How to Bring Flexibility To Your Supply Chain and Distribution

   

An agile supply chain is a system of product distribution that:

  1. Does things quickly
  2. Reduces costs
  3. Is responsive to the market and consumer demands
  4. Maintains flexibility
  5. Keeps productivity at all-time highs

Supply Chain Management exists to improve the long-term performance of the individual company. 

The golden child of Supply Chain Management is Amazon, who reached $141.92 billion in product sales in 2018. More than 100 million people had access to Amazon Prime benefits as of the start of 2019.

“That translates to 62% of Amazon customers getting access to perks like free two-day shipping, Prime Video streaming, and more.” 

According a report by RBC Capital Markets, Prime subscribers spend a rough average of $1,700 per year versus about $700 for non-Prime members. That translates into about $117 billion in top-line revenue generated by Prime customers.

Morgan Stanley has shown that the PrimeNow 1 to 2 hour delivery doesn’t make economic sense.  But what it does do is drive top line growth and changes customer behavior. 

The map in the RBC report illustrates how the major customer changes in purchasing behavior has been backed up by Amazon's aggressive expansion of distribution in the last four years. This expansion has forced a sea change in retail brick and mortar operations.  As of last year, retailer Target has seen 25% of its online product orders picked up in store. A survey conducted by UPS shows that this trend is much more widespread. In fact, 48% of consumers in this survey ordered products for pickup in store or ship to store.

Amazon is already capable of offering same-day and one-day delivery to 72% of the total U.S. population, according to RBC Capital Markets.

According to RBC,

The vast Amazon delivery network is the result of significant investments over the past four years, a period during which Amazon built out fulfillment centers across the country, nearly tripling its U.S. logistics infrastructure.Amazon has added roughly double the amount of distribution space Home Depot currently owns.

To combat this, Walmart has rolled out its "click and collect" strategy at about 2,700 Walmart stores in the U.S. and plans to expand to 3,000 stores (out of about 4,700) by the end of the year. Steve Bratspies, Walmart's chief merchandising officer, discussing what happened after "click and collect" made its debut, says,

It's proving to be highly incremental to our business and bringing in new customers with strong repeat. The average basket size is about 2X what a standard grocery basket is, so obviously we're excited about that.

There is huge marketing potential for Walmart– that is, knowing what the individual customer buys regularly while also collecting contact information to send vendor and store promotions.

As Walmart and Target have demonstrated by updating their shipping methods, the retail store business model as we previously knew it has almost been destroyed. This shift to convenient access to online products has resulted in a record number of company bankruptcies. 

This shift from typical brick and mortar retail shopping to new online shipping models have been affected by the following:

12 Ways to Make Your Supply Chain Agile and Flexible

Companies often look at Supply Chain components like distribution centers and systems as fairly rigid entities.  F. Curtis Barry & Company has assisted many clients in changing their Supply Chain and fulfillment center agility and flexibility. 

Some ways in which we see wholesale, retail, manufacturers, distributors, and ecommerce companies becoming more agile and flexible are:

1. Build distribution closer to the customer

The overall objective is to move product distribution closer to the customer, reducing delivery time and shipping costs. 

For example, for a large distributor of electronics, studies proved moving the  central fulfillment center from the East coast to the Midwest enabled them to ship more than 90% of its customers same day or one day ground.

Another East coast, industrial business-to-business company was looking to move its two distribution centers closer to its two major manufacturers.  In addition, they have a third distribution facility that is third party logistics (3PL).  They are also considering changing 3PL vendor locations, giving them closer proximity to west coast clients for one day ground delivery which is estimated to be 20% of their customers.

READ: How to Assess If Multiple Distribution Centers Can Reduce Shipping Costs and Time to Customer

2. Look for process and systems efficiency

Here are for major ways to save money in your Supply Chain:

  1. Dock-to-Stock Processes and Systems
  2. Optimize Inventory Management
  3. Reduce Time-to-Customer and Shipping Costs
  4. Evaluate, Reduce Outbound Freight Costs

 

3. Make distribution convenient and flexible

Retail models illustrate that the customer is in control.  The customer can see the retailer’s inventory location at the stores nearest them.  Do they want to order on-line and pick up at the store?  Or order online and ship from the store or distribution center? 

The key is for the product sellers - the retailer, distributor or e-commerce - to communicate availability, delivery time frames, and having order fulfillment in multiple locations.  In the case of Walmart, 100% of the store assortment is available to be picked by a special shopper. This even includes  fresh foods,  packed and brought out to your car. There is no price mark up or deliver fees and customers do not even need to set foot inside the store. 

 

4. Streamline the Inbound Supply Chain

In order to streamline the supply chain, the main  objective is to be able to accept a high percent of purchase order receipts without any rework and to get the vendor to adopt a your vendor compliance policy.

One example of this is in freight costs. A number of our clients use freight consolidators for inbound shipments, which gives them considerably lower freight costs.

We have had numerous clients that transitioned from catalog to ecommerce to multichannel businesses selling to Walmart, Target, Walgreens, and other big box retailers.   These changes in Supply Chain and distribution do not come easily because they mean changes in terms of vendor compliance, packaging for direct to customer versus store display, and all the IT systems that EDI based protocols require.  But these lead to building sales.

 

5. Strategic use of third-party logistics (3PL)

3PL facilities can be up and running in 4 to 6 months versus 12 to 18 months for an internal facility.  Additionally, you don’t have the risk of hiring all new management and staff and the capital investment regarded.

A very specific example of how 3PL is beneficial involves a a Christmas gift food ecommerce operation. We helped them locate five, food ready 3PLs that deliver 95% of Christmas gifts in one day ground.  Food processing was centralized and distribution was done through the five 3PLs.  This gift catalog ships 45,000 orders per day at peak.

To learn more about the benefits of 3PL, how to get fully loaded cost estimates, how to keep service levels high and contracting see our Definitive Guide to 3PL.

 

6. Flexible warehouse networks

The flexible warehouse concept is defined as the short term temporary lease of warehouse space as compared to the typical longer term lease.  This allows companies to accommodate severe peak fluctuations and to test Supply Chain changes in new markets. Some providers have an alliance of as many as 1,000 warehouses in networks of independent owners across the USA.  This often lets companies establish warehousing and fulfillment services in the tightest real estate markets.  This also allows companies with excess capacity to commercial their assets without selling the facility. 

On-demand warehousing allows you to replace fixed costs with short term variable costs.  Obviously, you have to the cost comparisons between options on-demand and longer term leases.

7. Adopt end to end Supply Chain communication

Greater commination means  complete visibility of product as it flows from the manufacturer or distributor to the ship, air freight, trucking line or small package carrier  through the distribution center and outbound to the customer. 

One of the major benefits of EDI and the inbound IT systems is the exchange of status and documents, eliminating paperwork and verbal communication.  The common currency is the status of material and finished product through the Supply Chain.

While the transportation industry has been responsive, many fulfillment centers are still single shift five day operations.

 

8. Build distribution center capacity and throughput

There is tremendous capacity available in some centers that is untapped.  One example is that the transportation industry now provides, through UPS and USPS,  Saturday and Sunday delivery options.  However, as mentioned above, most warehouses run a single eight hour shift, five days per week and don’t take advantage of this access to weekend distribution.

Other ways you can increase distribution center capacity and throughput include:

  • Implementing inbound compliance measures that get receipts through the center into stock or to cross dock, with minimal effort.
  • Optimize the layout of your center.
  • Change the process and technology to pick more units, lines, and order per hour.
  • Get more storage out of the space you have.
  • Implement bar code technology throughout all DC processes to increase accuracy, timeliness of inventory and labor utilization.
  • Implement flexibility in technology and automation.
  • Get more productivity from your labor dollars. Consider using temporary labor to augment staff and explore incentive pay plans. Also, implement these five ways to improve productivity. 

 

9. Adopt flexible IT systems and services strategies

Probably the biggest thing to happen to the IT industry are Cloud-based, Software as a Service (SaaS) and Subscription model systems.  The advantage is that many robust WMS, shipping and EDI systems that were once out of the reach of small to moderate sized companies cost-wise are now affordable through these models. 

The IT resources are contracted out.  They typically have operational costs based on transactions processed and IT resources used.  Upgrades are made by the service rather than internal staff.  These approaches make IT more nimble than on-premise licensed models. 

READ: On-Premise vs Software as a Service Systems: 9 Factors to Consider 

10. Just-In-Time (JIT) packing materials

Corrugated and dunnage can take a lot of space, especially in peak periods.  Work with your suppliers on JIT delivery to reduce materials storage space.

11. Drop ship vendor programs

Buyers typically select the products that they feel will sell best.  There are many SKUs and products that are not selected because of potentially slow sales, the amount of inventory required and space concerns.  With the internet and digital portals, many companies are able to offer a complete vendor line rather than just selected products through vendor drop ship programs.  We see many retailers and ecommerce companies gain sales increases without tying up inventory dollars, especially with slower turning products. 

12. Build last mile connectivity

In the past 10 years, regional delivery firms have played a big role in some merchant’s delivery options.  However, the single biggest change we saw recently is Saturday and Sunday delivery by UPS and USPS. 

Summary

Having great product the customer wants is paramount.  Using centralized locations, flexible work systems and excellent business communication is also imperative. The ability to get products to the customer when and where they want it, at an affordable price, is the function of agile and flexible Supply Chains.

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