How the supply chain changes your job
By Tim Minahan -- Purchasing, 2/12/1998 2:00:00 AM
Cost-conscious executives are salivating over the prospect of supply chain management. Who can blame them? With its emphasis on streamlining supply operations from suppliers' suppliers to customers' customers, supply chain management offers potential savings between 15% and 40%. And such savings typically translate into a big boost in profits.
Transportation is a key component in supply chain management. However, to effectively manage the total supply chain, companies will need to source, buy, and manage transportation much differently than they have in the past.
Gone are the days when transportation buyers can make their sourcing decisions based on which trucker or freight forwarder offers the lowest rate. Supply chain management, often considered an outgrowth of just-in-time manufacturing, de-mands that companies operate with little or no inventory, relying instead on a network of supplier and transportation partners to deliver the necessary parts and materials to the assembly line just as they are needed for production.
"With the integrated supply chain, there is considerably less inventory," says Robert E. Sabath, vice president of the supply chain practice at Mercer Management Consulting. "That leaves less room for uncertainty and inconsistency in transportation."
Don Cameron, manager of corporate logistics at bose Corp., puts it this way: "With less inventory, transportation interruptions can result in all kinds of problems, including assembly-line shutdowns."
Cameron points to the recent troubles at the Union Pacific, last summer's United Parcel Service strike and the less-than-truckload industry strike in 1994 as examples of how delivery delays can wreak havoc on a company's manufacturing schedules.
To protect against such disruptions, transportation buyers need to develop a core of carrier partners closely integrated with their companies' manufacturing operations. bose, a high-end electronics and stereo-system manufacturer, has done this, consolidating the management of its day-to-day transportation operations into the hands of three providers: LTL giant Roadway Express Inc., import/export brokerage Tower Division of McGraw Hill, and ocean carrier giant APL. These partners, which schedule and track bose shipments with a host of carriers, have dedicated account representatives and information systems on-site at bose headquarters in Framingham, Mass. [PUR: Oct. 17, 1996; Page 53.]
Cameron says these "in-plant" representatives also provide vital shipment information to bose's transportation, manufacturing, and sales organizations. "Supply chain management is really knowing what's happening in the chain at all times," he says. "The information provided [by the in-plant reps] is critical to us knowing what's in our distribution pipeline. A manufacturing plan could be built on the data of where product is in the pipeline and when it will arrive at the plant."
That means transportation providers must become better managers of information. Cameron says, when sourcing transportation partners today, buyers should weigh a carrier's information management capabilities just as heavily as its ability to deliver consistent on-time performance.
Don't go it alone
Transportation buyers will also need to work more closely with other functions within their own companies. The very phrase "supply chain management" indicates that companies must concern themselves with linking the operations of every person that touches a product as it moves through the supply chain. In-house, this means that transportation buyers will find themselves working hand-in-hand with their counterparts in purchasing, manufacturing, and other functions.
Breaking down the long-established silos and improving communication and cooperation between operational functions is crucial to supply chain success. The reason? The traditional silo mentality fosters an environment of distrust, which often manifests itself in higher inventory levels. And excess inventory can gum up supply chain operations, increasing opportunities for damage and adding costs.
"Many times managers hold safety stock to offset such variables as demand and [transportation] delays," says Sabath. He estimates that these safety stocks can add between 15% and 50% excess inventory to the supply chain. Closely meshing the various functions can build an element of trust and cut down on costly stock overruns.
Koppers Industries Inc. has made cross-functional teams the core of its supply chain management initiative. The Pittsburgh-based producer of such bulk commodities as coke, roofing tar, and telephone poles formed a dozen such teams which, consisting of logistics, purchasing, manufacturing, marketing, and plant managers, cut across both functional and business division lines. These teams establish joint supply chain goals and metrics for measuring progress. Some key metrics: the value of inventory; the number of inventory turns; the percentage of shipments made using each transportation mode; the load factor for each shipment; on-time shipment record; equipment utilization; backhaul; and demurrage.
Probably one of the most important outgrowths of the cross-functional team concept is that it has turned the emphasis of Koppers' various functions from managing individual costs, such as the cost of manufacturing or transportation, to managing total supply chain costs.
Such thinking can be tricky for transportation buyers who, for so long, have been focused (and measured) on getting lower rates and, when possible, using low-cost modes, such as rail. Says Robert A. Gallant, chief of supply management at Canadian National Railways: "Often times, an increase in transportation costs can wind up reducing your overall supply chain costs."
Cross-functional supply chain management teams at the Montreal-based railroad decided to close two of its materials depots. The move has increased the company's transportation costs but, according to Gallant, "When we looked at the whole supply chain, it made more sense to have smaller, more frequent shipments."
Gallant says his group continues to work with CN engineers to determine the best method and time to deliver materials, such as railroad ties and switches, to the field.
Reinventing the buyer
To solidify a key role on their companies' supply chain team, transportation buyers will need to acquire a whole new set of management skills.
In addition to being the resident expert in traffic and logistics issues, transportation buyers will need to learn more about the operations and demands of other functions as well as those of their customers.
"[Transportation buyers] need to focus on what drives the concerns of other functions, such as manufacturing and sales," says Erik Markeset, manager in A.T. Kearney's transportation practice. "The more they understand about the needs of their companies' sales and manufacturing operations, the better they can work with the carriers to make sure those needs are met."
Transportation managers should also develop a famil-iarity with new information technologies such as electronic-data interchange, route optimization software, and the Internet's World Wide Web. Buyers should make a particular effort to learn how to leverage this information to improve the way shipments are routed through their companies' supply chains.
Says bose's Cameron: "Information is only useful to those who can interpret it and use it to improve their company's performance."
Finally, supply chain management changes traditional work rules. As explained above, transportation buyers will find themselves interacting more frequently and more closely with other functions. This, according to Sabath, will require buyers to improve their "people skills."
"The old line-traffic manager is very much at risk," says Sabath. "The new transportation manager has to be a much more visible part of the supply chain team, constantly providing input and offering solutions on 'how we can make this work.'"
Just as transportation is one component of a company's total supply chain, buyers of transportation services will increasingly become part of a larger supply chain team. To be an effective member of that team, transportation buyers must learn to understand the needs of their supply partners and begin to focus on how distribution fits into their companies' overall needs.
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