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.

From Micro to Macro: The Effect of Social Distancing on the Supply Chain

In restaurants, they are moving tables and putting a hard maximum on the number of people allowed inside. Although the return of patrons generates badly needed revenue, moving tables apart means less diners, resulting in less money coming in the door. In order to maintain a peak level of performance, those restaurants need to turn tables and customers faster to achieve the same amount of revenue.

A similar concept will be introduced into the supply chain, as factories, warehouses and distribution centers come back online. Employees will need to consistently stay six feet apart, forcing managers to figure out how to keep up productivity while adhering to guidelines. Are you prepared for the change?

The Newest Constraint in the Supply Chain: Social Distancing

There are several supply chain constraints that most companies can plan around. These include capacity, throughput, and on occasion, emissions.

Using an Extended LEAN approach, managers and facilities are encouraged to reduce the amount of time and distance per process. This reduces waste throughout the production line, improving efficiency and ultimately providing more output with the resources already in place.

But due to social distancing, there’s a new constraint supply chain managers must deal with: the maximum amount of physical distance you can remove from production. Some of these situations are easier to plan for: Truck drivers can stay in their cabs, while using e-signatures for receipts.

Other conditions are going to be much more difficult to apply: In the interest of keeping employees healthy, they must consistently stay six feet apart. Companies now have to determine what that means for receiving, production and shipping. If employees have to maintain a safe distance, how does that affect their critical daily operations? Some companies say they are experiencing a 40 percent decrease in capacity due to the social distancing protocols.

Social Distancing Extends From the Facility and into the Network

The physical plant isn’t the only stakeholder affected by social distancing. The impact of lost production and capacity also extends to your logistics network.

If your output is slower due to social distancing, it can have a ripple effect on everything from loading trucks and time-in-transit to service guarantees. Capacity decreases mean it takes more time to load trucks and impedes trucks from moving freight from point-to-point. That cuts into your bottom line.

From there, the issues fall like dominoes. The late truck has more time on the dock, so your freight is arrives at its destination later. When it does, there could be a delivery failure due to a closed dock or a receiver bound by rules prohibiting deliveries outside a set window. Additionally, freight bills could increase because transportation providers are unwilling to wait a long time for freight loading and unloading. Your carrier partners might not be able to meet service times because of your approach to social distancing.

There are ways to approach this that will help your business move forward. Once the impact to individual facilities is determined, it’s possible to reconfigure your logistics network to meet the current capacity needs. Some of the options your team can explore include:

  • Do you need to reduce inbound material shipments until capacity can increase?
  • Should you adjust your outbound schedule to ensure you can maximize transit lanes?
  • Can your team or warehouse be more efficient in managing inbound and outbound freight?

Having a Partner to Help You Adjust for Social Distancing

It’s critically important to have a partner in your corner that not only understands how to configure logistics operations using tried and true techniques, but how to translate them to the broader supply network to balance cost, service and risk. While technology plays a key part into this transformation, these solutions need to be approached with a holistic solution in mind.

As we reopen facilities and plan for the “new normal” for the foreseeable future, it’s important to solve these problems now. Because we have no idea when social distancing practices will ease, the problems you face now won’t go away on their own. Instead, solving them will help you become a “shipper of choice” as activity ramps up. You can also maintain profitability and positively plan for the future.

In this race, Transportation Insight is your complete partner in success. Our technology tools allow you to decide between the best carriers and networking options.We can also help you drive success through supply chain mapping, optimization, and applied Extended LEAN strategies with social distancing in mind. Because we’ve worked through thousands of supply chains with hundreds of companies across industries, we know how to apply the best practices and wisdom around your current and future strategies.

Partnership matters – and Transportation Insight is prepared to help you now and well into the future. Contact us today to get started with a consultation on how your facility can manage productivity despite social distancing.

Indirect Supply Management Matters in Today’s Environment

With certain supplies harder and more expensive to secure, how can manufacturers ensure operations continue on a level playing field? The answer lies in a company’s approach to indirect supply management.

Challenges Faced by MRO and Office Supplies Due to COVID-19

When you think about the MRO supply chain, it almost seems simple. Replacement parts and consumable supplies come up the chain and into your storage. When a piece needs to be replaced, it comes out of currently held stock. To ensure stock doesn’t run low, warehouse managers keep a recurring order open to ensure replacement and consumable items are available.

However, the COVID-19 pandemic changed everything. Many of the pieces we take for granted, like personal protective equipment, were immediately redirected to first responders who needed it more. Additionally, normal supply chains were disrupted because of shutdowns in China and companies utilizing a work-from-home model to prevent the spread of novel Coronavirus.

Protective equipment and replacement parts are only two of the potential shortages MRO operations faced by buyers of indirect supplies. The slowdown also extends to regular office supplies. As more people are forced to work from home, the demand for copier paper is dropping. As a result, two of the major paper producers in the United States have temporarily shut down at least three plants which produced office paper for printers and copy machines.

Although it appears that the supply chain may be in a crisis, your business doesn’t have to navigate these changes alone. By tapping into a group purchasing environment, sourcing MRO and office supplies doesn’t have to be an excruciating process.

Why Indirect Supply Management is a Critical Part of Your Business

There’s a lot of power in group purchasing. Groups who regularly order recurring supplies are able to get volume discounts and oftentimes improved availability for even the most in-demand supplies.

For example: A group of our indirect sourcing customers reached out to us to help secure face masks for their regular operations in breathing hazard environments, such as painting and other high-particle- producing environments. Our team quickly got to work on the request, and was able to find a source of high-quality face masks. After ensuring their quality control was to the clients’ standards, we secured orders at a competitive price with a quick delivery window, ensuring our clients’ businesses could continue to operate uninterrupted.

Indirect supply management is a tool available to your team to find the essential items you need at reasonable prices. By working with a partner in this space, your company can consolidate their overall supply space and form strategic partnerships on items they will regularly need. What makes our partnerships unique is that we can put it all together in a group purchasing model, which allows us to drive savings for our partners.

When you combine indirect supply management with other disciplines, like LEAN management, your company can actualize savings in multiple ways. By focusing on reducing waste and improving efficiency, the supplies your company relies on can be utilized smarter. While this drives cost savings at the core, it also gives your team a mindset of constant improvement, which benefits your entire organization through new thinking and problem solving skills.

Get Support from the Leaders in Indirect Supply Management

No matter how you are sourcing your products today, it can be improved through consolidation and smart partnerships. As you set your plans towards the next phase of your business, now is the time to look at your accounts payable data and get a spend analysis to map out how you can get even greater efficiency around your indirect materials operation.

Transportation Insight is your partner in driving success now and into the future. Let’s start a conversation today about how we can drive savings for your company together.

Examine Indirect Spend to Drive COVID-19 Cost Savings

The spread of the COVID-19 virus disrupts transportation networks, products paths and consumer demands that drive your performance. The problems that threaten business viability merit priority response.

In the current Coronavirus climate, the supplies for your everyday functions also need attention. An expert partner who can take over management of complex indirect spend areas can provide critical cost savings, which you can rapidly deploy in other areas of your business.

A reliable sourcing resource can also leverage long-term relationships and collective buying power to help make sure you have the Maintenance, Repair and Operation (MRO) items, office products, and packaging materials required to support your operations.

Here’s some of the latest marketplace activities that could affect costs in your indirect spend categories and challenge your ability to secure vital supplies.

MRO Items for Health, Safety in Short Supply

Most organizations that support MRO procurement are operating distribution centers and warehouses as usual, with added attention to necessary safety precautions at these work sites. Products are still moving out facility doors. However, distributors are placing priority on serving needs for specific “essential” industries, such as healthcare providers and first responders.

That’s a good business decision for these supplier partners, particularly as they face short supplies for personal protection equipment. Protective gloves, masks, coverall suits and similar products are all in back-order status.

Although healthcare facilities get priority service for these items, if you have needs, go ahead and place orders with your supply partners to make sure you are in the queue when supplies become available.

To expedite MRO service, many suppliers are shipping products directly to production facilities. This can expedite the process of getting needed products to end users. Make sure to explore direct shipping options from your supplier partners.

Social Distancing Affects Vendor Managed MRO Inventory Process

One of the biggest impacts of the novel Coronavirus in the MRO space is in the area of vendor managed inventory. State and federal directives are limiting contact restrict suppliers’ ability to complete on-site visits to monitor MRO supply needs.

Vendors provide an important resource in making sure you manage an optimal supply of MRO items. Too much product can consume valuable operational and storage space. Too few resources can threaten a shutdown at critical times.

To make sure their clients are able to continue monitoring their MRO needs, many suppliers are providing hand-held scanners and creating a customer-managed inventory environment. This keeps products moving, but it is important to monitor activity. Supply inventory can quickly get out of balance and create unnecessary costs.

Available Office and Facility Supplies Still Moving

Distribution of office and facility supply products continues as usual, but many of the same products in short supply on grocery store shelves are also limited in commercial and industrial settings. Paper products, disinfectant, hand sanitizer and similar products get priority delivery to healthcare operations, leaving a short supply which puts limits on available resources.

In some geographical regions, the desktop delivery option is discontinued, and the typical next day delivery guarantee is suspended. While there’s no sign of a supply crisis for the majority of these items, it may become harder to get some of the more common office and facility supply items as more states adapt to shelter-in-place environments..

When you are dealing with your supplier partners, a little bit of patience can go a long way. Like many of us, they are working in remote environments. In some cases, companies providing essential workplace supplies employ thousands of people unaccustomed to working outside of the office. As they shift remote, some systems aren’t engineered to handle additional workflow yet.

Rest assured, your supply partner is working to meet your needs. When you seek support, response may be delayed, but having patience with your trusted partner can reap benefits today and tomorrow.

If you encounter supply changes, we can leverage our power as a Group Purchasing Organization to tap additional supply resources. In the world of indirect sourcing, strategic partnerships not only support a network of options, but they also can help realize significant cost savings.

E-Commerce Drives Boom in Cardboard, Packaging

Many manufacturers and distributors of packaging are deemed essential because they are supporting medical supplies, pharmaceuticals, energy generation, and food and beverages. Increasingly, operations not supporting essential end uses are production reduction or shutdown.

Corrugate facilities are running at full capacity to meet a demand spike driven by online ordering. One key area to watch in this aspect of packaging is linerboard prices. Right now, those prices are stable after a slight decrease in January. Linerboard pricing will deserve a close eye over the next few months as old corrugated container (OCC) prices rise and forecast demand increases.

For flexible packaging products like polybags, stretch film, poly sheeting, etc., prices continue to decline due to a decrease in global oil prices. With many e-commerce shipments relying on these materials, it will still be important to monitor not just cost, but ability to access supply.

Rely on Strategic Sourcing, Relationships, Patience to Weather the Storm

When it comes to indirect materials that support operational process, many organizations make purchases on a tactical basis. Now, when uncertainty clouds the market place, a partner that deploys a strategic mindset to indirect spend can be a vital resource.

Transportation Insight has developed strategic partnerships with suppliers. In communicating with our supplier partners more and more, we’re learning that MRO, office supply and packaging providers are supporting the clients that work well with them. When you’ve built relationships over decades, as we have, achieving win-win scenarios for everyone involved becomes second nature.

Let us leverage the partnerships we’ve created to help you get indirect spend reductions, and, more importantly, access reliable supplier partners that you can depend on during times like these.

Right now, many organizations are thinking about short-term survival. As you prepare for business after the COVID-19 pandemic recedes, instead of revisiting old strategies, consider opportunities that deliver better service at improved cost.

Let us show you a more strategic way of addressing your indirect spend management. To understand how much you can start saving today, schedule an indirect spend assessment. We often achieve double-digit savings for our clients, and we may be able to help you drive cost out of your supply chain.

Delivery Speed Drives E-Commerce Fulfillment Success

Today’s online shoppers certainly agree with the sentiment of Tom Cruise’s character in the 1986 movie “Top Gun.”

Thanks to the “Amazon effect,” consumers have a nearly insatiable appetite for speedy delivery. In fact, according to Elastic Path’s recent survey, 75 percent of consumers expect to enjoy same day delivery by early this year. 

Other than Amazon, Target, and Walmart – and even then, only in certain markets – most online retailers aren’t there yet. And consumer expectations probably won’t slow down any time either. That means Consumer Packaged Goods manufacturers venturing into e-commerce have no choice but accelerate their delivery performance. 

Overcoming the Transportation Cost Challenge

Consumer products manufacturers that aren’t yet immersed in e-commerce face numerous obstacles when striving to meet expectations for prompt delivery. The most obvious: companies that aren’t drop shipping online orders for retail clients already don’t have the systems, processes and procedures in place for piece order processing and fulfillment. 

Still, even the digitally native vertical brands built on an e-commerce model must address one of the biggest issues affecting online order fulfillment: high transportation costs. The “State of Logistics in 2019” report from Logistics Management notes that freight transportation costs comprise the biggest share of U.S. business logistics expenses. 

Companies struggle to reduce that expense. In fact, Inbound Logistics magazine’s 2019 “3PL Perspectives” report reveals that nearly two-thirds of shippers surveyed said that cutting transportation costs is their top challenge.

Location, location, location

For many, strategic location of the fulfillment center is a dual-purpose solution: It helps manage shipping costs while meeting consumer “need for speed.”  

E-commerce brands are seeking fulfillment options in carefully selected locations that can provide same- or next-day delivery where needed. Solutions include: 

  • Opening new fulfillment centers 
  • Acquiring businesses that are already doing it successfully
  • Contracting with experienced third-party or enterprise logistics providers 
  • Filling orders from brand-owned brick-and-mortar retail outlets

The latter option was just one solution a global, omni-channel retailer used when it partnered with our team to reduce its transportation budget. Leveraging brick-and-mortar stores as e-commerce fulfillment centers was one element of a multi-faceted strategy that cut transportation spending by 18 percent – $10 million – in just six months. 

Fulfillment Center Checklist

With each solution, consumer packaged goods manufacturers need to ask questions regarding each fulfillment center’s capabilities. The list of questions breaks down into three areas – location, facility suitability, and access to talent. 

Location

Key questions include:

  • Does the facility have adequate access to transportation and logistics partners? 
  • What market(s) can you serve from there? 
  • Most importantly, will you be able to meet customer delivery expectations from there affordably? 

Transportation Insight has a comprehensive network of warehousing and distribution partners with facilities throughout North America. We serve clients across the continent and overseas from our headquarters in Hickory, NC, and operating centers strategically located throughout the United States.

Talent

Access to the right workers can be as important as physical location. Among other things, you want to know:

  • Is there an available, trained workforce?
  • In markets where competition is tight for skilled workers, what processes do your partners have in place to attract and retain the right people?
  • In less-competitive markets, what training opportunities are available?

Facility suitability

How prepared the facility or partner is to being able to serve your customers has an impact on how quickly you’ll be able to start filling orders from there. Asking the right questions helps determine the best fit. They include:

  • If you need special handling such as cold storage, is it available or will you need to add it? 
  • Are there enough loading docks to handle bulk deliveries and parcel shipments? 
  • Do racking and materials handling processes in place already meet your direct-to-consumer order needs? 
  • Is the building wired for the technology you’ll use?

Success Formula

The final step is using data analytics and other resources to determine the right inventory mix in each location. 

With the right combination of resources, fulfillment center locations, and inventory management, consumer packaged goods manufacturers can serve shoppers in population-dense markets just as quickly as the big box retailers can. 

Ready to learn how manufacturers can evolve an effective e-commerce program? Download Transportation Insight’s guide, “Start the Cart: A Manufacturer’s Guide to Achieving E-Commerce Fulfillment Excellence.”

Drop Shipping: The Path to E-Commerce Growth for CPG Companies

We can thank brick-and-mortar retailers for some of this. Many now require consumer products manufacturers to support e-commerce initiatives by drop shipping online orders to consumers. 

This drop shipping requirement can seem daunting to operations that aren’t set up for direct-to-consumer fulfillment, especially when it needs to begin quickly. Even so, as the face of consumer retailing evolves, this forced entry into e-commerce fulfillment has its advantages:

  • Retailers save money because they aren’t warehousing the merchandise and managing fulfillment.
  • The manufacturer’s carbon footprint is reduced because drop shipping eliminates transportation of goods from the manufacturer to the retailer’s warehouse for order fulfillment.
  • Shoppers often receive their orders more quickly.
  • The brand can explore e-commerce growth potential on a smaller scale.

Manufacturers responding quickly to retailer drop shipping needs often get outside help, at least initially. This strategy offers significant benefits: 

  • It minimizes disruption in the warehouse while allowing companies to respond quickly. 
  • When contracting with experienced professionals, logistics managers learn best practices before bringing the process in-house.
  • Manufacturers can test e-commerce feasibility without making the often-significant changes required internally. 

E-Commerce Expansion Comes in Many Forms

Drop shipping often leads manufacturers to accept that in order to keep growing, they need a direct-to-consumer sales channel of their own to protect market share and remain relevant.

Their e-commerce expansion can take many forms that include:

  • A musical instruments manufacturer that provides extensive product information on its e-commerce site, but encourages shoppers to buy the product from a local brick-and-mortar retailer so they have it immediately.
  • An athleticwear brand that uses its online platform to add value through an upsell to product customization and personalization that isn’t offered in brick and mortar stores.
  • The jeans maker that intensified branded e-commerce site marketing and enhanced delivery options after watching in-store sales decline.

Some ease into e-commerce by selling through Amazon. The mega e-tailer’s Fulfillment by Amazon program lets manufacturers avoid establishing their own e-commerce system by shipping merchandise sold on Amazon to one of that company’s warehouses. Amazon handles all order processing and fulfillment. 

This end-to-end out-sourcing simplifies things for the manufacturer, but has a significant disadvantage. In this model, Amazon, not the brand, sets the product price. Consider the potential impact of price-cutting on the brand’s image when reviewing this option. 

Others sell on Amazon, but control pricing and order fulfillment by becoming Amazon Prime-certified through the Seller Fulfilled Prime option. Yet another option that lets brands avoid establishing their own e-commerce platform involves selling on Amazon, but partnering with a Prime-certified third-party logistics provider for fulfillment. 

Options such as these give manufacturers time to gather and analyze data. This helps determine which products to sell from a brand site, how many they can expect to sell, and where to set up fulfillment to meet consumer demands for speedy delivery.  

Can You Go It Alone?

Companies that go to the next level and launch a branded e-commerce platform often partner with experienced enterprise logistics providers on the fulfillment side. This significantly reduces the learning curve as they staff up. It also lets them identify existing fulfillment processes that are ripe for improvement.

That was the case when a national brand expanded from brick-and-mortar locations to online sales. When it encountered problems with shipping trends analysis, invoice audits, and payment protocols, its leadership knew that reducing transportation costs and creating a more efficient supply chain had to become a top priority.

The company turned to our experts at Transportation Insight for help. By providing services that included optimizing the company’s logistics operation, providing auditing services, and creating greater shipping data visibility, we helped the brand save an average of $9 million-plus annually

In addition to partnering with outside resources, manufacturers that pursue direct-to-consumer sales do two other things that make a difference. 

  1. They add leaders with relevant expertise to the staff.
  2. They include representatives from all affected areas, from finance to product development to logistics, in all planning.

Adding e-commerce to an established operation requires organization-wide collaboration plus insights, guidance, and advice from experts who are steeped in this growing segment. To help you improve your ability to serve online customers, download our resource guideStart the Cart: A Manufacturer’s Guide to Achieving E-Commerce Fulfillment Excellence. You’ll discover insights into how e-commerce logistics challenges and solutions are affecting CPG companies.

What’s your biggest e-commerce fulfillment challenge today? Tell us in a comment. 

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.”

Indirect Spend: Harvest Savings, Improve Competitive Advantage

Why does Indirect Spend matter?

A. Cost: Up to 40% of a company’s expenses might be Indirect Spend.
B. Savings: Optimizing procurement can save up to 25% on Indirect Spend line items.
C. Profit: Improving procurement strategies can deliver double-digit return to your bottom line.

Management of Indirect Spend is a big, challenging job, but the transformative effect on the business justifies the effort. Lower costs are one benefit. Rigorous specification, supplier qualification and strategic procurement processes can improve the products and services used by the company in ways that significantly improve the business.

Getting a strategic procurement effort on track requires persistence and a success-focused action plan. These concepts and tips will help you get started managing compliance, controls, and costs.

What is Indirect Spend?

Indirect spend items are purchases of goods and services not directly incorporated into the final product or service offering of a company.

Indirect Spend categories include Accounting, advertising, marketing, consulting, travel, IT, telecommunications, HR-Facilities, Utilities, MRO (maintenance repair and operations), capital goods, office supplies, furniture, food services and commodity packaging supplies. Indirect Spend in many of these categories can be critical to the company’s success.

Purchases justify a procurement group that can lower costs in the short-term and understands how supplier relationships can generate value for the company.

Gain Control & Harvest Savings

To reap savings from Indirect Spend, companies must strategically manage the processes and people involved. This management requires many collaborative efforts within a company and between suppliers, internal buyers, and your procurement team. Indirect Spend includes everyday items but also complex services. As your Indirect Spend management improves, your evaluation of suppliers becomes longer-term and more strategic.

To do a good job managing indirect spend, a business must commit to:

  • Executive sponsorship
  • Processes that identify, categorize and aggregate items
  • Systems that streamline and improve procurement
  • Support to select qualified suppliers and negotiate sound contracts
  • Collaboration between procurement professionals and departmental buyers
  • Monitoring for pricing, risk assessment, and changing market conditions
  • Measurements and visibility

You can see from this list how efforts to contain and control Indirect Spend are comprehensive and companywide.

Implement New Processes to Track Spend Better

Historically, companies put more focus on direct spend, which are the costs that go into finished products. Indirect spend categories can be more fragmented, numerous and diverse. Purchasing authority for Indirect Spend items is traditionally assigned to remote locations, business units, departments or internal stakeholders in a group, such as maintenance, operations, legal, HR or marketing. For these managers, relationships, proximity or speed counts more than cost savings.

Additional Tactics to Improve Indirect Spend:

  • Invest in Automation & Technology.
  • Partner, Hire or Train Procurement Professionals.
  • Involve departments in creating processes.
  • Get an optimal supplier portfolio.
  • Move toward long-term savings and value creation.

Get outside consulting if you need help to select technology, develop strategy, implement new procurement processes, pick qualified suppliers, or negotiate better, longer-term contracts. Transportation Insight offers free information and discussion about how to analyze your spend, put together a plan, assess the current situation, establish cost-saving processes, conduct strategic sourcing and save money.

Identify Items and Create Categories

A complex task is identifying Indirect Spend in your company in terms of items and costs. Reviewing payables (Accounts Payable) can offer the clearest listing of suppliers, items and costs. This review requires looking into spending by locations and departments to find the total for each item and the current supplier.

These steps can start bringing indirect expenditures under control:

  • Identify items and suppliers via Accounts Payable (AP).
  • Assign items to categories.
  • Review specifications and newer technologies, materials, or offerings.
  • Aggregate Indirect Spend item quantities into fewer, larger orders with preferred suppliers.
  • Implement company-wide contracts that reap volume discounts, favorable terms, and responsive suppliers.

Once you identify all the items, you can achieve success by aggregating similar items into categories that create larger bid packages for higher discounts. Also, there are opportunities for more substantial discounts, higher-volume deals open opportunities for supplier-managed inventories and multi-location ordering, replenishment, or delivery.

When items are aggregated and categorized, you may find opportunities to keep smaller quantities in stock, reduce the total number of items purchased, or reduce the number of supply closets.

Tasks, Goals & Metrics For Long-Term, Incremental Improvement

In the beginning, better control of Indirect Spend is different from the end game. After processes and suppliers are in place, the company needs to measure success and compliance. These measurement tasks need the right KPIs for suppliers and internal processes. Tasks, such as periodic budget reviews and training, are necessary. The company must build on success to reach higher towards the greater rewards from Strategic Sourcing and partner-like supplier relationships that offer an exceptional level of higher value.

  • Measure Cost Savings & Supplier Performance: Technology can provide real-time 
    visibility into purchase transactions to the line-item level, which helps to stay on track with ongoing spend management.
  • Set KPIs for Suppliers: KPIs can be used across suppliers, measuring contract compliance, customer satisfaction, cost competitiveness, service, support, and continuous improvement.
  • Review Budgets Regularly: Periodically review for savings opportunities under the revised procurement process. Ongoing cost review is part of a continual improvement effort. Also, look for ways to improve your new procurement process.
  • Create Lasting Value & Competitive Advantage: Ultimately, your procurement strategy should shift from the initial cost reduction phase to a value creation phase for the company.
  • Strategic Total Sourcing: Strategic Sourcing identifies the lowest total cost, not just the lowest purchase price. It embraces the procurement lifecycle, from specification to payment. Strategic sourcing is a procurement process that offers continual improvement of the purchasing activities of a company. Strategic sourcing often creates a close, partner-like relationship with a supplier to meet that customer’s needs better.
  • Educate Staff on Indirect Spend: Your procurement group (purchasing group) and budget owners from each department should become acquainted with the goals of your Indirect Spend cost-saving initiative.

Looking through these tasks, we recognize the importance of Indirect Spend management to the long-term profitability and competitiveness of the company. The efforts and organization-wide collaboration needed to attain results are apparent. Excellence in supplier management through Strategic Sourcing changes the basis of competition for a company and requires a continuing commitment to improvement in supplier evaluation, supplier relations and contracting.

Optimizing Indirect Spend Transforms Companies

By combining tactical procurement processes and strategic sourcing, companies realize savings in Indirect Spend that goes to the bottom line. As companies improve buying processes and view supplier relationships over the longer-term, the value of these relationships goes up along with the benefit to the company.

Businesses know that changes in technology, regulation, and markets alter the playing field for the company and that its ability to adapt to lower-cost and better-performing solutions is critical to success. For more information on reducing expenses by improving the management of Indirect Spend, watch our webinar, “Uncover Indirect Spend and Reclaim Lost Profit.”