CSCMP 2009: LG outlines supply chain strategy, fuel surcharges examined
Presentations at annual conference provide practical advice on streamlining and reducing costs
Dave Hannon -- Purchasing, 9/23/2009 3:20:52 PM
With a clear strategy set by LG's CEO and a fresh crop of C-level executives brought in from outside Asia, LG has been making dramatic supply chain strides with the goal of becoming a top three company in each of its markets. Among the broader supply chain steps that LG has taken according to Chenneveau, are:
- An increase in outsourced manufacturing (LG prided itself on its manufacturing ability and the concept of outsourced manufacturing was completely foreign, so the cultural shift here was a big challenge)
- Improved cost visibility across the organization
- Globalization its supply chain (while LG had sites around the world, it wasn't thinking like a global company and its internal organizations didn't reflect the markets it was doing business in)
- A move to a more demand-driven supply model with more accurate forecasting.
Some of the specific steps LG took to move its supply chain along the curve include:
- Creation of 10 metrics across various areas (financial, demand, order and supply) to track progress and report to the CEO on them twice a year
- Standardize on one ERP system (Oracle)
- Standardize on one financial system
- Consolidate the various WMS/TMS instances
- Standardize RFPs and contract terms and conditions across the company
- Improve sales forecast accuracy from 30% in 2008 to its current level of 40% with the goal of 60%.
- Make English the standard language across the company's supply chain to facilitate better communication.
- Standardize job titles in the supply chain
- Rationalize the more than 41,000 SKUs LG carried in 2008
Also on Tuesday at the CSCMP conference, Chris Caplice, executive director of the MIT Center for Transportation and Logistics, hosted a panel and audience discussion on the impact of fuel surcharges on transportation rates.
"Fuel is ridiculously volatile," Caplice said to open the session, showing a slide illustrating how much more volatile fuel prices have become in the past five years. Because of that, in Caplice's opinion, fuel prices are virtually impossible to predict, pointing to a 2008 forecast by the Energy Information Administration which was well off the current market.
"And these are smart guys, so if the experts can't predict the prices, how can us transportation guys predict it six months out?" he said. "So the question is, is there a better way to manage it?"
The real fear among shippers is that fuel surcharges will inflate the linehaul rates, and when fuel prices drop, the linehaul rates stay high.
"We try to make fuel neutral in our costs," said panelist Wayne Skinner, vice president of supply chain at HJ Heinz, who hedges against the cost of fuel by using heating fuel futures.
Building more collaborative relationships with carriers is one way to avoid their using fuel surcharge programs to escalate rates, said panelist Deverl Maserang, vice president of global product supply and logistics at Chiquita Brands International. In fact, he says Chiquita's CEO comes to speak at its annual carrier conference to show logistics providers what a critical part of the business they are to Chiquita. Maserang also works with carriers on fuel efficiency to remove costs from the supply chain.
Read about Chiquita's leveraging of the LeanLogistics TMS in this story: Logistics software streamlines global sourcing efforts
For more on LG Electronics' supply chain overhaul
Read about the procurement portion of LG Electronics' supply chain overhaul in this story: LG Electronics centralizes purchasing to save
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