Coulda, woulda, shoulda

While timeliness and cost efficiency are crucial aspects of supply chain management, DHL's Richard Owens tells us how planning ahead, learning from past mistakes and other factors can differentiate a great company from a mediocre one.

Challenging times are often the catalyst that causes companies to review their current business strategies in order to stay ahead of the game. In fact, during good times, the cost effectiveness and the actual performance of the existing supply chain strategy are often overlooked but only scrutinized during tough conditions that impact a business' bottom line.

Over the last few decades, the supply chain industry has seen its fair share of events that shaped it into what it is today. It is during these times that the supply chain strategy is transformed into a leaner and meaner component of the overall business strategy, and often, simply by thinking out of the proverbial box.

Great companies tend to be forward-looking entities that recognize and capitalise on opportunities to become even stronger players within their marketplace when conditions improve.

BUSINESS KILLERS

Looking at the last few decades from the supply chain industry perspective, several pertinent business attitudes towards the industry stand out. These attitudes and approaches often hold back the business' ability to pull itself out of a difficult situation when recovery occurs.

They include:

1. Focusing solely on transportation costs

Focusing solely on transportation costs alone is not the long-term solution when it comes to looking for ways to reduce costs from their supply chain. In most cases, transportation only accounts for less than 20% of the overall costs. Also, focusing on cutting transportation costs will lead to organisational paralysis. This perspective and approach alone differentiates leading companies from the mediocre ones. Unfortunately, this is the most commonly adopted approach to reduce costs from their supply chain and it is the most self-damaging approach.

2. Resistance to change

During the severe acute respiratory syndrome (SARS) epidemic in Asia, it was found that in spite of quarantine restrictions set by non-SARS affected countries; many Asia-based businesses were reluctant to change their supply chain model. A prevailing attitude held by such businesses was their resistance to change and this would often lead to excessive inventory being built up and inventory holding is one of the biggest costs in supply chain management. With the crisis subsiding, many of these companies realised that their growth have been crippled because of their dependency on a particular transportation channel.

Recovery would have been quicker if they had engaged in alternative models such as Build-to order or Just-In-Time to maintain their supply chain.

More importantly, the core problem that many companies face is that product differentiation is getting blurred.

In fact, the key differentiator between companies lies in the strength of their supply chain to get the product into the hands of the customer, as the customer's perceived difference between brand A and brand B could be minimal.

3. Supply Chain myopia

A lack of supply chain visibility is a major contributor to excessive inventory.

The flow of information within the company itself is as important as the flow of goods from the plant to the customer. Very often, sales would be the first to know how fast they can move their goods, but operations may not and continue with the production, thus leading procurement to continue purchasing materials. As such, there is an impetus to communicate demand forecasts within the entire organisation, regardless of division and responsibility.

A CUSTOMER'S STORY

Consider the following scenario typically faced by a fast moving consumer goods manufacturer.

A leading product manufacturer in Asia was faced with the problem of rising transportation costs in delivering their finished products to their customers located in Europe, the Middle East and Africa. The product manufacturer recognised that they needed a strategic partner to help transport their products quickly and efficiently. Thus, instead of simply negotiating for lower costs with their supplier, the product manufacturer decided to re-examine their current model and explore alternative transportation solutions.

Regarded by customers to be one of the industry's leading innovators, the product manufacturer's strategy was to create a new value chain around their provider's service offerings. This approach included dissecting their supply chain model and collaborating with their service provider to explore alternative ways to providing an optimal transportation model.

With a thorough understanding of the product manufacturer's situation, the service provider was able to devise a two-prong approach to the problem. To meet the needs of the lucrative high end market, they used a weight break analysis and was able to devise the optimal transportation mode selection that provided the company with greater flexibility, generate additional savings and a quicker transit time. This approach resulted in a net savings of 13.7%.

As for the low-end segment, with insights provided by the manufacturer's demand forecasting teams, they were able to combine a sea/air approach where the first batch of products were sent by air to the target markets, with the following batches arriving shortly via sea transportation. As a result, the manufacturer had an overall transportation cost savings of 32.5%, while emitting only 6,027 tons of carbon.

Ultimately, the product manufacturer was able to grow their business while building a stronger and more robust company. If they had decided to focus only on cutting transportation costs, they would not have been able to keep their focus on their core business of providing customers the latest and most innovative products.

BEST-KEPT SECRETS

Based on our experience working with all industries and verticals, no two supply chain model are the same. However, creating or fi ne-tuning the model demands a thorough understanding of the operational process. As such, these companies understand that they should be looking at other areas of their supply chain to lower their costs and make their supply chain leaner. Specifically, they would review their entire end-to-end process and consider following the best practices that DHL's leading customers use.

1. Articulate the situation

The first order of the day is to have a meaningful discussion with their supplier on the specific problems that they are facing, whether it is to slow down the orders, a buildup of inventory, and a cost of transportation goods to market becoming too high to your overall sales.

2. Focus on core competencies

By going back to basics and dissecting the business process, great companies are quick to identify areas that are not core to their business so that they can continue to build their core key capabilities and competencies in these tough times. Generally, as market demands slow down businesses need to decide what they can afford to give up in order to survive and prosper during these times.

3. Acting quickly

For industries that are sensitive to current market trends and demands, speed is of the essence when it comes to moving the inventory out of the warehouses quickly. An example is the technology industry where products become obsolete rapidly if manufacturers are not able to sell their stocks. As a result, such companies could end up with a warehouse full of stock that is no longer current, damaging the company's finances. The secret lies in a company's ability to involve more than the just logistics within the supply chain. They work collaboratively with all departments such as finance and sales to develop strategies to sell their products quickly.

MOVING FORWARD

Waiting for the economy to recover is not an option acceptable to great companies.

Instead, during such demanding times, they create the outcome they want by focusing on what truly matters - getting their goods into the hands of their final customers. With no two supply chains being identical due to different companies having different requirements for their supply chain, the process of extracting optimal value from

a supply chain is complex undertaking. Thus, simply choosing a logistics provider by cost alone is not an effective long-term approach; rather, great companies select providers with proven capabilities that posses an end-to-end solution offering ranging from logistics work, warehousing, forwarding, and express services. By doing so allows companies to get the most efficient supply chain.