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Breaking supply chain shackles

Howard Kamerer

Howard Kamerer is president and CEO of WOW Logistics. He contributes this column exclusively for Cheese Market News®.

One would think that the term supply “chain” would imply the concept of connection. Over time, though,changes in your customer base, product mix, volumes and production locations break those links. A disconnected supply chain is perhaps the most costly of all business inefficiencies. The problem is that even the most disconnected and wasteful supply chains often continue to run, losing a little more money each day.

• Reviewing the chain links

To review a supply chain, where should a business leader start? Most companies begin by analyzing vendor costs, trying to drive rate reductions. After achieving nominal savings, companies celebrate their success and stop there.

Conducting a traditional competitive process is a good purchasing department initiative and may net decreases in transportation and warehouse services expenditures. However, the most compelling savings come from finding a handful of inefficiencies, which eliminate distance, physical touches, time, or management complexity.

To find these opportunities, we have to ask and answer two fundamental questions:

1. Where do we want to spend our human capital — our people, processes and tools?

2. Where do we want to focus our financial capital?

When considering supply chain investments, these questions are often overlooked. Ignoring your business’s core competencies leads to misallocations of people, power and money. The answers to these questions have a fundamental impact on your supply chain — what you build and what you outsource. When you start the supply chain decision-making journey with these two basic concepts in mind, it will dramatically affect your choices in the following areas:

• Buy or lease buildings
• Look for 3rd party warehouse operations
• Build your own transportation department in-house or hire an outsourced management company
• Add or subtract head count to manage these departments
• Add or eliminate processes and systems to manage these operations
• Add or reduce long-term debt

These two factors are essential to your business and have the ability to change how you deliver service to your customers.

• Understanding product flow

Now that you have an overall concept of the people, processes, tools and money that you want to use to manage your supply chain (yours or a 3rd party logistics provider’s), you can start to study product flow.

What does your business need from a time-to-market perspective? The shorter the delivery time required, the closer you should position your products to customers and the more inventory you should have on hand in those particular locations. This is the closest thing to a law in logistics.

The closer you locate inventory to your customer base, the faster you can turn it consistently, while meeting your customers’ fulfillment requirements. This is due to the fact that you are shifting logistical complexity toward the edge of the supply chain systems. In essence, the last step becomes the fastest, shortest and the simplest to execute, helping to eliminate possible variances and fill rate failures. This approach is costly, but the advantages are obvious.

On the other end of the continuum is a methodology to stage your inventory nearest your production facility. This allows for the production and shipment of stock with the required lead time built in. This approach eliminates inventory touches and requires that your production capacity and schedule match your customers’ demands more precisely.

If only your company’s needs were so simplistic. In reality, most dairy operations, due to varying needs and legacy infrastructure, require blended approaches to inventory management. That’s where a process called “network analysis” provides substantial value. Network analysis is a process that examines customer requirements, shipping locations, storage needs and volumes, reducing touches and paid transportation mileage.

By applying lean production methodologies to both inbound (feeding production) and outbound (feeding customer demand) transportation, you’re attempting to lower the costs of a flawed structure. Eliminating unneeded movement is the primary goal of a supply chain network analysis. These represent your largest cost-saving opportunities and are where you should focus your energy. This type of analysis, however, requires years of experience and tools to compile and evaluate the data.

Now that you have a better understanding of the complexity involved in designing and managing an efficient supply chain, it makes sense to revisit the basic question. Is this an area where your company wants to focus its people and financial resources, or does it distract you from your core dairy business competency? Even companies with the financial resources to allocate toward this function quickly find it more complicated than expected.

• How can a 3PL help?

A good 3rd party logistics (3PL) company can accurately conduct the network analysis leading to clear outcomes.

Secondly, they have the ability to provide a matrix of services that deliver the choices to unlock savings.

Most 3PL providers offer basic choices covering limited geographic storage needs and fractional transportation solutions. Full-service providers go much further, delivering design services to build a facility from the inside out.

They also possess the skill to craft the requirements of racking and material handling equipment. The best partners can design the building and provide lease options to carry financing of the facility on their own books.

Great 3PL companies provide choices to manage the facilities completely and effectively, including hiring of personnel, establishing the highest standards for food and personnel safety and inventory management.

Transportation management goes hand-in-hand with the placement of physical inventory. The same premise

holds true for the value of managed transportation services as do storage and handling scales of economy. It’s about delivering the people, processes and tools to eliminate unnecessary movement and touches. A 3PL will have the management capabilities, scale and size to deliver transportation management at a much lower cost. Remember, it’s less about daily management of lanes and the trucking assets themselves and more about the overall strategic management of them.

Regardless of your requirements, your business demands the power to choose from an array of services and the ability to leverage the expertise that drives cost savings consistently.

CMN

The views expressed by CMN’s guest columnists are their own opinions and do not necessarily reflect those of Cheese Market News®.

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