Sizing it up – Just how effective is your supply chain?

Posted on 11 May 2011 by The Manufacturer

The old adage: ‘If you can’t measure it, you can’t manage it’, has been applied to all areas of business. But where does quantification fit within supply chain management and how does a company ensure it is making the most of its supply chain opportunities?

Benchmarking basics

Benchmark your supply chain against the world’s best known organisations

Compare your performance to your peers and best-in-class

Provide analysis tailored to your particular industry sector and/or supply chain type

Analyse cost and service by individual supply chain functions (from purchasing to transportation through inventory management and warehousing)

Provide hard data and demonstrable metrics

Quantify ‘the size of the prize’ – the real financial benefits to be gained

Provide an improvement plan with key recommendations for short, medium and long term action

In today’s highly competitive global marketplace, the pressure on organisations to find new ways to create and deliver value to customers grows ever stronger. According to Martin Christopher, Emeritus Professor of Marketing and Logistics at Cranfield School of Management, there is a growing recognition that through logistic efficiency and effective management of the supply chain both cost reduction and service enhancement can be achieved.

In his book Logistics and supply chain management: creating value-added networks, Christopher says the goal of supply chain management is to link the marketplace the distribution network, the manufacturing process and the procurement activity in such a way that customers are serviced at higher levels and yet at a lower total cost.

As transport and raw material costs continue to increase and generate greater competitive pressure, the need to maximise logistical efficiency will undoubtedly grow. According to consultants Davies & Robson, benchmarking a supply chain can begin with a simple comparison of easily identified factors, such as transport rates. This can then be extended right through to an in depth exercise looking at how processes operate and comparing them to best practice for similar processes in another organisations.

It is important to realise that benchmarking in general and supply chain benchmarking in particular don’t have to be completed within the same industry. For example, benchmarking a defined process such as order processing using process mapping can be done across different sectors, allowing best practice developed in one industry to be transferred to another.

Detailed benchmarking can review costs, measures (service levels, productivity) and processes. Process mapping your operations and then benchmarking them against another similar best practice operation enables the setting of internal targets for which you can aim.

You can’t improve what you don’t measure
Oliver Wight partner, Jerry Shanahan, says that benchmarking your supply chain performance can improve service and reduce supply chain costs by as much as 50%, and argues that it is a critical activity to keep competitors at bay.

In recent years, benchmarking has become one of the most popular management tools. In some instances, taking precedence over strategic planning, because it allows organisations to improve service at the same time as reducing costs.

Shanahan comments: “This may seem counter-intuitive but Oliver Wight’s own experience bears this out. In fact our data shows that supply chains which deliver best-inclass service to customers, do so at half the cost of their peers. And of course if you can deliver a superior service, you can charge more for it, so it becomes a virtuous circle.” But if you don’t know how well you are performing, or what best-inclass looks like, how do you know where you can improve, or by how much? Critically, benchmarking your supply chain performance will allow you to identify performance gaps and provide a financial evaluation of the gains that can be made off the back of performance improvement. Typically you can expect the potential savings to be at least ten times the cost of benchmarking. So it’s not really surprising that benchmarking is such a popular tool.

Removing the supply strain – @logistitcs provides a new opportunity

Geodis Wilson, Italsempione, Fiat and a leading UK food group use the @logistics Reply WMS product suite to run their warehouse operations. Its software as a service (SaaS) warehouse management solution (WMS), SideUp, provides complete visibility of the supply chain from warehouse to delivery. It supports ideal stock placement through to route and fleet management.

Geodis Wilson, a leading freight forwarding company has achieved an Approved Economic Operator (AEO) certification as a result of increased accuracy in traceability gained by installing SideUp Reply. SideUp Reply’s cost containment, extremely fast activation times (the system was activated in two weeks), ease of use and flexibility prompted Geodis Wilson’s choice to select this solution.

“We chose SideUp Reply because it guarantees shorter delivery times and, above all, flexibility in managing operating costs thanks to the ‘on demand’ supply model” says Mauro Baldoni, IT Manager of Geodis Wilson Italia. “Another aspect that influenced our decision was the fact that you are able to use the system without it having to be installed at the premises of individual customers and the possibility it offers in terms of sharing information with our customers, via the internet.” In addition, a leading UK food group, supplying major UK retailers, is now saving £4,000 – £5,000 in supplier fines each week since deploying SideUp. This is the result of accurate order delivery; improved date rotation to ensure the delivery of optimum shelf life products and the virtual elimination of costly ‘special transports’, which have to be borne by the supplier.

Inventory control and customer service are also improved, while scrappage is reduced.

“SideUp presents a new paradigm for the supply chain sector, particularly for warehouse environments with very high density transaction requirements and rapid start-up needs,” says Jez Tongue, partner, @logistics Reply UK. “Because it can be purchased as a hosted (SaaS) option there is limited upfront cost. A WMS on demand is also a cost-effective route for businesses with a limited budget for hardware and software investment, and limited IT personnel. It provides companies with the customisable scalability to pay as little as they wish for the functions they need – with no contractual constraints.

SideUp Reply provides:

Reduction of stocks with the same level of service
Reduction in the number of errors
Reduction in order delivery times
Real-time visibility over the progress of your operations
Automation of operational processes
Automatic acquisition and transfer of information in real time
Integration with company IT systems or those of your partners

Oliver Wight has an online supply chain benchmarking tool, which is used globally, by all sizes of organisations in all industry sectors, including matrix structures and multiple supply chains. It comprises over 200 questions, which allow clients a deep-dive evaluation of supply chain performance, using their own data to both quantify their current position and to compare it to best-in-class.

Using the principle of delivering ‘The perfect order’, a detailed report then reveals (in financial terms) precisely where and how big the improvement opportunities are, and what can be done to take advantage of those opportunities. The gains can easily run into millions of pounds.

Of course, if you aspire to be the best you need to know what best looks like. Benchmarking performance is critical if you want to defend and improve your competitive position. And if you are performing well, it allows you to demonstrate to customers (and prospects) that your performance is superior to your peers.