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How to make your supply chain more efficient without jeopardizing customer service levels

published: cw 49, 2006 in eLogistics & eFulfillment

Until recently, supply chain decisions were typically based on tradeoffs such as cost versus service, or cost versus quality. Today, however, leading companies are breaking away by outperforming in all three?becoming cost leaders as they excel in both service and quality. Some are even taking it a step further to consider ?risk? as it impacts sourcing and demand throughout the supply chain.

The challenge is to make the physical supply chain more efficient, (e.g. lower total supply chain costs), without jeopardizing customer service levels (e.g. faster lead times). Capgemini outlines three major levers to achieve this.

Manage relationships
Under relentless pressure to reduce costs and increase sales internationally, firms are outsourcing operations to subcontractors who can provide better services at a lower price. Supply chains are evolving from physical entities to virtually managed ones. This means the supply chain director will have to act as a conductor. He/she writes the music and directs the orchestra, but has to work with musicians employed by third parties. Effective orchestration requires three essential elements:

1. Partnership/vendor management
Setting up long-term partnerships focusing on the end customer (performance agreements and service level agreements) leading to a better focus and customer service. A vendor management program, in which the partner is evaluated during regular reviews, can also add value.

2. Information management
Information is used to monitor performance and to provide status reports to customers. To stay ahead, investing in real-time information processes is a must. Extensive use of web-enabling technologies improves the quality of information in all relevant supply chain management processes: customer service, supply chain planning, supply chain execution and tracking & tracing.

3. Performance management
Measurements of performance should take into account not only operational performance but also demonstrate partner innovation. First and second tier supplier performance should be measured daily and weekly. Measures should focus on the value the partner generates for the end customer.

Invest in strategic network optimization and rethink your transportation strategy
Increasing service requirements, shortening lead-times and tight delivery windows create a growing demand for dynamic warehouse space with high transport availability. The solution lies in regularly reviewing your network and transportation strategy by optimally balancing the network, the transportation and the inventory model, and taking into account customer requirements and expectations.

  • The network model will specify were to invest in warehouse operations and what function the warehouse should have (Regular warehouse, Cross dock, Value Added Services, etc). A truly adaptable supply chain needs to be based on the ability to easily change the warehouse space used and the location of distribution centers
  • The transportation model will describe what to move, when and how. Given the recent transportation cost increase (it is not only higher fuel prices but also road tax and governmental driving limits that are increasing transportation costs) and the fact that they are hard to charge back to customers makes transport an increasingly important factor in supply chain trade-offs. In the model, one should also look at harmonizing and reducing the number of transport partners. Questioning the current transportation modes and introducing transportation spend analysis will also be beneficial. The inventory model will specify what inventory should be kept at what location and how much. Supply chains of the future would be capable of using multi-echelon inventory optimization.

    • Understand the value of technology
    Profitability and customer service can be enhanced in any number of ways. But one of the most rewarding and direct avenues is through technology. As supply networks become complex global webs of cost and information flow among many layers of suppliers and end users, you have no other choice but to embrace technology.

    Spreadsheets are no longer enough to manage global supply chains. Supply chain visibility and collaboration related technologies will need continuous investment.

  • Internet-based technologies are enabling a new level of transaction automation and partner synchronization, which was previously not practical or possible.Customers also expect to be able to track & trace the status of an order on a real-time basis.
  • Best-of-breed Warehouse Management Systems (WMS) and Transportation Management Systems (TMS) are able to support these new processes in an efficient and mature way.
  • Radio Frequency Identification technology (RFID) may not currently be on your radar, but we advise that you make data synchronization work between you and your trading partners.

    • Source: CapGemini


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