15 Ways to Shave Costs From Your Supply Chain Part II

As per yesterday’s post, earlier this year, Inbound Logistics ran an article on 163 Ways to Supercharge Your Supply Chain that had good advice to improve your global logistics, customs, documentation, expedited shipping, warehousing, optimization, equipment, trucking, 3PLs, maritime, security, risk management, and general supply chain operations. Besides all of the obvious ways to improve your supply chain and cut your costs, and the more advanced ways that are covered regularly on SI, there are a few often overlooked nuggets of cost savings that should be singled out because they cost many companies money and go undetected. Today we will cover the remaining eight (8).

3PLs
Determine What Each 3PL Does Best
Most 3PLs excel in a niche such as global logistics, transportation, or warehousing because most of them started off focusing on one function and added others as they grew. Understand their strengths, and weaknesses, before selecting a 3PL.

Inventory Accuracy
Establish external and internal product traceability.
It’s not just inbound and outbound shipments, but internal transfers between different warehouse locations, etc. that need to be tracked. Knowing you have 10 units of a product is only useful if you know where the units are.

Lean Logistics
Manage your empty container flow.
Moving empty containers is equivalent to burning money. It’s a complete waste.

Seasonal Peaks
Know Your Overflow Potential Before You Need It!
Don’t be scrambling for overflow space and trailers, etc. when you need it — have a plan in advance.

Maritime
Bypass Distribution Centers
If you can consolidate a large shipment that can go directly to a store, or a local DC that serves multiple stores, do so — temporary storage costs money and so does unnecessary unloading and reloading of inventory.

Port Selection
Know Your Port’s Infrastructure Limits
Especially if the port is near capacity. If the port isn’t investing in infrastructure to expand capacity, or can no longer expand its infrastructure, then it should be expected that the port will hit capacity and that could be a problem for your organization in the future if you plan to do more global trade.

Security
Protect Against Malicious Behaviour By Former Employee … Credentials
It’s not just the former employee that can cause you problems, it’s their credentials! Just because an employee left on good terms does not mean that their login and access credentials won’t cause problems. A current employee trying to arrange an inside job will happily use the ill-gotten password of that esteemed former employee for their illegal gain.

Risk Management
When Selecting Geographically Distributed Vendors, Consider the Ports!
Multiple suppliers who ship through the same primary port can all be taken offline as a result of a typhoon that destroys the port.

For another 148 ways to optimize your supply chain, see the Inbound Logistics article on 163 Ways to Supercharge Your Supply Chain.

15 Ways to Shave Costs From Your Supply Chain Part I

Earlier this year, Inbound Logistics ran an article on 163 Ways to Supercharge Your Supply Chain that had good advice to improve your global logistics, customs, documentation, expedited shipping, warehousing, optimization, equipment, trucking, 3PLs, maritime, security, risk management, and general supply chain operations. Besides all of the obvious ways to improve your supply chain and cut your costs, and the more advanced ways that are covered regularly on SI, there are a few often overlooked nuggets of cost savings that should be singled out because they cost many companies money and go undetected. Today we will cover the first seven (7).

Global Logistics
Collect Data About Your Products
Not only is understanding product composition vital to correct classification, which determines your tariffs, but it makes sure you don’t get any surprises when you product gets detained at the US border because your new hard drives with built in encryption were designed primarily for industrial information security and do not automatically qualify under Category 5, Part 2 of the Electronic Code of Federal Regulations like your hand-held personal digital cameras.

Customs
Focus on What You Can Control
When it comes to customs, you have no control — but you can create a position for a Customs Compliance Officer and make sure everything you do is fully compliant, fully documented, and fully auditable at a moment’s notice to prevent unnecessary delays when some newbie mistakes your fig paste ship for hash.

Documentation
Confirm Document Receipt
Just because you sent the documents, it doesn’t mean they were received, even if they weren’t returned (or the e-mail didn’t bounce). For critical shipments make sure the documents were received and noted in the system before your goods hit the border.

Expedited Shipping
Eliminate Padding
It’s a typical situation where everyone along the logistics chain adds “safety” time to ensure on-time delivery. It only takes a few layers to transform a shipment required by 9 am into one that is required by 5 am which requires expensive expedited shipping. Make sure unnecessary padding is not added to the delivery time.

Warehousing
Processes Need to be Quality Based
When a mistake happens, get to the real root cause. As per the article, if a forklift knocks off a sprinkler, don’t just ask why it was so high and how to prevent the forklift from getting so high again, but if it should even have been there in the first place. It might not just be a storage height issue, but an overall storage plan issue. If boxes are being stacked to the ceiling in multiple locations, maybe you need a new storage arrangement or maybe you need more storage space!

Equipment
Recognize the Environmental Impact of Your Pallets
Plastic pallets, which require oil, cannot be repaired and must be melted down to be recycled — requiring more energy that likely uses more oil. Wood pallets are easily repaired and recycled.

Trucking
Place your production facilities close to major cities.
Metropolitan areas have a substantial concentration of LTL trucking firms and terminals, which minimize your freight charges.

Come back tomorrow for Part II.

Segmentation Strategies for Success

In their IdeaBook 2014, the editors of DC Velocity and Supply Chain Quarterly published a piece on Supply Chain Segmentation: 10 Steps to Greater Profits that stated that segmentation lets companies boost profitability by tailoring their supply chain strategy to each customer and product in their portfolio. The paper aimed to outline 10 key practices that would ensure success.

The purpose of segmentation is to align supply chain policies to the customer value proposition as well as to the value proposition for the company as a whole.
A company that adopts segmentation will develop multiple virtual supply chains that run against each physical supply chain and move towards a portfolio management approach where they have a portfolio of customers and channels, a portfolio of products, and a portfolio of suppliers and supply modes.

Success depends on doing it right. The ten keys to successful segmentation presented in the paper are good ones.

1. Regular Demand and Cost-to-Serve Analysis.
The goal is to tailor service agreements and supply chain policies in order to raise the overall profitability of the portfolio. It also helps you to provide value to the business by highlighting both profitable and unprofitable product and service lines. A truly valuable Supply Management department can guide the organization down a more profitable path in addition to saving coin.

2. Differentiated Demand Policies in Core Functions.
Not all products are as equally profitable, or equally critical to business operation. While a company can’t stock-out on critical pats to keep a production line running and shouldn’t stock-out on the products that are in the highest demand by its customers, there will be little or no detriment to occasionally running out of office supplies or forcing a customer to wait an extra few days for a part that is rarely bought. Thus, expedited orders should not be placed promptly when (potential) stock-outs are detected for non-critical products but should be when a critical part is out of stock and production or profit will be impacted considerably.

3. Differentiated Inventory Policies.
Just like non-critical parts and products should not be unnecessarily expedited, stock-levels of non-critical parts and products shouldn’t be unnecessarily high. An occasional stock-out on a non-critical product is worth the shipping savings obtained by buying an appropriate volume that generates the appropriate product and shipping discounts.

4. Differentiated Customer Replenishment Programs.
Just like some products and services will be much more valuable than others, some customers will be much more valuable than others. In addition, your contracts will dictate that some customers receive higher service levels (and, if the person executing the contract did her job right, the service level each customer receives corresponds to the value of the customer).

5. Differentiated Supplier Allocation Programs.
Just like some customers will be much more valuable than others, some suppliers will be much more valuable than others as each supplier has different capabilities. For example, nearshore facilities will provide opportunities for quick replenishment, but offshore facilities will often provide opportunities for low-cost high-volume replenishment. Use the right supplier for the right order at the right time.

6. Regular Total-Landed-Cost Sourcing Analysis.
As SI continually insists, it’s important to do a total cost analysis before making a sourcing decision because it’s not what you pay per unit, it’s what the buy costs you overall! If you’re having difficulty, obtain a real strategic sourcing decision optimization solution.

7. Differentiated Allocation and Order Processing.
Allocation is the process of reserving inventory and/or capacity for certain customers or groups of customers. The intention is to make sure that the needs of preferential customers are always met. Similarly, orders are processed in order of customer preference.

8. Incorporate Monthly and Weekly Tradeoffs into S&OP.
S&OP once a month isn’t enough — demand patterns change weekly, and in some fast-moving verticals, even daily. Be sure to update forecasts, inventory levels, and allocation strategies at least weekly.

9. Business Optimization Centre for Continuous Learning.
In order to progress to the next level on your Supply Management journey, your organization will need a Supply Chain Center of Excellence whose mission includes establishing, implementing, and monitoring segmentation policies, and then continuously learning as such policies are executed over time.

10. Automated Policy Management.
Not only is the supply chain centre of excellence responsible for policy analysis, deployment, and management but it is also responsible for ensuring that the various policies related to promising, fulfillment, inventory, transportation, manufacturing, and sourcing are coordinated, aligned and synchronized in time. In order to succeed in any strategy, segmentation or otherwise, it’s critical that the organization continuously improve.

Furthermore, even if your organization isn’t looking to apply (much) segmentation, it’s all good advice for any Supply Management operation.

65 Years Ago Today the Microfilm Revolution Began!

65 years ago today, the first microfilm magazine was offered to subscribers. Newsweek, by offering its publication on microfilm, sparked a microfilm revolution and within a few decades, libraries everywhere were storing large collections of newspapers and magazines on tiny microfilm collections. This allowing libraries to maintain large collections of historical documents in limited space and was the precursor to the current digital revolution, which saw micro-films replaced with (optical) disks, which were soon replaced by storage area networks.

The Board Gamers Guide to Supply Management Part XXII: Thurn and Taxis

Thurn and Taxis, by Rio Grande Games, is a very interesting game. In this game, each player is trying to build a competing postal system in Bavaria (which is now a southeast German state) in the 17th century when travel relied on (horse-drawn) carriages. In order to do this, she must build post offices in as many of the 22 major cities as she is able to, before someone else builds her 20th, and last, post office or acquires a carriage worth 7 points (which will be the 17th carriage acquired in the game). Like Ticket to Ride and Camelot, the Build, the game is very easy to learn, and the basic rules can be picked up by a new player in just a few minutes. But also like both of these games, mastery is considerably more difficult as your options depend not only on the cards available to you but what your opponents choose to do as well.

In Thurn and Taxis, you are trying to build post offices that establish a postal system, and you do so by building postal routes of three or more cities. When you have a route of 3 or more cities, you may close the route and place post offices in every city on the route that is contained in one province or in one city from every province that is covered by the route. A “good” route, when closed, will allow you to place a post office in every city on the route, but a “poor” route will only let you place post offices in some of the cities. Furthermore, the identification of the “right” route is hampered by the fact that the first player to build a post office in every city in a province gets a high score for doing so, the first player to build a post office in every province gets a high score for doing so, the first player to close a route of length 5, 6, and 7 also gets a high score for doing so, and the player to trigger the game end condition gets an additional 1 point. (Subsequent players to do the same score less.) Not only do you have to build routes, like in Ticket to Ride, but you have to build effective routes. Furthermore, to add an extra level of complexity, once you begin to build a route you must add to the route on every turn (until you close it) or you lose the route. (If you have a route of 6 you can close but decide to go for the route of length 7 for the biggest bonus, and you aren’t able to extend it in your next turn, your gamble could cost you everything, and anywhere between 3 and 6 turns of effort will vanish.)

The rules of Thurn and Taxi are easily summed up as follows. On her turn, a player, who can only use the special ability of one of the four postal officials (Administrator, PostMaster, Postal Carrier, and Cartwright) on her turn, will:

  1. Optionally use the special ability of the Administrator to replace the six cards available to him to build a route.
  2. Add a city card to her hand, and, optionally (unless it is the player’s first turn, then she must), use the special ability of the PostMaster to add a second city card to her hand.
  3. Play a city card from her hand to create a new, or add to an existing, route, and, optionally, use the Postal Carrier to play a second city card to her route.
    If she has no cards in play, or cannot add to an existing route, she starts a new route and the previous route, if there was one, is discarded.
  4. If the route is of length 3 or more, close and score her current route (by placing post offices and collecting any bonus tiles and/or carriages earned) and, optionally, use the Cartwright to acquire a carriage that is associated with a route up to two cities longer than the route she closed. If the player has more than three cards in her hand when she closes a route, she must discard down to three cards.

The only other rule is that the carriages must be acquired in value order, even if a player closes a longer route. (And that is why the first carriage of value 7, for a route of length 7, will always be the 17th carriage acquired.)

It’s simple, but just like in real supply chains, timing is everything. It mimics some of the intricacies and complexities of trying to coordinate shipments through multiple cross-docks and stops across multiple carriers. With capacity tight, do you try to acquire extra options (by taking a second city card) to guarantee capacity later? When you have extra capacity, do you expedite some goods (by playing a second city card) in the hopes of preventing inventory build-ups and storefront stock-outs later? If your current options look less-than promising, do you instead focus efforts on finding new options (by wiping the board and turning up six new city cards) instead of trying to develop your current options? Or, do you maximize the one option available to you and give a marquis customer better than expected service in exchange for goodwill and quicker payment (by using the ability of the Cartwright to score more). Like Ticket to Ride and Camelot, the Build, this game can also be played during lunch-hour and also exercises your strategic thinking, because each opponent is trying to do what’s best for them, and in doing so might undermine your best efforts (just like a competitor can swoop in and tie up all remaining capacity on a lane if you don’t get the paperwork in before them).

Plus, the base game supports a couple of expansions, including All Roads Lead to Rome which includes two mini-expansions to the game that give you even more options to balance. In the mini “Offices of Honor” expansion, nothing changes in the base gameplay but if a player balances her usage of the different postal staff members, she will occasionally get extra help. Each time a player uses a postal staff member, she gets a token indicating her use thereof. When the tokens for a particular staff member run out, each player must turn in 1 to 4 different tiles to the supply. If a player returns 2 different tiles, she gets to take an extra face-up city card. If a player returns 3 different tiles, she gets a victory point. And if a player returns a set of 4 different tiles, she may place one of her post offices anywhere on the game board, even if such placement triggers the generation of victory points in her favour. (In real life, if you use each of your carriers for routes and modes they are best at, and use them wisely, your on-time delivery percentage shoots up.)

In “The Audience”, in addition to having to build postal routes, you are also transporting 5 clergymen to attend an audience with the Pope in 5 different carriages. When a route is closed, for each city card in the close route in which a post office was not built, the corresponding carriage transporting a clergyman is moved one city closer to Rome. Your goal is to not only get your clergymen to Rome, but get them their in the right order. The ministrant should arrive before the priest who should arrive before the deacon who should arrive before the bishop who should arrive before the cardinals. Sounds easy, but your clergyman share a carriage with one clergyman of each other player, and you don’t know which clergyman the other players have assigned to each carriage. In other words, while you are trying to advance a particular carriage to get your ministrant there first, the other player is trying to hold it back because it contains her cardinal whom she wants to get there last. So the choice of routes gets even more strategic because if you build a route that ends up advancing the carriage with your cardinal and bishop too fast, you’re not going to score many bonus points at the end of the game. This expansion serves to add another element of randomness to the game, just like unexpected disruptions add another element of randomness to logistics planning.

It’s a good, simple, logistics-themed game to play when you have a lunch hour to spare.