Category Archives: Logistics

Six Steps to Supply Chain Visibility

A recent clear goal sidebar on “12 steps to supply chain visibility” in Stores magazine outlined 12 steps a company can take for boosting transparency in the supply chain. What’s important to note is that half of these steps revoled around data, data availability, and new technology — something this blog continually advocates. Specifically:

  • increase data quality
    as this allows for better analysis
  • create an information hub
    so that all information can be accessed from one central location
  • be aware of when your suppliers’ labor contracts are expiring
    as this could be a disruption in the making
  • develop visibility solutions that are flexible enough to accommodate multiple fulfillment models
    since multiple shipment types and routes might be required to prevent disruptions
  • rack costs like freight, insurance, duties, taxes and other government charges
    because all data is relevant
  • implement route planning software
    to optimize transportation and freight costs

There is no substitute for good systems and good data.

Tompkins Associates and the Next Generation Supply Chain, Part III.2

In Monday’s post, we brought your attention to Tompkins Associates’ recent white paper on “Leveraging the Supply Chain for Increased Shareholder Value” which nicely complements CAPS Research and A.T. Kearney’s study on “Value Focussed Supply: Linking Supply to Competitive Business Strategies” and echos our cry for Next Generation Sourcing methodologies. A cry which has been taken up not only by The MPower Group (and spearheaded by Dalip Raheja who has declared that Strategic Sourcing is Dead and invited you to the The Wake for Strategic Sourcing) but by BravoSolution (who are rallying the battle cry for High Definition Sourcing and who have given us A Futuristic Look at High Definition Sourcing). We told you how they declared the need for a new Supply Chain Value Creation Framework and a renewed focus on business value in the supply chain, outlined three supply chain objectives — Profitable Growth, Margin Improvement, and Capital Efficiency, and described six primary types of value enabling actions to achieve the objectives before telling you that we would spend the next four posts discussing some of these actions and why Tompkins Associates” white paper on “Leveraging the Supply Chain for Increased Shareholder Value” should definitely be on your reading list as you outline your Next Generation Sourcing strategy.

Today, we are going to continue our discussion of the objective of Margin Improvement.

As noted yesterday, there are three fundamental ways that a company can improve margins:

  1. Reduce COGS (Cost of Goods Sold)
  2. Improve Speed and Productivity
  3. Practice Tax Effective Supply Chain Management

Yesterday’s post dove into reduction of COGS in detail, so today’s post is going to address the margin improvement strategies of increased speed and productivity and tax effective supply chain management.

Not only can a fast company get the products the consumer wants to buy to market faster, but a fast company can:

  • optimize the transportation mode
    using airfreight for dense high-value products like laptops
    and slower ocean freight for sparse low-value products like packing peanuts and take a sustainable approach
  • slot warehouses dynamically
    to increase picking efficiency, reduce labor costs, and adapt to a changing product mix
  • pre-pack orders from suppliers
    to allow for crossdocking, reduced handling, and, ultimately, reduced losses due to product damage from increased handling and re-packing

A productive company, which is continuously improving, is one that has

  • reduced labor costs,
    comparatively speaking,
    as they get more done with less
  • reduced material costs
    as it is constantly updating its rolling forecasts (with foresight to prevent overbuys) and its designs (to use more economical parts and raw materials and improve qauality)
  • better operating efficiency
    as it has not ony defined appropriate metrics, but tracks and updates them on a regular basis

Finally, a company that wants to make the most of its supply chain margins has a tax effective supply chain. As the white paper notes, the worldwide “Effective Tax Rate” (ETR) for a MultiNational Corporation is in the 20-35% range, with the average around 25%. That’s a lot of revenue lost to taxes for a company with a tax-effective supply chain. (Imagine what a company with a tax-ineffective supply chain is losing!)

Tax Effective Supply Chain Management (TESCM) is complex, dynamic, and conflicting as tax laws and regulations change. The allocations and locations of functions, assets, and risks, and decisions on transfer pricing, are inherent to the ETR, as well as to the optimized global supply chain but TECSM can make a significant difference in their company’s shareholder value. Unfortunately, the white paper does not provide any details on how to achieve TECSM due to the complexities and detailed knowledge of tax law and regulations required. However, Ernst & Young published a good article on How to Benefit When the Supply Chain Meets Tax in 2009, which was summarized in SI’s post on characteristics of TESCM, Grant Thornton LLP ran a pair of articles summarizing what to consider in a tax-efficient supply chain a couple of years back (Part I and Part II, summarized in The Tax Efficient Supply Chain), and this post lays out the basics of transfer pricing.

Thus, a company has a large number of opportunities for margin improvement at its disposal and an effective combination can easily deliver double digit percentage returns in an average supply chain. The final part of this series will dicusss the final objective of the Tompkins Associates’ Supply Chain Value Creation Framework, Capital Efficiency.

Tompkins Associates and the Next Generation Supply Chain, Part III.1

In Monday’s post, we brought your attention to Tompkins Associates’ recent white paper on “Leveraging the Supply Chain for Increased Shareholder Value” which nicely complements CAPS Research and A.T. Kearney’s study on “Value Focussed Supply: Linking Supply to Competitive Business Strategies” and echos our cry for Next Generation Sourcing methodologies. A cry which has been taken up not only by The MPower Group (and spearheaded by Dalip Raheja who has declared that Strategic Sourcing is Dead and invited you to the The Wake for Strategic Sourcing) but by BravoSolution (who are rallying the battle cry for High Definition Sourcing and who have given us A Futuristic Look at High Definition Sourcing). We told you how they declared the need for a new Supply Chain Value Creation Framework and a renewed focus on business value in the supply chain, outlined three supply chain objectives — Profitable Growth, Margin Improvement, and Capital Efficiency, and described six primary types of value enabling actions to achieve the objectives before telling you that we would spend the next four posts discussing some of these actions and why Tompkins Associates’ white paper on “Leveraging the Supply Chain for Increased Shareholder Value” should definitely be on your reading list as you outline your Next Generation Sourcing strategy.

So, today, we are going to discuss the objective of Margin Improvement.

There are three fundamental ways that a company can improve margins:

  1. Reduce COGS (Cost of Goods Sold)
  2. Improve Speed and Productivity
  3. Practice Tax Effective Supply Chain Management

Reducing COGS involves taking cost out of the supply chain mega process of Plan – Buy – Make – Move – Store – Sell – Return. Thus, the supply chain has lots of opportunities to reduce cost as each stage has multiple costly inputs.

Plan

While the white-paper skips over this step, there are lots of opportunities to take cost out in the planning stage. Without going into much detail they are:

  • Understand true spend
    and identify where the organization is spending money and ask if it needs to be spending money there? Maybe it’s paying for twice as much warehouse space as it ever uses, maybe it’s buying office supplies off-contract at double the contract rate, and maybe it hasn’t even analyzed it’s energy spend.
  • Understand true demand
    as better forecasting takes cost out of spend across the board, as the organization won’t overbuy (and tie up working capital in inventory) and won’t underbuy (and lose marketshare to the competition)
  • Understand true 3rd party needs
    and know exactly what skills and equipment are needed by the third party component manufacturers, 3PLs, etc.

Buy

Not only can the organization reduce cost by designing the supply chain for the optimal goal — be it lowest TCO / highest TVM, best quality, greatest availability, or maximum agility — depending on the product or service being sourced, but it can should-cost model before the buy to understand precisely what it should be paying (and why) and then apply decision optimization to understand how all of the different cost drivers interact, which will enable it to negotiate the best overall deal.

Make

There are a large number of opportunities to take cost out of the production stage, and go lean, including the following seven opportunities identified in the white paper:

  • eliminate overproduction
  • reduce waiting time (between steps)
  • reduce transport (of raw materials)
  • remove unnecessary processing steps
  • eliminate excess inventory
  • reduce unnecessary motion
  • reduce the defect rate

Move

Similarly, there are a large number of opportunities to take cost out of the transportation stage, especially if you redesign your logistics network, and the following seven opportunities identified in the white paper are a great start:

  • develop core carrier programs
  • implement a TMS (Transportation Management System)
  • take control of inbound freight
  • outsource various (non-core) transportation management functions
  • identify shipment planning and execution opportunities
  • rationalize fleets
  • improve controls

Store

Inventory represents a huge opportunity to reduce costs, especially since most organizations make a number of inventory management mistakes on a daily basis. In many operations inventory accounts for over 20% of the overall product stock. The white-paper identifies a number of opportunities every company has to improve inventory management and lower costs. The following ten opportunities identified in the white paper are great ways to obtain profitable growth through better storage management:

  • strategic positioning of inventory
  • product protection
  • seasonal buys
  • special deals
  • quality assurance
  • postponement
  • value-added services
  • returns management
  • freight spend reduction
  • growth management

Sell

Margin can be improved by improving the perfect order rate and by planning and implementing profitable, differentiated, service programs. A company can create a differentiatd service program by:

  • segmenting markets and product groups
  • identifying key value points by customer
  • identifying consolidation opportunities around the customer
  • identifying and creating common processes and systems

Return

The supply chain can take cost out of the return stage by:

  • reducing the number of returns (which can be as high as 20% in electronics)
  • reducing the cost per RMA (Return Material Authorization)
  • improving the return velocity
  • capturing residual product value
  • deriving value from sustainability initiatives
  • standardizing the process
  • recovering costs from suppliers (who do not meet defect rate targets) and
  • multi-channel visibility

The white-paper provides five great approaches for reducing the number, and rate, of returns and four great suggestions for capturing the residual value of products that should not be missed.

For more information on designing the supply chain for the optimal goal (best price/TCO, best quality, best availability, and agile supply base); improving production, transportation, and storage; creating differentiated service programs, and improving the returns process, see Tompkins Associates’ white paper on “Leveraging the Supply Chain for Increased Shareholder Value”. For more information on decision optimization or Should-Cost Modelling, see various posts here on Sourcing Innovation and the e-Sourcing Wiki.

In tomorrow’s post we’ll discuss the other two strategies for margin improvement: improving speed and productivity and tax-efficient supply chain management.

You Don’t Have To Be Big To Be Sustainable

It’s nice to see a big publication like Inc. address the issue of sustainability in supply chains. It’s even nicer when it says that smaller supply chains without the financial means to make an aggressive push towards sustainability can still take gradual steps to be more socially, economically, and environmentally responsible, as it did in a recent article that addressed How to Build Sustainability Into Your Supply Chain.

Going after the low-hanging frutit of transportation and sourcing efficiency is a big step. Transportation is among the most unsustainable processes in an average supply chain as there are no viable long-distance shipping options that don’t rely on fossil fuels. While plants can be powered by wind, hydro, and solar energy, trucks, planes, and trains still require fossil fuelds. Thus, minimizing shiping distance, and the need for shipping in the first place, takes a lot of waste out of the operation and makes it sustainable.

Another easy step, as the article points out, is to minimize waste. Many manufacturing by-products can be reused or recycled, and can often even be resold to companies that can reuse or recyle them, turning (the) cost (of waste disposal) into profit.

Yet another easy step, not pointed out in the article, is to install timers and motion sensors and automatically turn off lights, heat, cooling, etc. when it’s not needed. A considerable amount of your energy is wasted heating and cooling space that no one is using.

Even if you can’t transform your operation overnight, you can still green it considerably taking baby steps.

Think Canada Can’t Handle Your Distribution Needs? Think Again

As per this recent article in Canadian Transportation & Logistics on how “Canadian firms [are] rethinking logistics business models” that summarizes some of the findings from the Global Business Strategy and Innovation: A Canadian Logistics Perspective, in the last five years total annual investment in distribution facilities in Canada has grown from $674 Million in 2005 to $1.39 Billion in 2010, an increase of 106%.

There’s no need to service Canadian operations from US distribution centres. In fact, with lower operating costs in Canada compared to many traditional US hubs, it might even make sense to service the Northern US from Canadian distribution centres. It’s another option, and one that should be consider in your total costs of operations logistics models.