and outbound freight and all freight should be looked at objectively. Although it’s true that sometimes a large supplier can get you the best deal, it’s often true that often they can’t. Remember, you can leverage freight across your suppliers. They can only leverage freight across the customers they handle freight for. This means that often you’ll have the leverage with the freight provider – so you should use it.
  • Enforce Routing Guide Compliance
    You only save money from a good plan that was carefully constructed from a detailed analysis if it is implemented. Make sure that your sourcing and logistics professionals understand that when it comes to approved plans, it’s the company’s way or the highway for them.
  • Use Labour Management in Distribution Centers
    It’s important you have the staff you need when you need them. Not enough staff when a truck arrives causes delays that could lead to lost sales – too much staff when there are no trucks to load or unload costs you money!
  • Profile SKUs and Orders to Reslot the DC
    A simple analysis of this data can lead to simple improvement opportunities in slotting and warehouse layout that can drive big productivity improvements. Be lean.
  • Revisit Safety Stock Levels and Policies
    Too much inventory leads to markdowns and losses – not enough leads to missed sales and even more losses. Monitor stock levels regularly and update levels and policies as needed.
  • Analyze Supplier Lead Time Variability
    Find the variability, develop corrective action plans to reduce it, and implement them.
  • Use E-Auctions
    Many companies are leaving huge amounts of money on the table by not utilizing this technology when it makes sense to do so.
  • Constantly Compare Actual Total Landed Costs with Forecasted Costs
    If you want to realize your savings, you have to insure you get the savings you negotiated.
  • Start a Lean or Six Sigma Initiative
    … but be smart about it! Don’t go overboard, especially at first, as all you’ll end up with is Sick Sigma, and that won’t help at all.

To that I’d add the following:

  • Invoice Analysis
    Get a real spend analysis tool, mine your invoices, and see if you’re paying what you’re supposed to be. SKU analysis is good, but in many categories, like office supplies, computers, and electronics, you’re probably overpaying – and it won’t take much effort to find savings. If you need help, there are a number of consultancies that specialize in these efforts.
  • Enforce Supplier Contracts
    Route adherence is important, but buying off the contract your sourcing team painstakingly researched and negotiated to get you the best buy is even more so. Many organizations have maverick spend of 40% or more. That’s 40% of your negotiated savings gone … before the product is even shipped!
  • Use Decision Optimization!
    Not only is this the best way to optimize your freight spend, but it’s the best way to optimize your total spend – especially if you select a solution that allows you to optimize all of the aspects of the buy at the same time. e-Auction is good … but it’s not always appropriate, and not always going to net you the best buy from a total value management perspective.

Basically, there’s a lot more to supply chain optimization than just Inventory, Warehouse, and Distribution optimization – which, with the exception of e-Auctions, this article focusses on. If you truly want to see a big improvement, you have to start at the time a need is first identified and analyze the sourcing, procurement, and distribution cycles from the time the first requisition is placed to the time the last unit is delivered to the customer. You don’t know where your largest inefficiencies are or which single improvement is going to have the greatest impact – and often the largest impact comes from aligning your processes to insure the optimized award is received and delivered at the right time and at the right price. There’s no silver bullet – but a continual process of analysis and improvement will do wonders.