Supply Chain & Transportation
supply chain, inventory
Best in class performers are tightening their S&OP processes, increasing supply chain visibility and collaborating more closely with internal and external suppliers. They’re improving their lead times to customers and increased their rate of perfect orders to customers. The result: cost and service improvements of as much as 15 to 25 percent.
An integrated supply chain is no longer a distant ideal but an urgent necessity. Company leaders want planning, procurement, manufacturing and logistics to work together to reduce total delivered costs.
Many CEOs and CFOs I’ve spoken to recently have underlined the urgency of focusing on inventory - it’s one of their most valuable assets, but it’s often managed ineffectively.
For retailers, poorly managed inventory often means disappointed customers. According to Infosys Consulting, US retailers average about 8 per cent out-of-stocks during non-promotional periods. During promotional periods the rate almost doubles. And it can take months to find out how a promotion went.
Poorly managed inventory also ties up working capital. According to AMR Research the all-industry average on working capital improved by 8 per cent last year. For consumer companies it got worse. They spent 1 per cent more on working capital in 2008 than they did in 2007.
Addressing these challenges isn’t easy. As I’ve written elsewhere, the limited pool of supply chain talent and the increasing importance of supply chain performance have created a “talent gap” in all four disciplines of supply chain management: planning, procurement, manufacturing and logistics.
But the relative scarcity of talent isn’t the whole story. Among retailers, for example, old habits die hard. Merchants want as much product available as possible, often without regard to the consequences for inventory. When sales are robust there’s little problem. But when sales go south and inventory starts to pile up such inefficiency becomes painfully obvious.
Many executives and industry observers also see a pervasive disconnect between planning and execution. Too many companies rely on outdated technology and poor sales & operations planning (S&OP) processes. The result: faulty demand forecasts, delayed information flow and sluggish response to customers.
In fairness, the reality of integrated supply chain software and other technologies still lags somewhat behind the promise. While driving toward the ideal, many companies we work with are also taking incremental steps to improve supply chain performance and hold down costs, especially in transportation and logistics:
- A children’s apparel company is increasingly having more goods transported by rail rather than by truck, to offset high gas prices.
- A leading shoe company is putting a shipping consolidation center in China instead of shipping from many locations there.
- Some retailers are reconsidering the wisdom of maintaining their own distribution centers and truck fleets, given lower inventories and high fixed costs.
- A number of retailers are also moving from static to dynamic transportation routing, forcing carriers to be more creative.
- As shipping costs rise, many US companies are looking at “near-shoring” – locating manufacturing in Mexico, the Caribbean and other locations closer to home.
Simple stuff? Sure. But it pays off. At the same time, the best-in-class performers are tightening their S&OP processes, increasing supply chain visibility and collaborating more closely with internal and external suppliers. They’re improving their lead times to customers and increased their rate of perfect orders to customers. The result: cost and service improvements of as much as 15 to 25 percent.