Lean Supply Chain Perspective Required for New Normal

Meanwhile, the pressure is on lean-focused supply chain experts expected to examine internal processes and accommodate supply chain shortfalls. Their perspective is integral not just to the continuous improvement of in-house activities, but, importantly, to the network adjustments that come with the re-shoring of supply production.

Unfortunately, just as COVID-19 disrupted manufacturing networks, it also created new challenges for keeping lean supply chain teams engaged. Workforce reductions and remote operating environments create hurdles for maintaining the close awareness required to identify wasteful activity and efficiency improvement opportunities.

As manufacturers focus on a new normal, a lean perspective supports supply chain corrections, and the timeline for turnaround does not need to be limited by social distancing and remote environments. An expert partner can help you identify and execute the most effective supply network strategy, so you can keep focus on advancing your business.

New Manufacturing Normal Begins to Emerge

Midway through a year of disruption, we are hearing common refrains among manufacturers across diverse industries. It seems that, regardless of the supply chain network, the comments are very similar:

  • Manufacturing is moving toward reshoring to reduce supply chain disruption and distance.
  • Constant supply chain focus is needed to eliminate current and future supply chain disruptions.
  • Supply chain failure is the No. 1 reason a company is having issues in start-up or restart activities.
  • Adjusting product mix and production set-up is a struggle.
  • Lean training and learning is difficult outside the facility “Gemba”

Focused on cost, some companies furloughed or laid off their lean teams. This leads to significant impact across the organization, often requiring executive attention to resolve emerging network problems. Losing the process visibility provided by these experts can lead to costly misalignment across your existing network and in any future supply chain adjustments.

Problem Solving for Inventory Management, Network Changes 

Looking deeper at these trends, some of the specific emerging problems can be resolved through the total supply network awareness your lean expert maintains. 

Inventory management drives the biggest questions manufacturers encounter as they reset to serve a new normal. Common inventory problems in our assessments of  manufacturers include:

  • Too much of it, not balanced or not accurate.
  • Too much of the wrong inventory for the manufacturing product family mix.
  • Not enough of the correct inventory to manufacture replacement parts and service clients.
  • Never adjusted parts inventories for major equipment repairs.
  • Single sourcing from Asia, Europe, etc.

Losing the visibility of your supply chain expert can quickly impact your transportation cost, especially in a volatile environment following a significant disruption.

Organizations that scaled back their lean team during COVID-19 experienced common outcomes:

  • Quickly lost awareness to inbound ocean transportation and ensuing TL freight moves
  • Unprepared for spike in air freight costs for productions and parts inventory
  • Increased costs such as detention fees resulting from misaligned lead times and production planning
  • Reduced capacity for problem solving 

In the “old” normal environment, while your lean resources maintained process awareness required to exert continuous improvement, ongoing training also offered perspective for global practices that are applicable within your organization. Losing access to those resources – usually provided on-site – impedes your ability to evolve your processes.

Leverage a Master Partner to Evolve Processes

There is no doubt that a loss of process monitoring inside the operational environment leads to reduced visibility. Lean operators need to be in the Gemba to be most effective.

In a quarantine or remote environment, it is not always possible to have that consistent on-site presence – but, you don’t always need it. Some organizations have achieved success with lean supply chain teams of two that maintain social distance and COVID-19 protocols. While this has slowed Kaizen work, there has been success, it just takes longer than planned. As a positive outcome, lean leaders have executed administrative items for each Kaizen, a process that can be carried forward.

A problem solver’s mentality supports these types of in-the-trenches adjustments, and they are vital not only to your disruption response, but to the ongoing evolution of your supply chain. We offer our clients access to that mentality on an ongoing basis, using supply chain data analysis to provide awareness of emerging improvement opportunities.

At the same time, we offer organizations the ability to develop their own internal lean expertise. While protocols of a contact-conscious environment can limit on-site activity, the power of modern technology not only supports classroom-like digital learning, it also grants virtual visibility on par with physical presence.

For more information about invigorating your organization’s supply chain capabilities to support reshoring or other new practices for a new normal, schedule your lean supply chain consultation today. Whether you want to bolster the expertise of your internal resources or plan and design a supply chain network suitable for serving your customers tomorrow, we apply our mastery to help you establish efficient processes that control cost and improve service.

Use Logistics to Compress Cash-to-Cash Cycles

Logistics is the lifeblood of any organization. It connects suppliers, manufacturers, intermediaries, carriers and end customers with actionable data based on historical transaction patterns. Yet too often corporate leaders view logistics as a cost center instead of a competitive advantage. We find the best way to overcome that perception is to connect the dots between our deep skill set and the positive financial outcomes we can deliver for our clients.

When Transportation Insight talks about logistics as a competitive advantage, we refer to the speed to serve as much as the cost to serve. Time is money.  Companies implementing strong logistics strategies typically turn their inventory faster. They need to rely less on safety stock throughout every level of the supply chain, which is itself a cash burn. They keep goods in motion so they reach consumption points faster, and turn capital quicker.

Reduce Cash-to-Cash Cycle, Free Up Operating Capital

For definition, cash-to-cash cycle time examines the number of days of working capital an organization has tied up in managing its supply chain. The faster the cash-to-cash cycle, the fewer days an organization’s cash is unavailable for other investment. According to American Productivity and Quality Center (APQC) research, the top performers have 60-day cycle times. The bottom performers clock in at about 120 days+.

Reducing cash-to-cash cycle time involves eliminating factors (such as inventory) that tie up operating capital. Effective organizations optimize inventory to free up capital while maintaining enough stock to satisfy customer orders. This can be accomplished through a well-designed demand forecasting, comprehensive company-wide inventory optimization strategy, supported by logistics that aligns roles and responsibilities in the supply chain, and identifies processes that can be streamlined.

Streamlining order-to-cash processes can also reduce cash-to-cash cycle time because faster invoice processing and receipt of customer payment decreases the amount of time that an organization’s capital is unavailable.

Make no mistake, there are some logistics people who love inventory because it covers some of the “stumps in the water,” as we like to say. But safety stock exists because businesses struggle to match their inventory needs with final demand. Safety stock is also an impediment to optimal cash flows.

But in a lean world, there is no such thing as “safety stock.” Everything turns in its own time, and on its own velocity. Thus, it is critical to identify and root out supply chain inefficiencies at the front end. Are you optimizing inbound shipping lanes, whether domestic or international? Does your inventory strategy balance your costs with meeting customer delivery expectations? Do you have the technology and expertise to effectively manage your product velocity and shrink the cash cycle?

Companies have multiple customer channels. You may have a traditional B2B channel, an e-commerce channel, or a hybrid. Each channel may have its own dedicated inventory. They also have their own cash-to-cash cycles. They are certainly going to have their own logistical challenges. A capable logistics partner like Transportation Insight can support the unique needs of each channel to achieve the most financially desirable outcomes.

Mastering Logistics to Meet Consumer Demand

There are companies that have succeeded in re-inventing the wheel. Then there are others that prospered by improving on legacy processes. Walmart wasn’t better than any other retailer. It offered the same brand of toothpaste and laundry detergent as others did. Sam Walton’s genius lied in focusing on logistics to get goods to the shelves, and in customer’s hands, faster and cheaper than anyone else.

By putting the right product, in the right place and price, when and where the consumer wanted, Walmart accelerated cash returns for manufacturers and for itself. It also turned out to be a lethal combination-for other retailers.

Mastering the competing dynamics of transportation and inventory requirements can be a complex undertaking. You need to weigh the importance of improved working capital with ensuring that goods are always available when and where your customers need them. This is our forte.

Each day, we bring our data platforms, deep understanding of carrier networks, rate negotiating and auditing expertise, and decades of accumulated industry experience to bear to solve these problems. We are quite candid with customer feedback, and what we hear most from our clients is that we take challenges like these off their hands, provide them with rich analysis, and enable effective decision-making.

For more information, read “Move to the Front” today.

Plan, Adjust, Communicate with Data Visibility

Shippers with good visibility into all aspects of their supply chain – including suppliers for multiple tiers – can build resilience and agility to lessen the impact of disruptions like global pandemic, natural disaster or political upheaval.

Data visibility, however, is just one piece of the puzzle. Your ability to act on that visibility is the key.

Drive Network Improvement with Data Visibility

Supply chain leaders around the globe are basing immediate action on real-time supply chain information – often captured through emerging supply chain technologies.

According to a recent Oxford Economics survey of 1,000 supply chain leaders, 49 percent – the top 12 percent of respondents – can capture real-time data insights and act on them immediately. Of those surveyed, 51 percent use Artificial Intelligence and predictive analytics to capture information. Although more than 75 percent of respondents recognize the importance of visibility into sustainability practices of their organization and suppliers, few have visibility into either.

While those leaders may realize new efficiencies in tactical execution, truly developing a strategic plan for procuring services and serving customers, requires more than a customized transportation management system.

Visibility End in Mind: Plan, Adjust, Communicate

You can know where to find the load, the inventory or the vendor, but you need technology, tools and talent to execute three steps integral to monetizing that information into cost savings or enterprise growth:

  1. Supply chain visibility is vital to initial network design, as well as contingency planning that may be required during an era of disruption.
  2. Supported by a contingency plan or evidence-based analysis, visibility empowers tactical operators and executive leadership to adjust their strategy to mitigate risk or seize an opportunity.
  3. Close the loop by communicating those adjustments to customers and supply chain partners, and enhance experiences while controlling costs across your supply chain.

Ultimately, visibility into your end-to-end supply chain helps you understand how to pull different levers across your network and increase the return on investment of the whole supply chain.

Real-Time Data vs. Real-Time Access

There’s a big difference in real-time data and real-time access, the latter can be far more valuable because allowing data to solidify can increase accuracy. The most important real-time data is track and trace. Although from the standpoint of being actionable, there is likely limited actions that can be taken to impact it other than communication.

There’s a balancing act between the information you have and the amount of lag time required for the information to be validated and integrated across the reporting. The length of time the data needs to “soak” depends how you intend to use it. You want to be able to correct performance before it gets out of hand, but at the same time you don’t want to make decisions based on incomplete data.

For instance, bidding on an LTL shipment in the TMS, you don’t want your financial reporting to reflect cost until the carrier has invoiced with any additional accessorials applied. Real-time access to your latest data gives you the power to identify trends so you can validate or eliminate services for improved cost control.

Mastering Data Visibility

Deep, multi-layered visibility is a fundamental ingredient in elevating your supply chain to its optimal performance. Solutions for achieving that visibility are widely available, but none deliver greater supply chain mastery than Transportation Insight.

We build personalized solutions that give you visibility to rate savings, optimization opportunities and behavioral changes across the organization that reduce cost and can fund your initial start-up in the process. Executing in those areas, our team leverages transportation technology tools to improve the flow of data to drive ongoing process improvement that generates waste reduction, improves equipment utilization and protects profit margins.

Master visibility across your supply chain with our free resource “Mastering Your Supply Chain: Layers of Visibility.”  Download it today to access the information you need to improve service and achieve monetary savings.

7 FAQs Answered with Supply Chain Visibility

“They have better visibility into the structure of their supply chains. Instead of scrambling at the last minute, they have a lot of information at their fingertips within minutes of a potential disruption. They know exactly which suppliers, sites, parts and products are at risk, which allows them to put themselves first in line to secure constrained inventory and capacity at alternate sites,” concludes Arizona State University professor of supply chain management Thomas Y. Choi.

Peeling into the physical layers (where is my shipment?) and virtual layers (which customer/SKU combinations are profitable?) of supply chain visibility, business leaders can uncover data evidence to drive network decision-making. Combined, information gathered through both layers of visibility answers questions that improve cost control and service to customers.

Where and when?

At its most basic, supply chain visibility gives you physical location of a product in the supply chain. This can include where an inbound shipment is, where you have inventory, or when a shipment will arrive at a customer. When you have this type of visibility, you can make decisions around production scheduling, facility/customer alignment and proactive communication to customers for delivery expectations. Visibility allows the awareness needed to provide the highest level of customer service while maintaining cost control.

Where are the suppliers?

Understanding your suppliers’ geographic location is critical not only to executing a robust network design but also in mitigating risk. Understanding the production and shipping locations of your suppliers during a period of disruption allows you to execute contingency plans developed during modeling exercises.

For instance, when an overseas disruption affects a foreign supplier, maintaining a geographical awareness of primary supply chain partners is vital. Combine location information with advanced understanding of alternative sources and you can facilitate a rapid crisis response that protects customer experience and prevents other breaks in the supply chain.

Where are the customers?

Your customers and their demand drives everything about your supply chain. From the locations of your distribution centers to the shipping options available to meet customer service requirements, having a detailed understanding of the concentration of demand means you can work backwards to develop efficient and reliable options to keep them happy.

Take for example an emerging market in a different region of the country. Customer expectations for delivery are very high. Not providing a high level of service is not an option. Options exist to leverage expedited freight but may make the price point too high or erode the margin on the product. A partner warehouse may be a good option to position inventory to meet service levels without investing in owned brick and mortar.

Where is the inventory?

Your physical assets connect the vendor and customer locations. These assets allow you to position inventory to mitigate risk while providing the service customers expect. Having complete visibility to where and how much inventory you have is critical to making smart sourcing decisions:

  • From which location can I fulfill the order?
  • Is it cheaper to consolidate or split the order?
  • Can I drop ship?

Understanding all of the inventory options available enables you to leverage your vast web of connections throughout your supply and customer base to delight your customers.

Can I access all my data?

Your supply chain generates a tremendous amount of data. Accessing all of it is not easy, especially when you are working across multiple vendors, customer segments, product categories or transportation modes. Consolidating your information across disparate systems and sources is the first step toward gleaning actionable improvement opportunities from your supply chain data. The more access to information you have, the more it can impact your bottom line.

An expert partner with significant technology capabilities can compile disparate data in an accessible repository and provide it in personalized dashboards, as well as apply experience-inspired analysis. Accessing that analysis in the same platform as operational data and tactical execution activities is critical to supporting quick, evidence-based decision-making.

What is cost to serve?

For each product and customer, executive leadership needs to understand cost to serve, which reflects all the activities and costs incurred as movement and conversation occurs from vendors through your network out to the customer. Cost to serve metrics provide actionable information by enabling visibility into the profitability of individual customers and products, and finding a fulfillment configuration that balances service and margin.

By utilizing actionable data derived from historical shipment information and running what-if scenarios with regional data and characteristics, you can develop the most responsive and efficient supply chain that meets customer demand for the best cost.

Why is my cost going up/down?

Leveraging robust score cards can provide insight into the factors that are driving your financial performance. Not all drivers are completely controllable. You cannot make your customer order from a different location or change what they want to buy. There is an old adage “you cannot change how other people act, only how you react to them.” The same holds true for the supply chain.  Develop plans to react to supplier performance and customer behavior to set up your company for success.

It is absolutely critical to have an unbiased party developing and interpreting the scorecards and information produced. You want objective viewpoints that highlight all options available to contend with dynamics in the marketplace. Not only do you want a view into your data but also what is going on within the market. In the new environment, it is more critical than ever to leverage every bit of available information across the marketplace.

Combine Layers for Master Vision

Physical visibility to shipment, service and costs can be accessed through very basic solutions that exist in the marketplace, some at low or no initial cost. Customization often requires additional investment, and visibility is black and white based on data made available by vendors, clients or carriers. A basic Transportation Management System provides tactical visibility to all of the connections in the supply chain, and it can enable cost savings.

Virtual visibility to all the activities that drive cost, service and reliability allows you to delve into the “what” and “why” around supply chain performance systematically and regularly. This requires investment in people, process and technology. The return on that investment: an enhanced ability to react to supply chain changes that impact performance. You also improve service to partners and customers.

Visibility does not just happen, and it is not free. Corporate alignment from the top down is required to achieve a complete solution. You want knowledgeable resources with broad experience to help guide you.

We created Mastering Your Supply Chain: Layers of Visibility to give you greater clarity into your end-to-end network. Read it today and uncover information you need to drive competitive advantage.

Business Objectives Determine Supply Chain Visibility Needs

However, in the wake of a global pandemic where both short- and long-term effects are still emerging, there’s limited value in a rear-view look. This is especially true as North America emerges from a stay-at-home state. Organizations need a rear-view look, as well as in-depth awareness of current activity and the financial implications. Add contingency scenarios to requirements for companies pursuing supply chains that can support the emerging “whack-a-mole” recovery where product demand and service requirements vary widely for customers across different geographies, depending on ebbs and increases in COVID-19 infection and business closure.

COVID-19 brought greater attention to the value of end-to-end supply chain visibility. Solutions for achieving that visibility are widely available, but not all solutions are equal. And not all visibility is the same. Your business objectives determine the level of visibility you need to make the best decisions.

What is Supply Chain Visibility?

Supply chain visibility means different things to different people. It covers everything from the physical “Where is my shipment?” to the virtual, like “Which customer/SKU combinations are profitable?” Depending on your role in an organization, you may be more concerned with the operational aspects of visibility or the more strategic. Either way, you need the information you need when you need it.

Beyond physical and virtual visibility separation, there’s the difference between real-time data and real-time access to data. When it comes to data, there is a lot of it, and it is coming from a growing diversity of sources – often separated within your organization by operational and functional silos.

An expanding list of technology-driven solutions offer varying degrees of visibility, and you can gain improved supply chain clarity through internal efforts and external partners. In weighing these options, it is important to consider:

  • Which solution is best for your business objectives?
  • How do you leverage information in business decisions?
  • What investments provides the greatest return?

Supply chain visibility can be complicated. It doesn’t have to be.

Peeling back layers of visibility, you gain an understanding of the information you need to plan and execute your day-to-day activities as well as adjust your strategy; react to changes that impact performance; and enhance your service to partners and customers.

Internal link: Guide Landing Page

Visibility, Mapping Key Disruption Planning and Continuity

The U.S. Armed Forces are a role model for logistics, and planning is critical to the military’s risk management focus. To quote General Dwight Eisenhower “Plans are useless, but planning is indispensable.” Companies have to be in a continuous planning mode, as we move through the recovery to account for these shifts in demand.

Effective planning, like military leadership during crisis, relies on visibility to a single source of information. When you have to go to multiple places to piece a story together, it takes time, and time can be costly.

Organizations that map their end-to-end supply chain create one foundational information source that can support business operations through disruption. As noted by Dr. Yossi Sheffi, director Massachusetts Institute of Technology Center for Transportation and Logistics, this requires supply chain mapping that goes beyond identifying company suppliers. It requires physical locations of supplier plants and warehouses. “For large and complex enterprise with thousands of suppliers around the globe, mapping is a massive exercise that cannot be done on the fly,” he says.

Likewise, mapping cannot be accomplished without awareness to all activities across your supply chain.

Mastering Supply Chain Visibility

Deep, multi-layered visibility is a fundamental ingredient in elevating your supply chain to its optimal performance. We created Mastering Your Supply Chain: The Layers of Visibility to help you uncover ways that your supply chain information can have a transformational impact on your bottom-line performance and your customer service.

Inside differentiate visibility options in the marketplace to help you identify solutions that best fit your needs. Read it today to learn more about how individualized technology solutions give you visibility to rate savings, optimization opportunities and behavioral changes across the organization that reduce cost.

Building Lasting Data Partnerships in the Supply Web

While the term quickly caught on and became a conceptual breakthrough, it contained one inherent flaw. The term suggests components move in sequence from source to destination. Technology and availability have evolved and changed over the last 38 years, presenting options that were never available before.

Oliver expanded on the supply chain idea in 2013, writing “When Will Supply Chain Management Grow Up?” for Strategy + Business. His conclusion is a sound argument for evolving into the supply web: “Constraints continue to be broken by supply chain innovators, but new constraints always emerge, presenting opportunities for the next generation of innovators.”

If your company is still focused on a single lowest-cost supply chain supplier and transport partner, it’s time to broaden your horizons. Understanding why the supply web is a natural evolution of supply chain management can help you become a better partner with suppliers and customers, and ultimately prepare your organization to meet consumer demand.

Harnessing Success Through Partnership

One of the incredible advantages of the supply web is in the data that provides. Utilizing a larger logistics network for sourcing and distributing to customers gives you a much broader view of not only industry trends and demands, but also how your partners’ networks can support your service strategy.

Excellent partners not only have insight into their networks but share the insights with other supply web nodes to the benefit of all. With both incoming and outgoing freight, shippers who lean into the supply web can leverage the appropriate node to fulfill demand with a balance of service, risk and cost.

This is only achieved by collecting data across your supply web, starting with your sourcing partners and sharing your own. By understanding production cycles and setting expectations, and supporting better decisions by your product providers, you can drive topline revenue to new heights.

The Supply Web From the Data Lens

Data collection and information sharing is critical to successfully managing the supply web. Each of your partners possesses data that can help identify patterns, analyze time in transit, and ultimately create workflows that improve efficiency at all stops.

Let’s consider the following scenario: a distributor sends a widget to several customers and end retailers throughout the year. Although it’s in demand throughout the year, most orders for this widget come during the autumn months. The distributor obtains the widget from three sources – two overseas and one in the northern hemisphere.

This is where data understanding is critical to success. With two overseas suppliers and one closer to home, the company always has a reliable source for widgets – especially during peak season – and it can obtain them from at least two partners when one is down due to holidays or planned work stoppages. Keeping lines of communication open with each supplier helps the company plan for inbound transportation and labor needs.

The inbound data can then be shared with customers and strategic partners to set expectations and manage order volume. In turn, customers will be happier because the improved communication of options supports their own planning. This data can also be used to identify efficiencies that aren’t based on fixed nodes. For instance: if a customer receives an order for the widget and is geographically closer to your facility, the data findings can help determine if drop-shipping to the end customer is a better option than shipping to a partner, before going out to that same consumer.

Using Data to Make the Supply Web a Competitive Advantage

At the end of the day, data is your most powerful currency. If you can identify patterns in the supply web and align them with the best logistics network, you can create a better experience for the end customer. The best companies utilize the information from supply web operations to ensure inventory is in the best places to serve customers.

Are you utilizing the supply web to its full potential? Between supply network models, flow mapping and LEAN principles, your company can drive success at all touch points within your network. Our supply web masters can help you drive success and create efficiencies that you never knew existed. Contact us today.

How E-Commerce is Driving the Supply Web Evolution

Many aspects of our life may be changed forever. Air travel shut down virtually overnight, with no indication on when we can fly to see friends and loved ones across the country. It’s not uncommon to see retail store shelves barren of the cleaning items we take for granted, leaving some to seek these necessities through less-traditional channels. Additionally, when shoppers do visit mega-stores, their carts are usually filled with groceries instead of household items, appliances and clothing.

Will isolation and social distancing cause a permanent change in shopping behavior? Will e-commerce become the new way Americans get their vital needs? A shift in consumer trends could have serious implications for retailers, their entire supply network and the overarching logistics strategies applied around the planet.

Why do companies need to pay attention to the spike in e-commerce orders?

With federal and state guidelines suggesting that everyone stay at home, online shopping increased in popularity. The online demand is so significant that Amazon is conditioning customers to not shop excessively on its platform. Meanwhile, e-tailers are overwhelmed with requests. We’re also seeing this trend among our customers as well. One customer – a chain of home improvement stores – recently asked for our help managing a skyrocketing e-commerce business that required an adjustment in their freight and parcel strategy.

The end consumer may see nothing wrong with this change. Online shopping is more convenient, requires less effort, and happens either over the phone or online. But for retailers and distributors, a growing e-commerce demand creates many issues on the back end.

While the growth of e-commerce has been the big story over the past decade, it still represents less than 20 percent of all retail sales overall. If that volume doubles, could your business sustainably make money?

Our research tells us that the largest companies are spending more time focusing on e-commerce profitability. Direct order fulfillment costs can easily exceed 25 percent of sales, which creates a precarious balance for companies offering direct-to-consumer service. Slim profit margins in brick-and-mortar retail add complexity. In the best situations, in-store sales only yields a profit margin of three percent.

If your e-commerce channels aren’t optimized for success, growing the channel is expensive at best, and unsustainable at its worst.

An inconvenient truth: environmental concerns from e-commerce

Another issue to consider is the environmental impact of online shopping. Fulfilling digital orders requires additional resources, including packing materials, corrugated boxes, additional fulfillment centers and waste handling. On top of that are emissions from trucks making last-mile deliveries and returns to homes across the United States.

All of the packaging and air pollutants have to go somewhere. While corrugated boxes and most packaging can be recycled, there’s never a full recovery of those materials. Although emissions can be reduced, we’re a long way from net-zero emissions globally.

These two challenges illustrate why the supply chain needs to change. We are no longer in a world where the supply network is one straight line from source to consumer. Instead, retailers and distributors need to work together to discover new ways to manage commerce through a supply web.

E-commerce as a catalyst to the supply web

As our world looks to e-commerce as a potentially permanent shopping solution, now is the time to start the transformation from a supply chain to a supply web. There are many different reasons why the supply web provides better solutions for both your company, distribution points and end consumers.

A supply chain suggests freight moves in one direction: from the source to the distribution center and then out to the retailer or customer. However, this model may create several unnecessary steps. For instance: if a customer makes an online order, the supply chain implies the product goes from its source point to the consumer. Under a supply web model, the order can go from the retailer or manufacturer to the closest distributor for fulfillment. The customer gets their order faster from the closest point, without the need for excessive shipping or re-packaging.

One of our clients in the construction industry recently transformed their supply chain into a web model. Instead of taking everything in at one center and re-distributing through smaller fulfillment centers, freight began moving from overseas into two different distribution centers that fed other centers in their network. This gain in shipping efficiency ensured customers could get orders in days instead of weeks.

Measuring the efficiency of the supply web is critical to success. Transportation Insight has tools which enable your e-commerce team to understand key performance indicators and drive success. Our margin management tool enables shippers to determine profitability by both dimension and SKU. It quickly identifies cost-killing areas of your e-commerce offering such as SKUs that drive split-package orders, excessive freight expense, high cube, high service expense or long zones.

The second key tool available through Transportation Insight is our supply chain and value stream mapping expertise. We develop a graphical representation of where your items, information and finances are coming from and going to. By mapping out your flows in this manner, we identify gaps and risks that can be mitigated through actionable plans and network optimization.

The significant profitability and sustainability challenges of e-commerce fulfillment are here to stay. By transitioning to a supply web model, your company can not only find better routes to profitability online, but also drive long-term, sustainable results.

Monitor, Pivot, Perform: Strategies for Unexpected Parcel Delivery Peaks

However, unlike the seasonal Black Friday and Prime Day spikes many shippers and carriers have mastered, the current parcel climate is yielding new challenges.

Home-bound customers aren’t answering the door for signature-seeking parcel delivery couriers. How does the FedEx and UPS driver complete deliveries at closed businesses? When parcel trucks are loaded to the roof and more e-commerce orders are filling the pipeline, essential supply shipments cannot stop and impede consumers’ medical, home office and home school needs.

During this non-standard peak period, communication is critical between shippers, carriers and customers. As the novel Coronavirus (COVID-19) situation evolves across North America, an organization’s proactive efforts to monitor, validate and optimize its small package program can improve efficiencies, maintain customer service and control costs.

Parcel Volume is Filling Networks

Limitations on passenger travel across international borders isn’t slowing the movement of goods into the U.S. Air cargo flights enter the country daily, and the express market is working as usual. Essential goods – medical, protective and cleaning supplies – are getting priority over non-traditional retail shipments, but Amazon’s move to add workers illustrates that fulfillment and service providers are focused on meeting the rising online demand for vital needs.

“UPS’s network planning and operations teams are experienced with adapting to changing conditions, and are developing contingency plans to address potential sources of disruption in our air and ground networks,” UPS Chairman and CEO David Abney said in a March 18 email to the marketplace. “Our teams are working to continue to serve the supply chain needs of businesses during this time, while keeping our employees and customers safe.”

Like organizations around the globe, carriers are focused on good hygiene within facilities and among employees, but they’re also focused on maintaining their own efficient operations. Packages destined for a location that is closed under nine days, will be held at the UPS/FedEx centers. However, if the delivery location is closed more than nine days, they are returning to the shipper.

The central issue here becomes two-fold:

  • Carriers don’t have storage for these packages. Many held packages are being stored in feeder units (trucks) and stay there until unloaded for scheduled delivery. If an urgent package needs delivery, shippers will likely have to resend product. 
  • If drivers are unable to deliver a package due to time constraints or buildings are closed, they are instructed to mark them “Emergency Conditions – COVID-19.” All of those packages will circumvent guaranteed service refunds.

Meanwhile, UPS and FedEx are easing requirements for physical signatures, and offering alternatives to customers meeting a driver at the door. For deliveries to high-density buildings closed to outside traffic, such as apartment complexes, service to lockboxes or other alternative pick-up points may become increasingly prevalent.

In this environment, it is important that shippers closely monitor and validate parcel service performance, especially within carriers’ complicated accessorial structures. Interior deliveries may not be feasible. Heavy weight packages, such as reams of paper for the home office, will generate additional costs. Be alert for carrier adjustments to rates and services during this non-standard peak period.

Nuances related to parcel delivery services can create new challenges for commercial shippers accustomed to operating in a business-to-business world. Responding to direct-to-consumer delivery demands can trigger unfamiliar shipping cost assessments. An experienced shipping provider can help implement drop-shipping programs that balance cost and service for shippers responding to home-bound consumers. That partner’s ability to monitor transportation activity also supports shippers’ proactive communication of delivery status or delays to end customers.

Monitor Fluctuations in Spend and Volume

Our team has spoken with customers experiencing a spike in online orders stemming from people staying home to reduce the risk of infection. As spread of the virus evolves, employee absence could jeopardize their ability to fulfill orders. Curtailment of non-essential shipments could further impact some organizations’ shipping volume.

It is important to actively monitor carrier spend levels to protect volume-based discount incentives. Earned discount thresholds offered in parcel carrier agreements are based on a 52-week rolling average. In the event of a slowdown, as new weeks of data are incorporated, the gross rolling average will decline and discount incentives will adjust downward.

For FedEx customers, this often results in an incremental change. The change for UPS customers could be more stark as a shipper’s spend levels diminish over time.

As the transportation environment continues to shift, it may make sense for some small package shippers to consider evaluating low-weight, multi-piece LTL shipments. Where warranted, transitioning those shipments to UPS Hundredweight or FedEx Multiweight can help drive revenue calculations.

If your company’s fluctuating parcel spend jeopardizes discount incentives, now is the time to have an honest conversation with account managers about the current situation, or consider exploring other carrier options. This can spur broader conversations that support improved cost management, including routing guides for outbound volume or billing practices that put cost control in your hands instead of your vendor partner.

Experienced parcel shippers can manage these program practices in-house. However, at a time when operational demands challenge many companies’ profitable performance, multi-modal transportation management experts using technology-enabled analysis can support parcel shipping optimization that enhances service and controls costs.

Parcel logistics leaders: Now more than ever it is important to make sure you get the best carrier rates possible. Companies pursuing peak fulfillment opportunities can leverage this non-standard peak season to their benefit while protecting customer experience.

Long-term Parcel Outlook

Don’t trust any crystal ball hype that you’re hearing in the marketplace. Nobody can predict what is happening tomorrow, next week or over the long-term. One thing is certain: there will be change.

This creates new opportunities to examine end-to-end organizational processes.

Digital transformation in recent years laid groundwork for the supply chain evolution many organizations are already embracing. Sourcing strategies, vendor locations and distribution network design are key elements in executives’ active conversations during this time of disruption. The prospect of financial incentives will drive more companies to diversify and reshore domestic production.

Transportation Insight manages supply chains for organizations of all sizes so they can focus on areas of their own expertise. Combining parcel invoice audit and payment, data management and analysis with decades of deep parcel industry experience, we help clients align their multi-modal transportation programs with carrier capabilities and customer demands.

In a dynamic, unpredictable marketplace, we’re here to lead you through efforts to adapt your current strategy, construct contingency plans for future disruptions and monitor your carriers performance. To make sure your small package shipping processes are delivering maximum value when it is needed most, schedule a parcel program assessment today.

7 Pitfalls Imperil Indirect Spend Management

Indirect Spend analysis requires different processes and technology knowledge from those of direct procurement. There are more stakeholders, segment complexities, and varying levels of expertise at the suppliers. Some items are commodities, and others are specialized for a business unit and rely upon a continually changing and improving set of technologies.

Efforts to improve Indirect Spend management relies on a complete understanding of the wide variability in factors that affect the cost of an item, the cost of procurement and issues that arise for vendor and buyer .

7 Variables Complicating Indirect Spend Management

  1. Low Average Spend: The product volume is generally on the smaller side because of the wide assortment of product and service categories and a large number of suppliers. In this case, the procurement group is unable to coerce better pricing or terms during negotiations with suppliers.
  2. Frequent low-volume purchases: Often, the frequency of purchases of small individual values, makes indirect sourcing difficult and resource-intensive.
  3. Maverick/Uncontrolled/ Non-negotiated Spend: Maverick Spend is the purchase of legitimate goods but using unauthorized buying arrangements or unapproved suppliers. Companies understand the value of robust management of direct spend, but may not recognize the benefits of managing Indirect Spend. The fact is that cost savings for indirect procurement does not originate from a specific bill of materials, as with direct procurement. Often, companies underestimate the Indirect Spend totals and the potential cost savings. Indirect Spend purchases usually are not covered by a contract negotiated in collaboration with a professional procurement group. Items purchased outside of an agreement could be a one-time purchase of office supplies, or travel expenditures, or expenditure on critical ad-hoc technical troubleshooting services. These costs add up over hundreds of items, categories, suppliers, and transactions.
  4. Driven More by Internal Stakeholders: Indirect procurement professionals may not have any mandate over an internal stakeholder’s budget. Unlike with direct spend, the procurement group has less say concerning Indirect Spend. Internal stakeholders hold on tightly to their approved budget and spending authority. Also, many of the expenditures require in-depth industry knowledge and experience to specify a product or service. These factors and this complexity make it more difficult for the procurement function to control indirect spending. The company’s procurement team must act as an internal advisor, influencing decision-makers about optimizing spend and getting more from suppliers.
  5. Hard to Evaluate: There exists hundreds of categories, adjacent categories, item suppliers and distributors, and each mandates an exceptional understanding to procure cost-effectively and also with an eye on long-term value to the company. Each of the tens of thousands of suppliers invests in a sales team assigned to each buyer. Motivation for those sales teams may not always be in the buyers’ best interest.
  6. Measuring Suppliers: It can be more challenging to measure the quality of indirect goods and services. There might be metrics for individual vendor performance, but there are few industry standards against which to benchmark those metrics. In some cases, delivery of indirect products and services is not in a company’s ERP system, so tracking contract renewal and evaluating vendors can be spotty. 
  7. Requires Diverse Experience: Purchases are as diverse as safety products, marketing software, maintenance items, and electricity supply. This breadth of categories requires a procurement group with expertise and a willingness to learn the full range of products and services.


Indirect Spend Management Requires Broad Capabilities

Organizations working to manage Indirect Spend must maintain a variety of skill sets within the operational areas tasked with overseeing these critical budget areas. 

Facing these diverse needs, companies are often challenged to maintain the level of expertise that a trusted procurement partner can often provide:

  • Professional purchasing experience or training
  • Broad category expertise
  • Project and change management
  • Influencing, engaging and advising budget-owners (stakeholders) across the company
  • Specification, facilitation, negotiation, and supplier management
  • Data analysis, creating business insight from raw data
  • Technological know-how
  • Recognizing supply risk from issues like constraints on industry capacity, regulation, or rapidly rising demand
  • Acknowledging the market’s preference for sustainability and the ability to cost-effectively comply
  • Understanding of current market conditions and market pricing trends

Strategic Sourcing Supports Procurement Decisions

Buyers are not all the same. Many procurement decisions have an economic buyer, the person who makes the money decision, and a needs buyer, the person with a job-to-be-done.

Guidance from a procurement group can help meet the requirements of both of these buyer-types. Proper specification of the product or service delivers what conforms to the need, while aggregating volumes and dutiful negotiations keep prices low.

By employing a Strategic Sourcing mindset, these procurement experts look across all activity to address planning, supplier qualification, item specifications, technology advances, training, support, outsourcing, contract negotiation and periodic contract review. Strategic Sourcing identifies the lowest total cost − not just the lowest purchase price. It embraces the procurement lifecycle, from specification to payment.

Strategic sourcing often creates a close, partner-like relationship with a supplier to meet the needs of all buyers, and in turn, improve service to end customers. For more information on employing a strategic sourcing mindset to control Indirect Spend costs through improved procurement practices, download Transportation Insight free guide, “Uncover Indirect Spend: Control Cost with Strategic Sourcing.”