Inside Logistics

Vision 2014

Rethinking your supply chain for the new year


December 30, 2013
by Carolyn Gruske

If your resolution is to make your operations more efficient and effective, let MM&D help you achieve that goal. We conducted a virtual roundtable to collect some of the best advice from experts on how to streamline operations and improve efficiency in your DC and beyond.

As the end of the year approaches, it’s time to look forward to the promise of 2014 and all the fresh possibilities the New Year holds.

To that end, MM&D asked some of the industry’s leading vendors and suppliers to share advice, tips and best practices for improving supply chain operations.

Business review

Before making any changes or improvements, or even any plans for the future, it is imperative that organizations understand their current situations first.

“You don’t know where you’re going until you know where you are, and you don’t know where you are until you know where you’ve been,” said Al Boughton, president of Mississauga, Ontario-based Trailcon Leasing Inc.

Having that kind of knowledge means a company has spent time looking at its past results, and making projections about its future growth in a comprehensive business plan. But just having a plan isn’t enough. It’s important to keep it up to date.

“I strongly recommend people revisit their business plan, at least every quarter, if not every month,” said Vineland, Ontario-based Dan Garside, Frazier Industrial Company Ltd’s general manager for Canada.

“Based on the dynamics of the industry, things could be changing in the marketplace. They could be affected by legislation or by national trade barriers—or the elimination of trade barriers—which creates opportunities that companies can lose if they aren’t aware of them.”

According to Garside, that means looking at everything from customers, to staffing, to the equipment being used, to shipping and transportation contracts, to product inventory.

Metrics

It’s not even enough to do a review of the business plan or look at what a company has done historically. It’s critical that businesses quantify and measure everything they can, as sometimes perceptions don’t intersect accurately with reality.

“It’s important to measure things that you wish to change and improve, so you can know if you are on target or not. Metrics or key performance indicators (KPIs) can be finance-driven (costs, return on assets, etc), customer-focused (order-fill rates, delivery performance, etc) or operational (APICS SCOR levels),” said Dale Kehler, vice-president and general manager for Burnaby, British Columbia-based SYSPRO Business Solutions.

“It helps to use an approach like balanced scorecards so your KPIs reflect multiple (typically four) perspectives in the same measure.”

Besides just measuring how well the organization and its supply chain are currently performing, metrics can be used to set the business up for the future.

“Leaders set metrics and scorecards that tie back to the company’s overall goals and annual operating plan and then tie these back to a three- to five-year strategic plan,” said Douglas Harrison, president and CEO of VersaCold Logistics in Vaughan, Ontario.

“Using scorecards, it is easy to identify areas that are out of compliance with goals and therefore more precisely respond with the appropriate actions.”

He cautioned that sometimes it is too difficult to find benchmarks that are similar enough to what’s happening inside the walls of the DC or warehouse, to do an accurate comparison.

Inventory control

Inventory is key to the supply chain, and managing that inventory properly is something every organization needs to be sure it’s doing.

“In terms of inventory control, the importance of proper forecasting and use of data analytics should not be overlooked,” said Jason Adlam, vice-president of sales and customer service for CHEP Canada Inc in Mississauga, Ontario.

“When used in conjunction with consistent customer order forecasts, you can quickly see whether or not your current supply chain capabilities are adequate enough to support your customer requirements.”

While many companies believe reducing inventory is a good way to cut costs and gain efficiencies, that may not always be the best approach. Sometimes it’s necessary for businesses to grow their inventories.

“Continuously rethink and be willing to adjust your strategy,” said Vera Friedrich, CEO and vice-president of sales with Mississauga, Ontario-based Dematic Limited, Canada.

“For example, we may too often think in terms of squeezing all the excess inventory out of the supply chain. Calculate the business cost of losing business because there was no buffer or safety stock in the chain in order to cover unexpected demand.”

Technology

While most organizations will be looking for their supply chain leaders to spend less and reduce costs, sometimes it’s worth spending a little more now (or in the short term) to ensure there are huge cost savings or efficiencies for the company in the future.

“The best place to find cost savings is by integrating new technology,” said Mississauga, Ontario-based Jeff Smart, director of supply chain solutions for PIVAL International Inc.

“In the ever-changing world of technology, it is vital for organizations to fully understand the tools available that can vastly improve productivity.”

According to Nick Klein Schiphorst, executive sales manager, automated systems, North America for SSI Schaefer System International Ltd, in Brampton, Ontario, “the savings achieved in the DC by using automation are immediate and easy to measure.”

He said there are typically three cost-saving reasons why businesses turn to automated storage and picking systems: labour reduction, an increase in throughput (using fewer employees working fewer hours) and a reduction in errors shipped.

“Often, a cost not considered is that of correcting errors shipped. The cost of bringing an item back into the DC and rushing out the correct item is considerable,” he said.

Fleet management

Having control of your moving assets, whether they’re fork trucks in the DC or transport trailers on the highway, is another area that should be a focus for well-run supply chains.

“By establishing a baseline of costs, from acquisition to maintenance, including short-term rentals, a fleet solution is able to assist the customer in understanding their overall spend, by facility or as the entire enterprise, followed with recommendations to lean the fleet and create cost savings initiatives,” said Michael McKean, fleet sales and marketing manager with Indianapolis, Indiana-based Toyota Material Handling USA Inc.

“If you overlook maintaining your equipment to save money in the short-term, it can cost you more in repairs in the future.”

Modes and packaging

Companies often get locked into one way of doing things, and don’t bother revisiting decisions made about transportation modes or packaging. Jeff Cullen, CEO North America, of Rodair International Ltd in Mississauga, Ontario says supply chains need to pay attention to these aspects of the business.

“Mode rationalization, specifically, could address the use of ocean versus air, or rail versus road, or using expedited services to meet demand instead of having costly inventory sitting. Can your supply chain withstand extra time or sustain longer predictable transit times without causing challenges elsewhere in the business?” he asked.

“Packaging and cubing is a low-hanging fruit that can often, significantly, reduce transport costs, and it’s often overlooked. Maximize the amount of space in a carton or on a skid and ship less air.”

Collaboration

As supply chains become more complex and extend further around the globe, they become more difficult to manage. It’s hard to see what’s happening on the ground from an office tower, a continent away. That’s why a well-functioning and efficient supply chain needs as many eyes watching out for it as possible.

“In the past, supply chains were relatively simple, short and linear,” said Guy Toksoy, vice-president and general manager of supply chain solutions for Ryder Canada in Mississauga, Ontario.

“Today, they are complex, global and interconnected. And most importantly, they’re dynamic. With increased competition and tightening profit margins, businesses have to be flexible and agile in the way they manage their supply chains.

“So to maintain cost-effectiveness while still meeting the demands of the consumer for speed and responsiveness, the best advice I can give is for businesses to move toward a more collaborative approach for supply chain management. This can mean forming collaborative relationships with carriers, customers and even competitors.”

Forging new relationships

Even given that the supply chain is all about relationships with suppliers, creating new ties with new suppliers can be something companies neglect to do, said Trailcon’s Al Boughton.

“One of the things we encourage is active interviewing and involvement with alternative suppliers,” he said.

“When business is good, it’s a great time to be looking at all your vendors and seeing what other options are available to you. If somebody comes knocking, take the time to listen to their story. I think there are a lot of people that don’t do that.”

Omni-channel

Among the business changes precipitated by the need to meet customer demands is 24/7 omni-channel retailing—letting customers engage the business whenever and however they like, and building a warehouse to support those activities, says Dematic’s Friedrich.

“The omni-present digital storefront, open 24 hours every day, in combination with the large retail store, small retail store, printed catalogue, call centre, distributor/dealer, route delivery and customer pick-up channels, are forcing businesses to develop agile and more strategic distribution solutions. It means we need to redefine the warehouse. With omni-channel, the warehouse can be the retail store, your supplier, a dealer’s warehouse, a dedicated retail store distribution centre, a dedicated e-fulfilment operation, as well as a multi-channel distribution centre.

“This is an opportunity to re-think how inventory is deployed in your supply chain while making sure labour productivity, order accuracy, inventory accuracy and processing speed are in sync to support the omni-channel challenge. It’s also about balancing and accommodating changing SKU velocity, SKU growth, daily order volume, order quantity, warehouse space, and seasonal and promotional peaks.”

Understanding customers

Not only should an organization understand its own business needs and requirements, it must extend its understanding to that of its customers and beyond.

“Not understanding your customers from and end-to-end perspective leaves a lot of pertinent information on the table which will cause ‘scope creep’ during implementations. This, in turn leads to increased costs and conversations with new clients that can damage the business relationship,” said Pival’s Smart.

Inside the warehouse

As a racking manufacturer, it’s natural for Frazier’s Garside to have opinions about storage in the warehouse—he strongly suggests using diversified storage mediums that fit the range of products companies typically have, and not just sticking with one type of racking throughout—but he also has advice on other aspects of warehouse operations.

“Review the length of time it takes to turn trucks around on your shipping and receiving docks. Are you incurring demurrage charges? Do you have to pay premium freight costs because you can’t load trucks fast enough? Do you have a staging area designed to properly facilitate the fast turnover of docks? What’s very interesting is the quicker you can turn trucks around on the dock, the fewer dock doors you require. Or instead of fewer dock doors, the greater flexibility you have to address growth in the future without adding additional doors.”

Processes

While it may be relatively easy to bring in the latest piece of equipment, changing the mindsets of people in the DC may be a bit more of a challenge, said SSI’s Klein Schiphorst.

“One tendency we often see with companies that are trying to accommodate changing demands and are considering automation to help them do this, is they initially try to stick to processes they have been using for decades in their manual DC. When it comes to keeping up to change and using automation, the most successful companies are those that realize they must re-think the ways they operate, and all aspects of the DC.”

The dangers of cutting costs

As much as every supply chain is being compelled by the C-suite to cut costs, there are limits as to how much can be taken out without causing damage, said CHEP’s Adlam.

“As the old adage goes, you get what you pay for. Anytime cost optimization exercises infringe upon your product and/or service quality of the goods and services offered by an organization, you need to re-think the cost-cutting exercise. Validating your supply chain initiatives against the customer experience is a must. Conducting customer satisfaction or touch-point surveys help to gauge the effectiveness of any newly implemented supply chain initiative. When looking to optimize your supply chain you always need to think about customer impact.”

FROM THE MM&D PRINT EDITION