Industry Market Trends

A Modest Proposal: 6 Supply Chain Improvements

May 13, 2008

There is no silver bullet for the challenges in today's global supply chain. Yet a higher degree of awareness and a prudent approach can go a long way in most areas of the supply chain.

Companies are already recognizing the importance of global transformation. A recent Aberdeen Group survey revealed that 80 percent of companies are already transforming their international supply chains and 90 percent are transforming their domestic supply chains.

Yet as companies increasingly conduct business in this global environment, their likelihood of successfully operating with a global view is imaginable at best.

Among the top mistakes executives make in going global is "being unrealistic about their timelines," says World Trade Magazine (Sidebar: Rule Number One: Take Your Time!). They do not devote sufficient time up front to their partnerships; they execute too quickly and therefore haphazardly; and they do not strategize risk.

The physical supply chain alone carries risks when it goes global. "Containers take an average of 11 to 23 days to travel from foreign suppliers to the United States," World Trade notes. "Whether moving goods by land, sea or air, going global means a company or its partners must adapt to existing physical infrastructure, supply chain channels and foreign regulation."

In addition, the physical supply chain today is at risk of external disruptive factors that are out of the organization's hands: natural disasters that may affect port facilities; government regulations, such as new container inspection policies; problems with customs clearance due to improper paperwork; infrastructure issues that delay products from reaching shipping points; and increasingly often, political and social unrest. Organizations can only prepare themselves for these possible disruptions.

Fortunately, according to AMR Research's recent top supply chain trends for 2008 (via Supply Chain Digest), managing risk not only for business continuity but also for competitive advantage will be a top priority for supply chain organizations. "Emphasis on supply chain risk mitigation will grow in 2008," the authors write.

While many manufacturers have benefited from the explosion of global economic flows, oftentimes this is accompanied by increasing lead times, expanding risk and deteriorating service levels.

In other words, margins have either improved or bottomed out, depending on whether companies are keeping up with worldwide developments. Other expected trends, which can be approached either as obstacles of opportunities through 2008 and beyond include the following (according to JP Morgan Chase Global Trade Services at Supply & Demand-Chain Executive):

  • "Green" will continue to grow;

  • New import safety initiatives for U.S. importers;

  • Closer scrutiny on demonstrating and maintaining compliance with new trade laws; and

  • Sourcing shifting from Asia to the Americas due to reevaluated time-to-market strategies.

One thing is for sure: The days of "business as usual" are long behind us.

For supply chain professionals, particularly during a downturn, "a prudent approach to changing conditions can reduce the impact of a difficult operating environment," APICS recently declared.

Supply Chain Digest recently ran a top 10 list of "the easiest actions for big supply chain improvement." Although recognizing and addressing such issues can mean big savings, acting to achieve these savings is far from easy. Yet focusing on these basic (again, not necessarily easy) actions can generate supply chain improvement.

Here are some suggestions.

Take Control of Inbound Freight

As there is money to be saved on both inbound and outbound freight, all freight should be viewed objectively. It is true that often a large supplier can get you the best deal; it is also true that often they can't. Whereas you can leverage freight across your suppliers, they can only leverage freight across the customers for whom they handle freight, which often means you'll have leverage with the freight provider — so you should use it.

Use Labor Management in Distribution Centers

It is critical that you have the staff you need at the time you need it. Being understaffed when materials arrive creates delays that can lead to lost sales. On the other hand, being overstaffed when there is nothing to load or unload costs money. Labor management software is now relatively easy to deploy, Supply Chain Digest Editor-in-Chief Dan Gilmore says, "and the savings from standards, reporting and incentives can be huge."

Revisit Safety Stock Levels and Policies

Failing to monitor and maintain stock levels regularly and update policies as needed can lead to too much inventory — which leads to markdowns and losses — or not enough inventory — which leads to missed sales and even more losses.

Analyze Supplier Lead Time Variability

"Do you know which suppliers and purchased goods have the most trouble with on-time delivery?" Gilmore asks. "Have you profiled that variance, looked for root causes and systematically worked the problem areas?" Find the supplier variability, develop a corrective action plan to reduce it, and then implement that plan.

Use E-Auctions

Organizations are using e-auctions to secure better contract terms and prices for the goods and services they procure. Yet, the way Gilmore sees it, many companies are leaving huge amounts of money on the table by not utilizing this technology — when it makes sense to do so. (Though, it might not make sense for some.)

Start a Lean or Six Sigma Initiative

The implementation of lean typically begins on the factory floor. But, as IndustryWeek recently pointed out, "by applying Lean techniques to customer-facing processes, suppliers, logistics, planning and scheduling," manufacturers are driving productivity and quality improvements as well as accelerating delivery at every link in the value chain. The same can be said of Six Sigma or Lean Six Sigma. Think of the possibilities — in all areas! But be smart about it. Don't go overboard, especially at the start. Set realistic goals and stick with it.

Of course, there is no silver bullet. However, a continual process of analysis and realistic steps toward improvement can work wonders in every area of the supply chain.


The Easiest Actions for Big Supply Chain Improvement

by Dan Gilmore

Supply Chain Digest, March 27, 2008

Supply Chain News: Predictions for 2008 from AMR Research

by Noha Tohamy, John Fontanella and Greg Aimi (AMR Research)

Supply Chain Digest, Jan. 28, 2008

2008 Global Trade and Supply Chain Predictions

by Bernie Hart (JP Morgan Chase Global Trade Services)

Supply & Demand-Chain Executive, Dec. 27, 2007

Exploiting the Global Supply Chain

by Jeremy N. Smith

World Trade Magazine, May 1, 2008

Plan Ahead

by Wally Klatch

APICS e-News, May 2, 2008

How Does Your Supply Chain Stack Up?

by J. Paul Dittmann

IndustryWeek, March 17, 2008

Lean Drives Productivity Gains and Value Chain Improvement

IndustryWeek, Nov. 16, 2007

Portrait of a Best-in-Class Supply Chain

by David Blanchard

IndustryWeek, May 1, 2008

The Five Core Disciplines of Strategic Supply Chain Management

by editorial staff

Logistics Management, Dec. 1, 2007

Achieving Total Visibility, Mitigating Risks through a Global Supply Chain Network

by David Johnston

Supply & Demand-Chain Executive, April 29, 2008

The Future of the Supply Chain

by Joe Sullivan (Tompkins Associates)

IndustryWeek, April 7, 2008

Changing the Rules in Transportation Management

Pitney Bowes Inc., 2006

Managing Supply Chains for Growth and Efficiency

IBM and IndustryWeek, Jan. 17, 2008

The Three Things You Need to Get Right in Your Extended Value Chain

by Steve Mehltretter and Vadim Kapustin

Supply & Demand-Chain Executive, Dec. 10, 2007

A Shrinking World Increases Logistics Challenges

North American Die Casting Association, April 2006