My ill Supply Chain

What are the symptoms?

1. Everybody complaining about the forecast

Projected business levels led to prepositioned inventory and now we have excess inventory for products we cannot sell and stock-outs and shortages for our bestsellers. A perfect recipe to make our customers very unhappy but also to make our financial director cream at us.

“Forecasting is very difficult, especially if it's about the future”

“The only function of forecasting is to make astrology look respectable.”

“The trouble with forecasting is that it's right too often for us to ignore it and wrong too often for us to rely on it.”

2. Planners operating as a fire brigade working long hours trying to build-up inventory and limit number of shortages

As we assumed the numbers we received from Sales and marketing were reliable, and planned to supply for these volumes we get surprised daily by unexpected or unmet orders. Our plans must be changed and adjusted all the time.

“Planning is bringing the future into the present so that you can do something about it now”

“He who fails to plan, plans to fail”

“It pays to plan ahead. It wasn't raining when Noah built the ark.”

3. All partners in supply chain working with older versions of the Forecast and applying their own rules of interpretation to each number

Check-out:

http://www.shmula.com/the-bullwhip-effect/310/

4. Poor Customer Service figures and non-budgetted expenses for supplied products

5. Customers buying from competitors

Topic 5: Process and execution details are ill-defined or managemment of relation left to partner

SOPs are hard work.

In general, the process description is what gets done. But a process description does not clearly define link to KPIs, roles and responsibilities nor system implications for the general management and the operators.

My suggestion would therefore be to document the SOP at 3 detail levels:

1. Stakeholder agreement
Process fowchart with DACI and KPI
This document is a high-level summary of roles, responsibilities, exception resolution and KPI.

What is scope of service?
Who does what?
Who intervenes for which issues?


2. Operations Quality Manual
Detailed Procedure description. With monitoring mechisms (meetings, reports, decisions), timing and delays for remediation.

3. User Training Manual
The implementation of a process is as good as the employees understood why, what and how to operate the process.

A system is best explained via a concrete exemple covering all steps with printscreens showing everyone in clear way how to work with systems.

Topic 4: Service level agreements that cannot be enforced without lots of extra manual effort

Remember before the contract is signed!

An SLA must be easy to enforce without much manual effort

Logistics is execution. And operations are a complex mix of details. The Big Picture is not always easy to grasp.


Did we deliver Ontime? Was the provided service without too much hassle? Is the service provider transparent in terms of costs and charges?

All these questions often end up with No, but...

Avoiding these back and forth discussions between service provider and customer requires upfront homework.

Key Performance Indicators are important but much more relevant for succes of the paartnership is to allign Operational Performance Indicators.

OTIF KPI is business critical but what we want to review as part of SLA is OPI reason for delay is a category our service provider was supposed to avoid.

Perfect Order KPI tells us how good we are but number of errors in logistics documents or documents not delivered at right point in process SOP is where the logistic partner was accountable for our poor transactional performance with a customer.

Transport cost KPI is business critical but what we want to monitor in SLA is surcharges like demurrage, weekend surcharge and other exceptional but avoidable charges.

And question to work on is not the definition of these OPI but how to measure and review them with partner.

Do available reports cover them? Do we need to adjust internal KPI reports? Can our partner fill the reporting gaps? And if noit, is the manual reporting of issues documented, standardized and sustainable?

Once the contract is signed, it will be too late and difficult to enforce the agreed service if we cannot monitor the partner with minimal effort!

Topic 3 : Assumption 3pl can cover more ground and geographical scope than reality

When contracting logistics suppliers, one of the crucial elements is subcontracting.

There are very few Global players and their service quality is very variable by region, market and by service.

Who is great in Australia is not best in West-Africa. A company serving the chemical industry is not perse the best in bulk. Tapping into specialists is the key to success.

But creating relationships with LSPs is a job in itself.

On one hand we say we want to develop these partnerships, on the other hand we want to keep a healthy competition and options to change to supplier with lowest cost.

The secret is to design logistics processes that can evolve and where multiple suppliers can operate via one common setup.

A supplier relationship management setup...

Topic 2: Limiting parties that can offer their service in a market with undercapacity

The greatest danger when selecting an LSP is to choose a large Global logistics player to service a smaller company.

First the bargaining power will not be in favor of the smaller company. Second, the Global Logistics partner will not necessarily be willing to offer flexible terms and services.

Best for a smaller company is to help a smaller or several selected smaller logistics providers to develop jointly.

A win-win relationship will be established for many years with a clear bargaining power to get best price st best cost.

When the number of relationships becomes hard and complex to manage a Global logistics player can be brought in to manage the relationships.

But always keep control over logistics contract and price negotiations.

Nobody negotiates better than the one needing the right service!

Topic 1 - Avoid short-term cost and focus instead on long-term service

Logistics is about the best trade-off between service and cost.

Cost-savings are a gamble on the sustainability of the quality of the logistics service.

Creating a cut-throat cost competition is a short-term strategy that will backfire when the demand exceeds the supply.

There is only so much room for a business to give its margin away.

Once the right balance in terms of margin for all involvwed in the logistics chain has been reached, logistics can in reality only deliver sustainable savings via innovations like improved collaboration and transparency. With other words by reducing risks and unexpected costs from bad processes. And by making the relationship better based on clear win-win objectives with logistics experts.

What are some of the critical mistakes people make when outsourcing logistics to 3PLs?

Outsourcing is a strategic decision, and when we talk about logistics the make or buy decision becomes very complicated.

Why?

- because logistics is a service and services are difficult to compare before the experience

"There is a subjective element how great the service will be because all customers are not treated the same"

Wallmart and Ikea ship much more volume and containers.

Do you think you will get same service as them from Maersk?

- Logistics is about solutions

One can assemble services into a great logistics service combining carriers, forwarders and system providers. There is an infinite mix of options with pros and cons.

And all we know is someone will invent a new way of combining the building blocks in a concept that is larger than the sum of its parts.

- Logistics is about Win/Win

Down the chain all need to be making a living. Squeezing the smal partners is fine but will come back as a boomerang as lower quality service!

- Logistics is about service via technology

Better ships, planes and trucks, better infrastructure and equipment, top IT to automate document handling, better tracking technology and other enablers that reengineer the supply chain and offer top quality services at lower costs.

- logistics is about flawless execution

Better get it right first time. Each mistake is costly!