Supply Chain Management (SCM) includes all of the business processes, systems, and services needed to move raw materials and finished product from manufacturers to retailers, distributors, and customers. Like a chain, it is only as strong and efficient as the weakest link. There are many opportunities to make most company’s SCM more efficient, reduce costs, and provide higher service levels to customers.
A typical Supply Chain including Warehousing, Distribution, Information Technology and Transportation Services is pictured below and includes:
- Merchandising planning, inventory management, and analyses of product assortments for initial purchases and reorders. This may include liquidation of slow-selling products and overstocks.
- Electronic and manual processes of placing purchase orders for the product through vendor and customer portals (gain advanced shipping notices (ASN) and EDI)
- Inbound freight services, consolidation, and routing/carrier management; real-time inbound visibility; and dock scheduling
- Receipt of customer orders from websites, portals, contact centers, and salespeople
- Four walls warehouse operation for processes and warehouse management systems (WMS) including:
- Merchandise receiving, checking, quality assurance of the product, and vendor compliance enforcement
- Marking and packaging product to requirements (retail, ecommerce, etc.)
- Pick, pack, and shipping of customer orders
- Stock put away and forward stock replenishment
- Value-added services (such as kitting and monogramming)
- DC inventory control, inventory audit trail, and cycle counting
- Return processing of customer credits/refunds, and merchandise disposition
- Reverse logistics of returned product from customer to Distribution Center (DC)
- Outbound transportation services to the end users and customers according to the customer’s expectations of delivery time and cost. Various shipping modes, including small parcel, palletized LTL, and partial or full TL.
Here are four major areas of every Supply Chain. We recommend reviewing these areas and considering ways your supply chain can be streamlined to reduce your overall fulfillment costs:
Streamline dock to stock processes and systems
As you investigate the inbound side of the Supply Chain, you should have these objectives:
- Investigate EDI and Advanced Shipping Notices: These will improve the vendor-customer IT and standards. Implement a vendor-customer IT protocol to process purchase orders, ASNs, invoices, and many other electronic documents. Benefits include:
- visibility of inbound shipments
- significantly reduces errors
- improve timeliness
- gain advantages of truck scheduling
- planning receiving labor.
- Improve throughput and order cycle time: Product arrives ready to fill orders or be put away immediately, eliminating stock delays and congestion.
- Identify processes: Look for processes which can be pushed up the Supply Chain to the manufacturer or wholesaler and reduce DC delays and expenses. Examples of processes include inspection and unit marking at a lower cost.
- Achieve 100% barcode or UPC reading all products, cartons, and pallets shipped: This allows the DC to implement barcode scanning and other technologies, like voice technology; sortation systems and MHE; improving accuracy; timeliness; and online data collection.
- Develop vendor compliance policies (VCP): VCP includes transportation routing guide; product specifications; barcoding; EDI and ASN use; packaging and carton specs; and marking and paperwork requirements.
Your company’s merchants are a vital part of the SCM. Inventory is probably one of your company’s largest balance sheet assets. Finding a balance of keeping enough stock to accommodate customer orders without severe overstocking is a continuous challenge.
Efficiency in planning, purchasing, and managing inventory has major effects on DC capacity and storage from overstocks and storage. For example, consider how you can change processes to achieve a high fill rate on customer orders.
Merchants will also have a major say in adopting VCP and enforcing the standards. They are also the key to communication with vendors on purchase order delivery dates. Changing mode of inbound transportation, as an example, from ship to air freight not only destroys gross margin; but often it is part of the delay in receiving and shipping orders.
Reduce time to customer ship and shipping costs
Amazon can already ship to 72% of the US population in one day. Many companies are evaluating how to shorten the order delivery time to customer and shipping expense through employing a multiple DC network strategy. Many multi-DC processing environments experience common challenges:
- having the right DC location(s)
- using systems with functions to plan and manage inventories by location;
- employing order fulfillment logic to ship by DC closest to the customer shipment
- planning for increased inventory levels
If you have only one DC, how could multiple DCs closer to the customer reduce time to customer and shipping costs? What are the additional costs to implement this strategy?
Evaluate and reduce outbound freight costs
The cost of outbound freight now exceeds all the other fulfillment costs in total, including. the sum of direct and indirect labor, facilities, depreciation and amortization of WMS, automation and sortation systems, and packing material costs.
These outbound freight costs can be range on the low side of 6%-8% of the average order to much higher for large and dimensional freight items. Additionally, customers now expect low cost or free shipping and will make purchase decisions accordingly.
As you look for ways to reduce costs on the outbound side of SCM, here are some possibilities:
- Understand the makeup of your shipping profile and expenses, such as the number of packages, carrier, weight, and zone. For example, expedited carrier plans have 90+ accessorial charges - how can these be reduced? What products are driving added costs and what can be done to reduce expenses?
- Identify the best way shipping options and systems between multi-carriers and modes of transportation. Use USPS and zone skipping where tracking and slow delivery are acceptable. Investigate acquiring an enterprise system to gain more data access, control shipping costs of all packages in the multi-DC environment, reduce international shipping paperwork and maintain shipping rates worldwide.
Summary: Perform an Operational Audit of Your Supply Chain
A Supply Chain Assessment is a great starting point to determine how your fulfillment expenses can be reduced by streamlining the SCM’s processes and systems. Gaining the approval on the Supply Chain Assessment by upper management and other stakeholders will help you develop the cost benefit analysis.