Supplier Logistics Management (SLM) Part 2

Executive Summary

SUPPLIER LOGISTICS MANAGEMENT The Next Strategic Layer of Competitive Advantage Supply chain executives are in the hot seat given the flat economy and a slowdown in revenue growth. They are challenged by senior executives to find new and innovative ways to reduce cost, while still meeting customer needs. However, in today's customer-centric environment, meeting customer's expectations is not a competitive advantage, but a fundamental necessity of existence. Delivering products on time, at a higher level of service, is now a standard expectation, leaving limited room to leverage performance as a sustainable competitive advantage.

To reduce costs and gain a competitive advantage, supply chain executives need to focus on supplier management inefficiencies in their supply chain. Ignoring upstream supply chain activities can be costly. For instance, it has been estimated that the food and beverage industry loses $7 to $12 Billion per year through incorrect data flows between suppliers and retailers ⁽¹⁾. Additionally, when European consumer goods and food retailers lost more than $17 billion in inventory last year, they could only explain about 41% of these losses ⁽²⁾. Results like this point to the strategic advantage supply chain executives can obtain by focusing on improving their fragmented and complex supplier logistics networks. Through improved supplier logistics management, supply chain executives can provide senior management the silver bullet they are looking for to minimize operational inefficiencies, reduce costs and gain a sustainable competitive advantage.

This is Part Two of three-part note.

Part One covered how Technology Enables Supplier Logistics Management.

Parts Two and Three cover the Seven Fundamental Issues Targeted by Supplier Logistics Management.

Supplier Logistics Management Targets Seven Fundamental Issues

With the Internet as the road and Net-Native applications the vehicle, supply chain executives have the opportunity to drive significant efficiency improvements and cost reductions through Supplier Logistics Management (SLM). SLM enables companies and their suppliers to successfully synchronize information; thereby, allowing companies to extend supply chain optimization and process flows to their supplier base. With SLM in place, companies can target seven fundamental supply chain issues facing the management of successful supplier fulfillment:

1. Order Visibility and Event Management
2. Inbound Planning and Optimization
3. Information Synchronization
4. Supplier Management and Compliance
5. Available-to-Promise
6. Forecasting and Capacity Management
7. Resource Scheduling

Order Visibility and Event Management

Today, purchase order visibility is primarily a truck arriving at a company's distribution center and identifying order discrepancies at the dock door. SLM seeks to eliminate this fortune telling visibility by allowing companies to proactively identify risks upstream, giving time to react prior to shipment arrival. This would allow companies to cut cycle times by as much as 33% and reduce inventory by as much as 30%, both while improving in-stock customer service ⁽³⁾. "Inaccurate information that arrives late, or not at all, has traditionally been the Achilles' heel of supply chain management resulting in excess inventory, inefficient processes, higher costs, and unhappy customers. Therefore, having better visibility, along with exception management and workflow capabilities, allows companies to respond quickly and effectively to changes, and, in light of today's highly-dynamic business environment, this ability ultimately translates into a competitive advantage", states Adrian Gonzales, a Senior Analyst with the ARC Advisory Group.

Using SLM, companies issue suppliers purchase orders with desired order quantities and delivery dates. The suppliers are able to see and act upon the information related to the purchase order. Any changes or adjustments the supplier makes to the purchase order triggers a proactive event notification to the company's buyers. The process carries forward to suppliers creating shipments from the purchase orders, tendering shipments and transporting shipments. Along the entire supply chain path the company has complete purchase order visibility and is notified of any discrepancies from what was transmitted to the supplier. Allowing buyers to be proactive instead of reactive and to troubleshoot purchase order issues with the supplier prior to delivery, eliminates surprises when orders arrive.

Inbound Planning and Optimization

Prior to SLM, real-time systematic inbound planning and optimization was not a reality. Companies were forced to plan inbound shipments based on stale and dated information from suppliers. Many company's models were not scalable, requiring their suppliers to call shipments into dispatch centers for carrier routing information. This inefficient approach excludes opportunities for consolidation and continuous moves, resulting in a rudimentary view of the supply chain instead of a holistic one.

SLM provides companies a central view of all shipments from its suppliers. "Prior to SLM, companies did not have the tools to effectively take into account the wide range of interactions between its suppliers", states Karl B. Manrodt, assistant professor Georgia Southern University, "SLM expands visibility and creates an information hub to coordinate inbound logistics processes, allowing successful transportation optimization. This change is one that benefits both shippers and carriers."

Centralized information provides companies with a complete picture of their inbound shipments, allowing them to optimize smaller LTL shipments into cost-effective truckloads. Companies like Dollar General, who have already implemented consolidation programs, experience cost savings of 20% on their inbound freight costs ⁽⁴⁾.

Two related factors, lower truckload rates and the minimization of carriers and trailers arriving at a facility, reduce the labor requirements of facilities and contribute to cost savings. In addition, as companies merge inbound and outbound activities onto a centralized platform, continuous move opportunities arise, allowing companies to achieve a lower transportation rate by linking inbound and outbound shipments and carriers to increase asset utilization.

Information Synchronization

The lack of information synchronization currently plagues the relationship between suppliers and their customers. Studies have shown 30% of the data shared between suppliers and companies is incorrect ⁽⁵⁾. In fact, a 2000 Food Logistics survey highlighted the most frequent benefit resulting from the adoption of e-technology was increased data accuracy' ⁽⁶⁾ (see figure 1). Existing error prone communication vehicles, including phone, fax and keystrokes, result in data that is often mis-entered and mismatched in the various supplier and company systems. SLM bridges this gap by providing a single communication platform, allowing suppliers and companies to see synchronized information across their networks. A two-way view into the purchase order and shipment notifies all parties of changes and discrepancies, eliminating the asynchronous flow of purchase order information from company to supplier and shipment information from supplier to company.

This concludes Part Two of a three-part article.

About the Author

Mr. Buelow is a Product Manager at Elogex Inc. and has several years ofindustry experience in supply chain software and strategy. Buelow was previously a Senior Consultant in the Supply Chain Strategy Group at iXL and prior to that was a Senior Consultant and Business Analyst at Optum Inc. He has helped developed the Internet strategies for such Fortune 500 companies as GE Polymerland and Danaher and successfully implemented transportation management software at Federal Express Logistics, Skyway Logistics, Ticona, Monsanto, and Solutia.