We are IPG –
The Business Transformers



18 May 2020

Reducing supply chain costs is a task that many companies have to deal with on a permanent basis. In addition, customers are demanding ever shorter delivery times.

Supply chain management worldwide ensures that the right goods are in the right place at the right time.

Logistics today still stands for transport, handling and storage. The requirements of sales, the interfaces to production and suppliers are not questioned. If companies determine on the basis of benchmarks that both freight rates and warehouse processes are top competitive, it is time to deal with the topic on a broader scale - the Supply Chain Management (SCM).
For all manufacturing and trading companies, this part is one of the most elementary components of their business. If the delivery stops - for whatever reason - this can lead in the worst case to losses in the billions. One of the most popular examples was the delivery stop to the VW factories.

Challenges in logistics

Although globalization and increasing customer demands are increasing the pressure, at the same time, year after year, logistics costs, storage and transport costs in companies have to be reduced. Therefore, different companies are involved in an SCM to meet the requirements. Examples of this are:

  • Dozens of warehouses in Europe or around the globe
  • Many different sales channels
  • Fast delivery of ever smaller quantities.
  • 40 different shipping regulations - and always new ones

The logistics departments continuously evaluate changes in transport times. They do this taking into account the legal and customs conditions. Warehouse locations are closed or new transhipment points are set up. Warehouse processing is outsourced and e-bidding is used to agree the most competitive freight rates.


Cost reduction through supply chain projects

Supply chain management extends the boundaries of logistics. The world as a whole, the procurement markets, suppliers, production locations and also customer ordering behavior are taken into consideration.
This can give rise to many questions for companies:

  • Is it really cheaper to produce in Asia?
  • Are the production sites perhaps too far away from the customers?
  • Is it really necessary to send a half-empty pallet from Hamburg to Lisbon every day?
  • How can planning information be used to better utilize trucks and containers or to smooth the load peaks in the warehouse?

In this way, not only the logistics costs of your own company are optimized, but the entire network - from the raw material supplier to the end customer. The holy grail lies in taking a holistic view of the system. If a product is to reach the customer quickly and reduce the costs of the last mile, more warehouses are needed. If, on the other hand, a company reduces the number of warehouses, the costs of the last mile increase. The truth is therefore to be found in the middle and is driven by customer requirements.


From the supplier to the end customer

It is no longer conceivable to have a single standard for supplying customers across all sales channels or customer segments. It would be as if a jeans manufacturer decided to produce just one pair of trousers - in the hope that it would fit everyone. On the contrary, companies today have to cover a wide range of services. Transparency of costs and performance is a mandatory requirement for the design of the respective material and information flows, which must be both highly efficient and flexible.

Customers from the automotive industry, for example, provide planning information and use preview and stability to design a highly efficient and reliable supply chain. Among other things, the customer and supplier jointly determine the storage strategy and the optimum transport lot sizes and ensure that the transports are bundled.
Retailers, on the other hand, demand not only high delivery reliability, but also exact compliance with their specifications in order to optimize the efficiency of their goods distribution and sales floor personnel.

Industrial customers must be able to react very quickly to market demands. An agile, flexible supply chain organizes the efficient and fast provision of a high number of variants, punctual delivery - despite strongly fluctuating quantities - and the fast market launch of new products. Thus, each industry and even each customer has its own requirements, which must be met with tailor-made solutions.


The efficient supply chain

This approach pursues the goal of cost leadership. The decisive success factors for this are efficiency and reliability.

  • To this end, warehouses are used to decouple the supply chain and drive automation from one decoupling point to the next.
  • Stocks are reduced to a minimum through close cooperation and exchange of information with suppliers and customers.
  • The processes, on the other hand, are continuously improved or "streamlined" and automated by those responsible in the warehouse in production and purchasing.
  • Products from a highly automated production are always delivered in the same way by means of automated loading and unloading systems.
  • The orders are transferred automatically, are then immediately imported into the warehouse and made available by means of automated warehouse processes. Possible adjustments are rather lengthy and cumbersome.


The agile supply chain

It defines several starting points for order fulfillment depending on customer requirements.

  • The customer is either supplied directly from the warehouse or the delivery is finished in the warehouse, i.e. it is assembled and produced in the assembly department according to the order, or components are procured JIT according to the order.
  • Instead of a standard delivery time, customers are offered delivery times in close consultation, which are precisely tailored to their market and product conditions. The reduction of throughput times drives the process design.
  • Service modules are defined in the warehouse, in production and in purchasing, which can be combined like Lego bricks for each customer order starting point.
  • Sales order acceptance assigns incompletely defined sales orders to a separate team. Production in turn separates the volume lines from the flexible line, while order preparation and product development build joint teams.
  • The purchasing department uses all relevant cooperation models and evaluates the flexibility of suppliers as an important decision criterion for supplier selection.


Software support for all parties involved

The close interaction with suppliers and between functions must be planned and controlled precisely, otherwise chaos will prevail. The wrong product variants are requested, logistics provides the material too late and production cannot keep to delivery times. To avoid this, companies use IT planning and control systems.

IT collaboration platforms are used to match supply and demand, for planning coordinated with customers and suppliers. Such a version of planning is the basis for the cooperation of all parties involved. IT planning tools optimize the allocation of demand quantities to plant locations and suppliers.
Such supply chain "control towers" monitor the interfaces, recommend necessary corrections, point out under-utilization and provide information on where the process improvement must begin. KPI cockpits document whether everyone has followed the rules of the game.


In-house resources or outsourcing

The key lies in the ability to react quickly to changing requirements. Companies must have the necessary expertise in supply, distribution, warehousing, transportation and supply chain collaboration for the two forms of supply chain mentioned above. This cannot be achieved by a logistics organization alone.

Even building a warehouse in Bavaria because a customer in Munich wants to receive his delivery one day earlier in the future takes too long. Here it can make sense to involve specialists in the form of logistics service providers in the logistics process. Modular systems and a high degree of standardization in both IT and processes make it possible to close or set up warehouse locations in the shortest possible time.

The outsourcing options range from outsourcing the entire distribution for a global region to a strategic partner to the management of own warehouses in combination with fulfillment partners or distributors.

Instead of managing delays in day-to-day business or solving problems between warehouse and forwarder, the logistics organisation is increasingly concerned with the cost drivers and, for example, shows the sales department what costs the agreed daily delivery causes and what options and savings effects are possible. The development of IT analysis tools and global cost and performance transparency become the critical success factors.


This article is originally published by CIO.DE




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