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When You’re Tied Up In Supply Chains, You Need A Strategy

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According to estimates by supply chain management organizations, the global supply chain market is worth more than $10 trillion a year. In short, it’s an enormous business, consuming some 6 percent of total world GDP, more than military spending and education combined. Getting our goods from one location to another is just really, really expensive.

As a company, managing your supply chain, organizing shipments and coordinating your efforts with other companies takes a lot of planning and effort. Here’s how to execute a great supply chain strategy without getting tied up in knots.

Get Better At Returns

Even in the most solid of supply chains, there’s a risk that either you or those further down the chain will receive goods they don’t want. This is an inevitable part of business and something which can never truly be eradicated. But it can become costly, especially if you don’t have the processes in place to reprocess or return items quickly.

StrategyDriven Tactical Execution Article
Photo courtesy of Wikimedia Commons

Returns management should be a major focus. You need to inform all staff on a standardized return process so that if a return is required, it can be dealt with as quickly as possible without imposing further admin costs. With a good returns policy in place, your company can stand to benefit too. If you notice the same items coming back to you, again and again, you can collect data and use that information to improve your processes. Collecting proper records of returns helps to reduce defects and deliver a better quality product to your clients.

Monitor The Performance Of Vendors

StrategyDriven Tactical Execution Article
Photo courtesy of David Pogrebeshsky via Wikimedia Commons

As a business, you also depend heavily on the performance of your vendors. If they continually make late shipments or fail to supply adequate products, it can have a knock-on effect on your business. Making sure that your vendors are regularly monitored is essential. Monitoring provides you with direct evidence of their performance and allows you to target specific issues of concern. Today’s modern vendor management software provides all this information on an easy-to-understand dashboard, allowing you to see their performance in real time.

Improve Your Distribution Network Through Standardisation

If you’ve ever watched a large commercial logistics operation at work, you’ll have noticed something: everything is standardized. The reason for this is that standardization makes things predictable and easy to manage. Having the same model of truck, or the same kind of docking bay at a warehouse helps keep maintenance costs low and predictable. If you need a particular kind of truck, you can find a dealer here. Utilising the same equipment across your entire fleet allows workers and drivers to use any machinery that happens to be available without having to be retrained.

Use Data At Every Stage Of The Process

Businesses are beginning to realize that data holds the key to greater efficiency and profits. With the right data collection methods, you’re able to collect information about precisely what’s in your inventory, what’s on its way to your warehouse or facility, and what needs to be shipped in the next hours, days or weeks. The gives you an unprecedented ability to control and manage your stock and provides you with clear guidelines about which jobs have to be done by when.

Reduce Waste, Shrinkage, And Fraud

Supply chains aren’t impervious to human error or malicious acts. They can be exploited by criminals within your organization, or become the victims of accidents. Some companies never fully investigate leakages like this, while others make a point of it. A leak in your supply chain could ultimately wind up costing you a lot of money. That’s why leading companies always make sure that the numbers reported in their software matches up to the figures after a physical count.

The best way to do this is to use scanning technology. Rather than have workers go out and manually count all the items in your inventory (with all the human error associated with that process), it’s much better to count items both in and out of your facility so that you can isolate problems in your supply chain. Running a tight ship will quickly tell you whether shrinkage problems are arising upstream or downstream from your facility. Once this happens, you can then pass on your data to the affected parties and help them resolve any security issues they may be having.

Automate Everything

Automation technology has come on leaps and bound in recent years. The annual demand for tactile robots is doubling, and by 2020, the market for robots will be nearly 10 times what it was in 2010. With so many robots coming onto the market, the cost of automating supply chain processes is going to fall dramatically: in fact, it is already.

Currently, the majority of robots are software-based. They do things like buy inventory automatically if levels start to fall, negating the need for human administrators. They’re also able to monitor inventory levels and issue warnings if levels fall too low and production is jeopardized.

In the future, robots will become an increasingly important part of the entire supply chain process. Driverless trucks will deliver payloads to robotic warehouse robots, which will then ferry components to their designated areas. The only job for humans will be to supervise the process, and fix the robots when they go wrong.

Get Your Team To Understand The Cost Of Managing A Supply Chain

A supply chain is an interdependent economic construct. Each element in the chain depends, indirectly, on the costs imposed by every other link. Although it is difficult to communicate across companies and coordinate, getting your own team to cooperate on matters of cost is a lot easier. Make sure that senior managers in your company are talking to each other and understand how costs they impose on their part of the supply chain impacts other departments. Knowing exactly where your business is spending money is a surefire way to improve the performance of parts of the business which are not so cost-sensitive. Having a central database of departmental costs across your entire company will make it easier for you to streamline your operations.

StrategyDriven Podcast Special Edition 50 – An Interview with Marshall Fisher, co-author of The New Science of Retailing

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StrategyDriven Podcasts focus on the tools and techniques executives and managers can use to improve their organization’s alignment and accountability to ultimately achieve superior results. These podcasts elaborate on the best practice and warning flag articles on the StrategyDriven website.

Special Edition 50 – An Interview with Marshall Fisher, co-author of The New Science of Retailing examines the use of analytics to improve an organization’s supply chain performance in a way that ultimately enhances the bottom line. During our discussion, Marshall Fisher, co-author of The New Science of Retailing: How Analytics are Transforming the Supply Chain and Improving Performance, shares with us his insights and illustrative examples regarding:

  • actions business leaders can take to improve their forecasts
  • what a ‘Flexible Supply Chain’ is and the benefits it provides
  • capabilities an organization needs to possess and steps leaders must take to develop a ‘Flexible Supply Chain’
  • methods to determine the amount of supply chain flexibility needed
  • how leaders can align their supply chain operations with the organization’s goals
  • key factors executives should consider when making decisions regarding which technologies to pursue in order to enhance their supply chain operations

Additional Information

Marshall’s book, The New Science of Retailing, that he co-authored with Ananth Raman, the UPS Foundation Professor of Business Administration at the Harvard Business School, can be purchased by clicking here.

Final Request…

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Thank you again for listening to the StrategyDriven Podcast!

About the Author

Marshall Fisher, co-author of The New Science of Retailing, is the UPS Professor of Operations and Information Management at the University of Pennsylvania’s Wharton School of Business and co-director of the Fishman-Davidson Center for Service and Operations Management. To read Marshall’s complete biography, click here.

Podcast: Play in new window | Download (Duration: 26:11 — 36.0MB)

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Recommended Resources – An Interview with Joel Roth, author of The 20% Solution

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The 20% Solution: A Practical Guide to Dramatic Cost Reduction in MROP
by Joel Roth

The 20% Solution: A Practical Guide to Dramatic Cost Reduction in MROP by Joel Roth examines how businesses of all sizes can effectively exploit cost-cutting opportunities in times of economic recession, increased global competition, and credit and cash flow distress. Within The 20% Solution, Joel Roth provides actionable advice and real world examples of how businesses can reduce costs and increase productivity throughout their maintenance, repair, operating, and production supply chains.

Additional Insights… An Interview with Joel Roth, author of The 20% Solution

StrategyDriven contributors recently interviewed Joel Roth, author of The 20% Solution; receiving many invaluable, beyond the scope of the book insights.

SD : In The 20% Solution, you reveal that MROP supplies only account for about twenty percent of the average organization’s overall supply budget. Why then should businesses focus their cost savings efforts here?

JR: First, because in most organizations, this represents a fertile area for cost-savings that have never been identified or exploited, while most other areas have been repeatedly mined. Second, this 20% of spend represents a highly disproportionate (about 80%) share of cost, time and effort throughout the supply chain.

SD : Joel, in The 20% Solution, you discuss ‘hard’ and ‘soft’ dollar savings. What is the difference between ‘hard’ and ‘soft’ dollar savings and why is it important to distinguish between the two?

JR: Hard savings are those represented by invoiced charges based upon price paid and quantity bought. They are generally variable expenses. Soft dollar savings are everything else including inventory investment and carrying costs, purchasing costs, accounts payable, and other administrative or overhead costs. They are important because they are fixed but hidden from view. Most procurement people tend to discount or scoff at the value of soft dollar savings because they are more difficult to measure.

SD : In The 20% Solution, you present several prerequisites that must be in place prior to moving forward with an MROP cost reduction initiative, one of these being an MROP database. What is the purpose of an MROP database?

JR: The database is the foundation for any effective cost control or cost reduction program. You cannot control or reduce what you cannot measure. Moreover, the database enables you to identify the greatest savings opportunities and set appropriate priorities.

SD : Two other prerequisites you discuss are goal setting and process feedback and control. What are some of the common performance measures organizations pursuing MROP cost reduction use and what target goals do they first establish?

JR: All goals should have these characteristics: 1.) reflect what management seeks to achieve e.g. reduction in costs, transactions, staff, errors, time, inventory, etc. 2.) quantify desired results and relate them to cost drivers e.g. cut maintenance spending by $10,000 per kwh produced 3.) be measurable against the database so that accomplishment can be determined and 4.) be significant enough to justify the time and effort to be invested.

SD : Joel, having met the prerequisites for an MROP cost reduction initiative, what are the critical, high level steps typically taken to execute the project?

JR: Management must back the program; responsibility must be specifically assigned; adequate resources should be allocated; and results should be measured against objectives. I would strongly suggest that key suppliers be made part of the initiative.

SD : You’ve provided readers with a great list of cost savings opportunities to assess in both the ‘hard’ and ‘soft’ savings areas within The 20% Solution. As a bonus for our StrategyDriven readers, are there one or two additional areas you would recommend they explore?

JR: In the present economic climate, there are a great deal of assets being made redundant due to cutbacks, closings, bankruptcies, downsizings, etc. I would suggest looking for good used or surplus materials in secondary markets rather than buying new.

SD : Joel, you suggested that an MROP cost reduction initiative could be used as a developmental opportunity for an up and coming manager. Such a project certainly requires a leader to work cross functionally with the business’s many line and support organizations. What other developmental opportunities does an MROP cost reduction initiative afford its project manager?

JR: Most top management does not come from a procurement background and does not realize the significant potential of an innovative/change-driven procurement function to dramatically affect corporate cash flow, investment and earnings, as well as risk/reward relationships. Someone who can learn to identify, dramatize and communicate the benefits of such a program to top management can move much further and faster in the organization than is typical. This is addressed in The 20% Solution.

SD : Joel, your website, www.the20percentsolution.com provides additional resources for those seeking to pursue MROP cost reductions. Would you tell us a bit about the website and its content?

JR: If you click on the Resources Section of the website, you will find substantial additional insights into corollary topics such as innovation, changing the strategic role of purchasing and other examples of cost-savings techniques, as well as my availability to assist those who wish to pursue these programs.

Final Thoughts…

The StrategyDriven team would like to thank Joel Roth not only for sharing his time but also for his beyond the scope of the book insights on streamlining the MROP supply chain process. We found The 20% Solution to be particularly valuable because it provides actionable insights and real world examples for achieving cost reductions and process streamlining, both of which make an organization more effective. Additionally, Mr. Roth’s use of self assessments, performance goals, and feedback and control systems compliment many of the best practice recommendations found on the StrategyDriven website; all of which make The 20% Solution a StrategyDriven recommended read.

Joel Roth, author of The 20% Solution: A Practical Guide to Dramatic Cost Reduction in MROP has owned and operated ten industrial supply chain companies and is the current owner of Fulton Supply Company, an Atlanta based organization providing industrial supplies and MROP cost reduction consulting services. Joel is a former member of the National Association of Purchasing Management, a member of Affiliated Distributors and Industrial Supply Association. To read Joel’s complete biography, click here.

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