Cost Savings – It IS The Whole Package!

As per yesterday’s post and a recent article on Inbound Logistics, when Finding Cost Savings: It’s the Whole Package! Sometimes the only way you can save money is to first spend money.

The article, which says this is counter-intuitive (although it really isn’t), gives the example of an electronics manufacturing company that had a relatively low 2% damage rate, but needed to reduce shipping damage even further due to the high value of it’s products. They decided to work with their pallet provider to reduce the strength of, and add strength to, their pallets and boxes. The new packaging cost more to produce, but the smaller footprint reduced their LTL shipping costs and their reduced damage rate of a mere 0.1%, which was 20 times better than their previous damage rate, saved them considerably more than what they spent on improved packaging.

This goes back to yesterday’s post where true, sustainable, savings only come from the perfect order. If anything screws up, any cost savings you identified earlier in the process are more than negated by any screw-up that comes later. But even getting the order perfect from the supplier isn’t enough if you’re buying products for resale and then they get damaged when you ship the product from your facility to the customer’s location. The perfect order isn’t just from the supplier to you, it’s from the supplier to the end customer. The perfect order crosses the entire supply chain from the initial obtainment of the raw materials for the product three tiers down until the final product arrives in the hand of the end customer.

The other issue, as pointed out by the article, is sustainability. Your brand reputation might depend upon your commitment to sustainability and Corporate Social Responsibility – ignoring it to cut a few cost corners could result in a consumer backlash that will take significantly more off of your bottom line than the few pennies you save buying non-fair trade coffee or conflict diamonds.

Moreover, true sustainability always delivers cost reductions, especially where the consumption of natural resources is concerned. While there will be an upfront cost to install new technologies that reduce water and energy consumption, or to build new solar arrays and wind turbines to produce more sustainable power, which will be stored in a battery array for dark and calm times, this is a one-time up-front cost. Ongoing costs will be significantly reduce as the sun and the wind is free – unlike coal and oil which gets more expensive by the year. As the article says “any wasted money is wasted over and over again” and even if it takes three to five years to recover the investment made to prevent money being wasted, a company in it for the long haul will make it up four times over in the following twenty years.

So always look at the big picture – then true cost savings opportunities will emerge!

Now That You’ve Taken Responsibility, Get Sustainable Results

In our recent (re)post last week, we told you that if you do not get sustainable results, blame yourself. By now, you’ve owned up to your shortcomings and are ready to do something about it. Today we are going to overview steps you can take to make sure you maximize the chance of a perfect order, which, by definition, is acquired at just the right cost (which means there are no savings to be had).

As per this post, for savings to materialize, the following necessary (but not sufficient) conditions have to be met:

  • the order has to be placed with the contracted supplier
  • with sufficient lead time
  • and then shipped by the supplier on-time
  • using the approved carrier and shipping arrangement
  • with the required third party and government fees promptly paid
  • and paperwork promptly filed
  • so there are no delays and the product arrives at the warehouse on time
  • where it is properly received, inventoried, and shelved
  • and then the invoice is verified against the good received and the PO
  • and paid at the right time when everything is okay.

This is a tall task, taller than accepting the tall tale of Jonah and the whale, but not an impossible one, and no miracles are required to make it so. Just the acquisition of the right technology, implemented in the right framework, supporting the right processes, and tailored to support your organizational talent. It will take some terrific transition management to get the right organizational alignment, but such alignment is possible (and we’ll be discussing this in more detail next quarter), and the leaders will get there over the next seven to ten years.

So where do you start? Acquire the core technologies you need to streamline your supply management practices.

  • an e-Procurement solution that only allows orders for products on contracts from approved suppliers
  • a demand planning solution (which may be part of a next-generation ERP solution) that integrates with your e-Procurement solution and notifies you when order deadlines are approaching and automatically submits auto-fill orders
  • a 3PL solution that tracks shipments in real-time
  • a Trade Management solution that automatically generates the required paperwork, computes the required fees, and manages, tracks, and confirms their submission
  • an Inventory and Warehouse Management System that integrates with the e-Procurement Solution that manages receipt, shelving, and distribution
  • an e-Procurement solution that also does invoice management and m-way matching
  • an e-Payment solution that integrates with the e-Procurement solution and includes Supply Chain Finance Capabilities (including dynamic discounting, supplier financing, and pre-shipment finance, for example) to help the company determine the best payment time

It’s just the beginnings, but it’s a good start.

One Hundred and Ten Years Ago Today

The United States began construction of the Panama Canal, one of the seven wonders of the modern world.

The Panama Canal, completed 100 years ago this August, is a 77.1 kilometre ship canal in Panama that cuts across the Isthmus of Panama and connects the Atlantic Ocean to the Pacific Ocean. It has 3 locks at each end to lift ships up to Gatun Lake, which is an artificial lake created to reduce the amount of excavation work for the canal that sits 26 meters above sea level. (The current locks are 33.5 meters wide, but a wider lane of 55 m locks is under construction as part of an expansion project that is scheduled to complete next year. More information is in the 2012 Progress Report).

One of the largest and most difficult engineering projects ever undertaken, the shortcut considerably redoes the amount of time taken for ships to travel between the Atlantic and Pacific Oceans, which up until then had to take the lengthy, hazardous Cape Horn route around the southernmost tip of South America via the Drake Passage or the Strait of Magellan. A ship can traverse the canal in 20 to 30 hours vs the 20+ days it would take to sail the thousands of kilometres to go around the Cape. (For example, ships sailing from New York to San Francisco save nearly 13,000 kilometers going through the Canal. This saves an average slow-steamer cargo ship 20 days of sailing time!)

The Canal was managed by the US until the 1977 Torrijos–Carter Treaties provided for handover to Panama. From 1977 to 1999, the canal was jointly controlled by the American and Panamanian governments, until the canal was taken over entirely by the Panamanian government in 1999.

The amount of traffic that flows through the Panama Canal on an annual basis is staggering. When it first opened in 1914, about 1,000 ships went through the Canal a year. In 2011, total traffic reach 14,685 ships that generated $1,730,052,192 in tolls on 222,358,944 long tons of cargo with a net tonnage of 321,845,065! (Original table no longer available, updated transit statistics available on the Panama Canal site.)

It’s not only a modern wonder, it’s a major empowerment to the ocean trade that your global supply chains are so reliant on!