Calculating productivity of any operation is, at its most basic, determining the ratio of cost inputs to revenue generated. Supply chain productivity is no different. By outlining the major cost centers of your supply chain and optimizing your spending within each, you’ll be creating a much more favorable equation for improving supply chain productivity.
Cost control measures in the supply chain should address three major areas: labor, inventory and transportation. One additional area to focus is risk management, which, if left unchecked, can cause unexpected expenses to skyrocket within the other three budget areas.
When creating a strategy for improving the productivity of your supply chain, you should analyze your costs within the following four areas:
Step 1: Maximize labor efficiency
Your workforce is one of your most expensive cost centers within the supply chain, and optimizing the value of this investment is key to supply chain productivity. To effectively manage all the moving parts – and to drive continuous improvement – supply chain leaders must optimize their staff resources at every stage of the journey.
Real-time supply chain visibility can significantly reduce wasted time across your operations. Armed with insight into trucks’ actual arrival times, you can ensure that your staff at the loading dock, in the warehouse or on the retail floor is being utilized for value-add tasks, rather than wasting time waiting for a delivery. On transportation and customer service teams, a cloud-based real-time tracking platform can automate track-and-trace processes to maximize productivity.
Step 2: Right-size your inventory
High inventory levels not only mean high direct materials costs, but also increased carrying costs and warehousing costs. If you can reduce these costs to the minimum necessary to maintain service levels, then you’re in a great position to improve productivity across your supply chains.
Generally speaking, inventory in the supply chain falls into one of two categories: raw materials and finished goods. Being able to identify bottlenecks in getting raw materials turned into goods quickly is critical to accelerating inventory turnover and increasing inventory efficiency.
While holding excess safety stock of finished goods ensures that companies always have enough materials on hand to meet customer demand, it comes with a huge price tag. As new technology enables companies to adopt leaner workflows, real-time transportation visibility creates opportunities for companies to maintain lower levels of safety stock while still meeting and exceeding customer expectations.
Step 3: Control your transportation spend
There are several ways to reduce wasteful spending in your transportation budget: eliminating excess fees and fines, minimizing the cost of unplanned expedites and leveraging strong carrier relationships for better prices.
Detention or demurrage costs and OTIF (on-time, in-full) charges can quickly add up. To improve productivity, facilities must be able to rapidly process loading and unloading. Similar to the strategy outlined for dock labor savings, detention times can be reduced by using predictive ETAs to prep facilities for faster throughput. OTIF fines can be avoided through better on-time performance. Many shippers are seeing success at increasing on-time delivery rates using real-time visibility, including Smithfield Foods, which has improved its performance by 7% with FourKites.
Turning to the spot market to fill a last minute gap in load assignments, or worse yet, switching transportation modes altogether for expedited delivery can completely blow your transportation budget. Sometimes alerting a customer to potential delays in advance can eliminate the need for drastic changes to your logistics plan, and help you avoid unexpected costs. FourKites’ Shared Shipment Status feature, for instance, allows users to communicate individual load information to their customers or other stakeholders via a secure, encrypted link. Another method for avoiding unplanned expedites is to reroute shipments already in transit to fill the gap, or to reassign carriers onto the at-risk delivery. Both of those methods require the real-time tracking and predictive ETAs available through a supply chain visibility platform.
Step 4: Mitigate risk
Bottlenecks, delays and disruptions are commonplace in logistics management. To cope, sometimes the only thing shippers can do is to quicken their reaction times. Reacting more quickly can reduce the chances of lost sales from frustrated customers or, as mentioned earlier, eliminate the need for costly expedites.
As a case in point, here is an example from FourKites customer Eastman, which used FourKites to avoid delays and damaged goods through a hurricane in the southeastern US earlier this year. “With the FourKites solution, we went from multi hours to minutes,” said Tom Morton, VP of Global Supply Chain at Eastman. “The tool gave us the ability to see the entire value chain and reroute materials to keep them out of harm’s way to ensure reliability of operations and service. Frankly it’s a phenomenal benefit for our logistics teams.”
Preventing the compounding impacts of a delivery exception on the supply side or the customer side can go a long way to minimizing the damage caused to your productivity.
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As competition for consumer dollars heats up across industries, productivity improvement measures should focus on cost control measures at every stage of a product’s journey. Supply chain leaders who are able to optimize the value of their labor, inventory and transportation dollars – and minimize risk in the process – will quickly find themselves with the competitive advantage.
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