CEO’s and CFOs have to ask themselves four questions.
1) Are we satisfied with our inbound supply chain?
2) Are we satisfied with the costs of our inbound supply chain
3) Are we satisfied with the performance of our inbound supply chain?
4) Is our inbound supply chain secure for Homeland Security?
Supply chain success begins at the origin, with suppliers. The impact on costs, inventory and service can be significant if the inbound supply chain does not function well.
Managing and reducing the cycle time–from purchase orders are placed on suppliers through to inventory and shipments are delivered through to sales and cash–has profound bottom line impact. This in turn
impacts shareholder value and builds competitive advantage.
The outbound, delivery part of the supply chain gets much attention. Delivering the perfect order to customers is a key metric. Software focuses on warehouse management and on domestic transport management. Collaboration discusses domestic transport cooperation to reduce costs. Articles highlight domestic supply chain stories.
But the perfect order requires the right inventory-right as to SKU/item level and right as to quantities needed. Making sure that products are positioned where they should be when they originate and are sourced in another country is a challenge. Since so much of the U.S. consumer goods and economy reflects foreign manufactured goods and since so much originates in Asia, then the issue is managing a global supply chain.
How do you manage the critical inbound half of a global supply chain? How do you direct suppliers and transport providers thousands of miles away in different countries and time zones? You cannot run a global supply chain on emails. So what do you do? Designing a supply chain that is built on international sourcing is complex.
Possible organization difficulties add to the difficulties managing the inbound supply chain. Two key issues are present. First, supply chain management is a process whose success crosses horizontally across an organization that is built vertically with functional responsibility silos. Second, performance is driven by financial measures based on an accounting system that has its origins back to the Model A, while business is now dealing in global competition.
The organization can create a fragmented approach, even create a disconnect, to the supply chain with each group looking at their activity and not at the total supply chain, as to cost, time and results. The real purpose is to correctly place inventory when it should be and where it should be. This goes beyond supplier prices and freight costs. Inventory flow and time are important issues.
Logistics executives, sourcing executives, CEOs, CFOs and CIOs must understand the Asia supply chain and its impact on their company success. They should see the dynamics and vagaries that are the reality of their business operation.
Sourcing from China and other countries in Asia means a longer lead-time than with U.S. manufacturers. Transit times, depending on the origin, destination and ports used, can range from 13 days to 40+ days. Ocean carriers have designed varying schedules and services with different port calls in Asia and in the U.S. But, unlike with U.S. transport, the ships do not move from and to major ports on a daily basis. Plus there are many different touches of the container movement, trucker at the origin, origin port, perhaps a freight forwarder, the steamship line, perhaps a transshipment from a feeder vessel to the main ship, destination port, trucker to move the container from the port, the railroad to move it inland, the trucker to deliver it and the important customs broker. All these, whether a physical or documentation interaction, affect the speed of the container and hence the time inventory is not available.
There is an inventory bunching because there is not a continuous, daily flow of product into the supply chain. There can be pronounced gaps in container-and inventory– arrivals. Bunching of inventory and of containers impacts distribution center receiving, labor utilization and cost, warehouse space and layout, service performance, inventory stockout occurrences or excess inventory levels and capital tied up.
Since shipping schedules and transit times create gaps with inventory replenishments, this supply situation increases the difficulty in managing inventory placed at the right warehouses with the right quantities and right mixes down to the item level. All this has impact to sales and to profits. The cycle time between placing an order on a supplier in Asia and delivery of the container adds to the total time to turning a purchase order into inventory and into cash.
Long replenishment times can contrast with the dynamics of sales as to what products are needed, the mix, the volumes and which warehouses and stores should be stocked. Inventory is not the end; it is a means to the end, sales and profits. Increased replenishment time can magnify differences between what the sales plan and forecast and what is now occurring and needed. Amending and reprioritizing purchase orders and the product items add to the challenge of managing the supply chain. The defacto result can be a static inventory replenishment activity to meet the needs of a complex, dynamic sales environment. Short product life cycles can further exacerbate the situation.
Supply chain security has added to the delivery time with imports. Ocean carriers must have the containers, and documentation, available before a ship arrives at the port. This has meant some suppliers have not been able to make shipments as quickly as needed to meet the advanced manifest requirements. As a result, containers have moved on other carrier services, perhaps with longer transit times, or been delayed till the following week’s vessel. All this further increases the inventory replenishment cycle time.
Positive Actions. Cycle time must be compressed. Time must be reduced both externally and internally. Doing this takes numerous actions; there is rarely one change that can create ongoing improvements.
1). Build the inbound supply chain backward from the customer or store. Do not have it as a separate subset of the overall supply chain. Design, align and streamline it with the corporate requirements. Get company wide buy-in, at the top and at the key points of supply chain contact and interface so everyone is on the same page and concurs.
2). Incorporate the three keys of process, people and technology in your supply chain. All three are needed. Identify gaps and redundancies. Analyze outsourcing as an option to developing what is needed for your supply chain. Look at 3PLs and 4PLs. Look for lead logistics providers that will focus on the supplier and the entire supply chain and not just want to manage shipments and, as a result, miss the real need and the real issue.
Having an effective product flow requires managing a process, not a series of transactions, such as purchase orders or shipments. Orders and shipments are standalone items, not a process with a purpose. The transaction view and approach is reactionary and reinvents each purchase order and shipment instead of incorporating them into an ongoing process.
3). Design your supply chain to be flexible and agile. The long cycle time could be accepted in a perfect world with complete certainty. But that is not the real world. The supply chain must recognize and accommodate dynamic changes in priorities and needs. Frequent expediting and using premium freight can be a sign that an inbound supply chain has problems.
For example, for multiple container size orders, prioritize and release finished items as they are ready instead of holding until the entire purchase order has been completed. Not every order is hot. Not every product can carry higher freight costs. Use a mix transport approach. Blend different price and transit time steamship line services, carriers, ports, MLB, all-water and other options.
4). Focus on suppliers and purchase orders. Supplier performance is critical to supply chain results. Freight is a derivative of the purchase orders and supplier performance.
5). Make your supply chain visible. Place and manage purchase orders, suppliers and transport providers online, at the factory and from the factory to your door. Do this down to the SKU and item level. Use exceptions and event management to monitor, control and manage key needs.
6). Collaborate with all key parties in the supply chain, both external and internal. Work with suppliers and transport providers so they understand what you are doing. Share your plan. Be open that to their operations and to input they have. Each party has a responsibility and role in the supply chain and its success. Collaboration-and integration–is good for lean organizations to share resources toward a common goal.
7). Measure your supply chain. Have a solid metric. The metric should be part of your plan that has been agreed to by the corporation. Delivering the perfect order-complete, accurate and on time-is good for the outbound supply chain. Reverse it for the inbound portion. Or consider an inventory related metric since having inventory properly positioned is the purpose of this endeavor. Measure days of inventory held or inventory turns and improvements from the present supply chain performance.
Conclusion.
The inbound supply chain has a critical role in a company’s success. This success has significant impact on profits and on corporate viability. Executives must understand and demand high performance from their supply chain. It must be aligned, designed and managed to meet the corporation’s requirements. There are no silver bullets or shortcuts to leading-edge supply chains.
Success begins at origin with suppliers. The supplier and managing his performance in a dynamic and complex environment is vital.
LTD provides logistics consulting for strategic and tactical needs. The scope of capabilities is broad–supply chain management, outsourcing, transportation, warehousing, inventory management, and more for both domestic and international needs. Clients include retailers, wholesalers/distributors, manufacturers, logistics service providers and 3PLs.
