Daily Archives: June 7, 2011

The Best Way to Handle Decentralized / Local Supply Management Groups

While a well designed Sourcing / Procurement / Supply Management organization will have as many functions center-led, if not centralized, as possible, in a large multi-national, some groups will have to be regional to be effective and some purchases will have to be local. For example, fashion purchases will have to be driven regionally by someone with a pulse on the market and it does not make sense to ask the central asset management organization in (southern) India to manage snow removal operations in (northern) Canada (unless someone wants to see some really strange looks).

But how does your hybrid center-led Supply Management organization effectively manage these decentralized / local groups for best results? A great post on how when managing complexity, less is more over on the HBR blogs had a great suggestion — restrict activies at the group level to a core set of five that enable and enhance business performance. Specifically, focus on:

  1. Portfolio Management
    which activities fall under Supply Management purview
  2. Performance Management
    what are the cost / quality / value goals for each unit and how will the center-led Supply Management organization help the units achieve the goals
  3. Capital Allocation
    what investments can be made in each unit (in terms of technology, process, and people) to deliver the greatest returns
  4. Talent Management
    are the best people working the right jobs
  5. Synergy Capture
    to identify new or large opportunities that should be pulled up into the center-led Supply Management organization

It’s all about the selection of the handful of critical leverage points that will have the biggest impact on success and [a] relentless focus on doing them better. The purchase was pushed out to a local group because it wasn’t of a high enough value to manage centrally or because the central organization did not have the (local) knowledge required to make the best decision, so it needs to focus on the leverage points that will help the local organization, not on the task itself.

Cross-Docking Challenges, Part II

Part I noted how cross-dociking can be a great way to cut transportation costs if done right, because handling of goods while in transit, adds labor and time, which in turn costs the organization hard dollars and profit, but also noted that cross-docking is not without its challenges. It then went on to define eight of the biggest cross-docking challenges faced by an average organization.

This post is going to address what an organization can do to address each of the challenges and see the ROI from cross-docking that it expects to achieve.

Unpredictable Customer Demand
There are two things an organization can do to address unpredictable customer demand. It can restrict cross-docking to primary distribution centers, or it can invest in reusable multi-level packaging. In the first case, when a container hits a primary port or DC, it will use cross-docking to divert the inbound product to the regional DCs, but will not use cross-docking to divert the goods from the regional DCs to the stores. In the second case, it will package small goods in smaller bundles, and if the boxes are too small to allow for efficient handling, it will place those boxes in larger, recyclable boxes or reusable containers and then, depending on demand updates, break the boxes or containers down to ship the revised quantities to the end locations.

IT System Support
This is easy — the organization invests in a new TMS (Transportation Management System) or WMS (Warehouse Management System) that is designed to support the organization’s cross-docking needs. Such a system will also likely come with advanced analytics, modelling, simulation, and/or optimization capabilities that will help the organization identify additional opportunities for cost saving.

Changing Business Dynamics
Cross-docking has to be part of the network (re)design, and not just an ad-hoc afterthought, and the contracts have to be written with the same flexibility as the shipping, distribution, and (temporary) warehousing contracts. This way it is no more risky than the other supply network activities and no less ill-fitted than the rest of the network should dynamics change.

Supplier Reliability
The organization has to build appropriate performance metrics into its sourcing contracts and establish appropriate SRM/SPM/SD (Supplier Relationship Management / Supplier Performance Management / Supplier Development) programs to insure that suppliers have, or build, a track record of on-time delivery.

Carrier Reliability
The organization has to build appropriate performance metrics, penalties, and out clauses, into its logistics contracts and establish appropriate monitoring policies and procedures to make sure its carriers deliver on time.

Facility Design
The organization has to select facilities appropriate to its crossdocking needs or invest in the necessary leasehold improvements to insure its cross-docking operations run smoothly.

Shelf Life
The organization has to adopt a FGIFGO (First-Group In, First-Group Out) policy and allow for newer products, with about the same shelf-life, to be sent out if currently cross-docked. If the product on the shelf has 27 days life, and product in the truck has 30 days left, there’s not much difference and it should send the product currently on the truck out if it can cross-dock. However, if product on the shelf has 14 days and product on the truck has 28 days, then, unless it can guarantee the product on the shelf will go out in the next 24 hours, it has to send out the product on the shelf. For each product, it has to define “close-enough” time-bands, and accept substitutions within the same time-band that are “close-enough”. (Unless, of course, there is product on the shelf about to expire, in which case it can define an override.)

The organization implements the right group of policies and procedures that will minimize touch and maximize ROI.

In other words, while cross-docking presents challenges on the road to success and cost savings, each challenge can be overcome and an organization that perseveres will see significant cost reductions in its logistics and transportation spend.