Today’s Supply Chain Disrupted World
We live in a supply chain disrupted world, and there is no end in sight. It started with the pandemic as the global supply chain got out of alignment. The ‘right’ inventory wasn’t in the ‘right’ place at the ‘right’ time to support basic needs let alone nice-to-have items. For example, there were shortages of hand sanitizer and meat at first which expanded into computer chips and building supplies as the pandemic raged on. Further complicated by port congestion, the ship stuck in the Suez Canal, TX storms, the Russia-Ukraine war, China lockdowns (for their zero COVID policy), and much more.
The most successful companies are focused on logistics planning best practices to get in front of these disruptions and create a more resilient and superior customer experience. As service shines and products are available when and where customers want them, there will be opportunities to increase market share. As baby boomers retire and sell their companies and some struggle to navigate a high interest rate, inflationary environment, there will be more opportunities for smartly-run companies to thrive.
Distribution & Warehouse Planning
If you don’t already have one, implement a SIOP process (Sales, Inventory & Operations Planning, also known as S&OP) to make the appropriate strategic decisions on how many distribution centers/ warehouses you should have in your network and where they should be located. Although plans fail in execution, not in formulation, if you don’t have a distribution center in the appropriate location to service customer needs at the lowest cost, flawless execution won’t help you.
Beyond your supply chain network, a critical component is to fulfill your network with the “right” product in the “right” place at the “right” time while minimizing inventory levels, shortening lead times, and maximizing customer service levels. Accomplish these results by implementing best practices in replenishment planning (also known as distribution planning).
Based upon your SIOP and replenishment plans, you’ll want to set up your warehouse to best support service and efficiency. If very much depends on your unique circumstances as to what will make sense. For example, if 25% of your business is e-commerce and the rest is pallet or case shipping, you’ll have a different layout, equipment needs, and resourcing plans than if your warehouse ships bulky products. As a general rule, e-commerce and box or pallet shipping will not be done in the same warehouse. It could be the same physical address; however, every successful client has separate areas, separate locations, or has outsourced one or both operations. Bulk items require different storage, handling, and shipping requirements, driving a different set of best practices.
Warehouse Storage Requirements
Understanding your warehouse storage requirements as a part of your SIOP process allows you to make informed decisions about the size, quantity, and positioning of your distribution network. Similar to calculating the labor hours required for a particular work center, you’ll calculate pallet positions, cubic feet or bin storage requirements. This information will allow you to determine the best type of warehouse infrastructure (racking, forklift trucks, etc.), technology and automation systems, and resourcing required to maximize your storage utilization while meeting your customer requirements at the lowest cost.
In some situations, it makes sense to evaluate outsourcing a portion of your business or your full logistics process to a 3rd party logistics provider (3PL). As with all situations, there are benefits and costs, and they change along the way. For example, in working with a value-add distributor to evaluate whether it made sense to continue with current warehouse operations or move to a 3PL, we found that the client was efficient and located close to customers. The 3PL would have to charge more to add a profit without commensurate value, and since the client had the warehouse space already or could solve the issue with a small overflow facility, it didn’t make sense.
Fast-forward several years later, and re-assessing the warehouse space analysis and 3PL evaluation, we came to a different answer. In this case, according to the SIOP process and sales forecasts, the client would be short on warehouse space, and more importantly, their e-commerce volume rose sharply. Although they could handle their current e-commerce volume, it made sense to evaluate outsourcing that volume to free up space, position inventory within a 1-2 day delivery window across the country, and utilize specialized expertise in e-commerce fulfillment inclusive of piece packaging, returns, etc. They would leave pallet shipping alone, at least for the foreseeable future.
Transportation planning starts with your network setup. For example, if you procure products from overseas, you will include global freight shipping considerations in your planning processes whereas if your network supports North America, you will focus attention on air or ground transportation. There are a plethora of options to consider in just trucking options ranging from over the road to LTL (less-than-truckload), to dedicated truck lanes, to multiple stop truckloads and much more. Rail is also a popular and less costly mode of transportation depending on your customer requirements and network capabilities.
Mode of Transportation
Typically, a client will set a strategy inclusive of mode of transport upfront. Our most successful clients are reevaluating transportation strategy on a quarterly, semi-annual or annual basis as a part of the SIOP process, and they will make adjustments as required. In today’s supply disrupted world with continually changing networks and manufacturing points, the frequency should be increased to stay ahead of changing conditions.
For example, a building products manufacturer reevaluated replenishment to a distribution center and determined that a hybrid strategy of shipping over the road and by rail made sense to best support changing customer requirements with optimal inventory levels instead of shipping all by rail. Clearly, transportation costs would increase, but they would be offset by improved customer service, reduced inventory and storage requirements etc. Similarly, an equipment and tools manufacturer reevaluated international shipping strategies as they transitioned manufacturing from China to Vietnam and later to Mexico. In the first instance, the mode of transportation didn’t change, but the ports and routes changed. In the second, the mode of transportation changed. In both cases, once in North America, they used over the road and rail to replenish their network.
Depending on your mode of shipment and network complexities, how you optimize transportation will vary widely. As an example, in a healthcare products manufacturer, they shipped partial loads relatively consistently to customers outside of the local region. Shipping LTL would be costly, require longer lead times, and proved unreliable. It made more sense to combine multiple customers on a truck and make 2-3 stops along a route. Thus, planning multiple stop truckloads provided the best service at the lowest cost. The transportation management system (TMS) would review customer orders within key routes and combine into multiple stop truckloads. It also would provide carrier options for review. The transportation planner would perform a similar role to a production planner or material planner to optimize transportation plans.
There are countless ways to optimize transportation. Since there are many variables, it leads to a multitude of options for satisfying customer needs at the lowest cost. You could also take a proactive stance by working with customers on their service policies to find win-win strategies to meet their needs while providing an advantage over your competition and minimizing cost. For example, an absorbent products manufacturer met with customers to provide additional demand data which allowed the company to optimize shipments to the customer yet providing improved service levels and reduced inventory levels with a collaborative replenishment (also known as vendor managed inventory or VMI) program. Additionally, they worked with key customers to use space in certain geographies to better serve customers and improve profit for both.
Refer to our blog for many articles on planning, capacity and related concepts. Also, read more about these types of strategies in our eBooks, Thriving in 2022: Learning from Supply Chain Chaos and Future-Proofing Manufacturing & Supply Chain Post COVID-19. If you are interested in talking about what it would take to optimize your production scheduling scenario, contact us.
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Improving Service Levels, Logistics Efficiencies, and Inventory Turns with Replenishment Planning Best Practices