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ARE YOU A SUPPLY CHAIN PARTNER FOR YOUR CUSTOMERS?
ARE
YOU A SUPPLY CHAIN PARTNER FOR YOUR CUSTOMERS?
October/November 1999 World Wide Shipping
By Tom Craig, LTD Management, Tel: 610=458-3636 / Fax: 610-458-8039
/ Email: Tomltd@aol.com / Web: http://www.ltdmgmt.com
Supply chain management (SCM) is a paradigm driving many businesses, and in
turn business relationships, today. Customers are dictating how their orders
and shipments will be handled. They want to drive out excess inventory and costs.
They want their orders shipped complete, accurate, on time and in the manner
they require. Compliance means continued business. Non-compliance means financial
penalties and possible loss of business. This is significant in terms of sales
revenues and operating costs for their suppliers. Supply chain management competence
can build competitive advantage.
Unfortunately many businesses, especially small-medium enterprises,
do not understand supply chain management. It is no longer shipping and receiving.
It is logistics. It is supply chain management. And the supply chain runs from
your vendors through to your customers' doors.
Ask yourself these questions? Do you understand supply chain
management, what is required and the impact to you? Do you know how effective
your supply chain management program is? If you do not know, why don't you?
How does your logistics operation measure up? Do you understand what each of
your customers requires? Do you understand the operational and financial impact
with more orders, smaller orders, shorter lead times, information technology
requirements, inventory reduction and other demands? Do you measure your SCM
compliance-by customer? Are you committed, as both a strategy and practice,
to supply chain management and being an excellent supplier to your customers?
Do you get repeat orders because of your service or in spite of it? Do your
customers consider you a best of class supplier? How well does your information
technology service your customers' requirements? Is your information system
enterprise wide or are their critical gaps or problems?
You should both understand and measure how well you perform
in meeting each customer's requirements. Some of the requirements customers
may have include-
*Receive orders via EDI
*Stencil cartons with special information
*Remove consumer packages from shipping cartons and place directly on pallets
and shipped as floor-ready displays
*Use special spec/grade or type of pallets or slip sheets
*Place his internal bar codes on shipping cartons
*Put shipping labels on cartons
*Require EDI transmittal of Advance Ship Notice
*Ship via the carrier he specifies
*Require delivery by certain date with carrier required to make delivery appointment
*Place additional information on the bill of lading
*Place a copy of the bill of lading with the shipment
*Send invoices via EDI
You should measure your performance as to each customer's requirements.
Measures should include-
--Supply chain cycle time that runs from the time the customer sends the order
until you ship it.
--Orders shipped complete and accurate as to all item and all quantities. No
partial orders or backorders should occur.
--Shipments are delivered at/by the date required
--Costs to meet each customer's requirements
--Inventory levels
--Accuracy and timeliness of system information as to order status, inventory
levels, shipments, purchase orders and other keys to supply chain success
Distinguish between basic needs, such as delivery on time, and
advanced functions, such as order on-line or total cycle time control. Basic
needs are generally attained and are mandatory, whereas advanced needs give
a competitive advantage.
Since SCM is a different way of doing business, look at benchmarking.
Look at the best practices. See what works and why and how you compare. Breakdown
some factors, such as logistics cycle time. Look at your order processing time,
time to send confirmed order to the warehouses, time to prepare and ship regular
orders, time to prepare and ship special orders and other details. What percent
of regular orders are shipped same day or within 24 hours of order receipt?
If you are involved with repairs or replacements, analyze and breakdown your
total customer satisfaction response time. Look hard at your information technology.
Is it enterprise wide or are there critical gaps or problems? The issue is not
just to identify problems. It is to understand what the best practices are,
how your performance compares, why it may not be competitive, what must be done
to improve it and implementing changes.
Supply chain management success just does not happen. Reengineering
is needed. It takes work. Six key issues must be recognized. These are-
*Logistics Capabilities
*Accounting Silos
*Organization Silos
*Tailored versus Standard Practices
*International Impact
*Vendor Cooperation
Logistics Capabilities. Logistics competency is the key
to supply chain management. It can create competitive advantage. The emphasis
must be on-
· The movement of product. The modes and carriers must complement the
supply chain strategy. It must be fast, reliable and responsive to the requirements
of customers. The transport methods must also move materials and products quickly
into your company so you are able to react to customers.
· The movement of information. Information technology
is vital, even critical, to be a supply chain partner. This is a key issue to
effectively reducing lead times, to reducing inventories, to better forecasting,
to improving productivity, to customer responsiveness and to product/market
agility. Information technology must be enterprise wide, since supply chain
management is an enterprise wide process. On-line/real-time information is necessary.
EDI (or internet) acceptance of orders and transmission of shipment information
and invoices are basic needs. The technology must also be internal to a company.
Complete order and shipment visibility is important. Warehouse management systems,
with bar coding, to capture data to accurately know inventories and order status
are fundamental; and these must be integrated within the company information
system. Purchase orders and receipt of material must be done through information
technology.
· Cost. This is the cost of the entire supply chain.
It is not just the cost of discrete factors such as freight or warehousing.
Knowing the total supply chain cost is fundamental to being able to understand
SCM, the impact of SCM to your organization and to making changes. You must
know the total cost if you are to make changes to your present operations.
· Time / Service. SCM effectiveness requires responsiveness
to each customer and each customer order. To gain competitive advantage, time
compression is mandatory. The primary cycle time for customers is the time from
when they submit an order until they receive it. That is logistics cycle time.
It is the time to keep customers replenished and inventories under control.
Segments within logistics should be reviewed. Warehouse locations, for example,
should be aligned to meet customer delivery requirements and inventory velocity.
Or, information technology to promote cross-dock can reduce supply chain cycle
time and costs.
· Integration. The integration of systems and people
is necessary for everything to work as an effective process. Customer compliance
is not just a logistics responsibility; it is a company wide and supply chain
wide responsibility. This integration is both internal to a company and external.
It must include transport carriers and vendors. If there is not complete integration,
there are gaps. These gaps are potential trouble spots for delays, errors and
supply chain failures.
Accounting Silos. Accounting techniques have their origins back to the
Model T. Yet the business world is very much different now. Logistics suffers
from these practices. Logistics costs are placed into accounting silos that
do not properly identify the enterprise wide cost. SCM is definitely enterprise
wide. Costs for freight-outbound, inbound and intracompany--and warehousing-for
raw materials, work in process, finished goods, repairs and returns--may be
on the P&L. Inventory is on the Balance Sheet, as are other logistics assets.
Service shows nowhere, despite its critical importance. Proper identification
of the costs of service is needed to know what improvements are needed. All
this makes it hard to properly identify logistics-related costs, both for discrete
functions and especially company wide. The difficulties are compounded with
international activities. As a result, cost/service trade-offs are lost. The
financial impact of SCM is lost. The cost of servicing specific customers and
specific orders is lost. Activity based costing (ABC) is a way to overcome some
of the shortcomings of standard accounting practices. ABC must be utilized to
properly implement and practice SCM and how it extends the enterprise. Otherwise
accounting silos will trap costs and the meaning of them will be missed. Activity
based costing permits proper identification of the present cost of SCM, a starting
point for SCM improvements. With this cost foundation, you can see the financial
impact of supply chain programs as to revenue growth, asset utilization and
cost reduction. ABC permits customer profitability and order profitability analysis.
It permits non-traditional analyses such as performance measurement, partnering
or outsourcing so important to competing.
Organization Silos. Organizations have been created from
the inside out. It has been slotted into vertical groupings that reflect traditional
business practices. SCM is new; it is not traditional. Standard hierarchical
organization formats hinder SCM implementation. They can be hindrances, if not
barriers, to supply chain effectiveness. Supply chain management requires that
an organization be built from the outside in, from the customer inward to what
is required to meet his needs. SCM is not functional; it is a process that horizontally
crosses the company. Everyone in the company must work as a team, not as separate
subgroups, to respond to each customer's requirements. Information and product
must flow horizontally. Vertical organizations create barriers or gaps to these
flows. The limitations of the organization chart must be recognized and overcome
to be a quality SCM partner.
Tailored versus Standard Practices. Tailored, customized
responses are necessary. Each customer has different requirements with his orders.
Standard practices for logistics, manufacturing and other functions are based
on traditional, internal bases. They must recast into a customer procedure for
each customer. If not, then each customer is being diminished. SCM is about
each customer and his requirements. It is not about manufacturing set up times,
about sales call reports or other practices and procedures. Segmenting customers
can find common needs to develop "standard" service and cost improvements
while not losing the unique requirements to each customer.
International Impact. International sourcing and sales
greatly extends the enterprise and its supply chain. SCM must truly be viewed
as part of the corporate culture to work globally. Customers, competitors and
suppliers are worldwide; it is a global market. There needs to be a global supply
chain strategy that everyone agrees to; this enables decentralized tactical
flexibility. Consider that you ship orders every day from your facility in the
U.S. to customers in the U.S. Yet, if you source internationally, that ship
from Hong Kong sails weekly, not daily. This means having a weekly flow of products
to meet daily demands. It also means time that inventory is tied up and an inability
to respond to changing market and customer demands. Supplier management has
greater meaning globally. If you sell internationally, it has similar impact.
You must satisfy customer demands or replenish overseas warehouses weekly while
orders are being placed daily. This time factor increases the importance of
all the SCM and logistics issues. Satisfying customers worldwide requires strong
logistics capabilities, both strategic and tactical.
Vendor Cooperation. Vendors are key to the supply chain.
This includes the transport carriers, warehouses and other service providers.
They provide the raw materials, parts, finished goods or ultimate service that
your customers are buying. Vendors must understand what you are doing and why.
Look beyond prices and assess each vendor's reliability and performance. Each
must be made a partner to the process. Otherwise you will be expediting and
reacting instead of managing a flow of material. Your vendors must understand
what is required of them. They in turn must go to their vendors to explain what
is required of them. Vendor cooperation must penetrate the entire production
process. There must be working alliances throughout the supply chain.
Take a practical view of your supply chain; see it with your
customers' eyes. Do what they need to do business with you and do it well. Examine
your processes within the company and with customers and suppliers. Make value-added
activities efficient. Give employees the information and skills they need to
manage effectively in the supply chain.
Supply chain management success goes straight to the bottom
line, as does SCM failure. Doing it right takes time and effort. There are no
quick fixes. But the financial rewards of increased sales and lower costs are
there for the taking.
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