Daily Archives: July 17, 2011

Three Great Tips for Optimizing the Distribution Network

A recent article in Logistics Management on Warehouse and DC Management: 6 Tips for Optimizing the Distribution Network provided a number of great tips for optimizing the distribution network and reducing logistics costs which are expected to quickly surpass the 2008 high (on the US Freight Index) as oil prices increase and availability of qualified truck drivers decrease. The following three tips are particularly pertinent.

  • Ask the Right Questions
    What are the perceived service level requirements? What impacts will changes in delivery lead-time have on revenues in a given market? What are the baseline operating expenses, inventory assets, and capital investments? How do these compare to alternative scenarios? Should the company home-source, near-source, or global-source? Remember, Supply Management must deliver value and balance costs and lead times against revenues and demand times in its redesign.
  • Use an Effective Network Modeling Tool
    Effectively modeling a network in home-grown spreadsheets and databases is impossible for an average enterprise with more than half a dozen locations and global sourcing requirements. Not only does an organization have to effectively model a network and proposed alternatives to identify the best network designs, but it needs to monitor what’s happening with the network, which is not possible if all the organization has is a simple spreadsheet or database tool.
  • Perform an Inventory Optimization Study
    While adding more Distribution Centers (DCs) may reduce transportation costs, it will also increase inventory costs, on average, as more inventory will generally be necessary to meet default stock levels. However, if not all distribution centers service locations with the same service level commitments, then inventory can often be varied to minimize carrying and holding costs. However, a careful analysis, supported by an appropriate toolset, will be required.

How Important is OEE to Your Performance Measurements?

OEE, Overall Equipment Effectiveness, captures the percetage of time that equipment, when running or required for production, is producing good-quality product at an acceptable rate. It is calculated by multiplying the availability rate by the production rate by the first-pass yield.

On the shop floor, OEEE can be measured hourly and gives the on-site manager a real-time look into productivity. It also has the advantage of limiting a drop in productivity to one of three factors: machine up-time, machine speed, and production quality. If the machine was not down during the hour, then there is a problem is with either the speed or quality. If the machine/process speed is within the acceptable range, then there is a problem with quality. And if there is a problem with quality, either a machine is malfunctioning or a worker is not producting up to par. If, after testing each machine, it is found that machines are working within acceptable parameters, then a worker needs more oversight or training.

In addition, according to a recent article in Industry Week, it can help to eliminate ‘silo’ thinking as the manufacturing process is measured as a whole, and not a system of discrete steps. However, if misunderstood, OEEE can promote “over production” as any increase in the production rate without a(n unacceptable) decrease in quality or machine availability improves the metric, and this is often the easiest path to metric improvement.

So how important is (revisiting) OEEE to your Performance Measurements? At the plant level, it is certainly important. However, at the Supply Management level, it’s more about the value generated from manufactured goods, which depends on their ultimate cost and ultimate sale price. Thus, if costs go down and revenue goes up when less produt is manufactured and an artificial scarcity is created, then a lower OEEE might be desired. But if costs go down and revenue goes up when the market is flooded, then a high OEEE might be desired. While maintaining an OEEE in an efficient range is desirable, it’s probably not the most important metric in the Supply Manager’s toolkit.