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Very few companies have a single supply chain. Power plants, concrete plants, oil refineries, and fertilizer operations are among the few that do. And even these few examples have considerable layers to both their inbound and outbound supply chain. If you look at your supply chain you will see that 50% of your throughput volume comes from at least three different source points. Each is a discrete supply chain to be studied and understood.
Best-in-Class companies understand that there are multiple channels in their supply chains. Even with the same commodity, if different suppliers exist there is a different supply chain for each supplier. Even if the transport modes are the same, there will be differences in the timing, capacity, capability, and cost of each option. Leaders understand this and work to understand not only the differences, but the benefits and pitfalls of each option.
The best-in-class invest the shoe leather and effort to go to the ends of the supply chain to understand what they have, how it works, and how it can be improved.
Examples abound, but here is a single one that illustrates how just moving a source plant can affect a critical supply chain. A retail and wholesale tire seller and distributor sources private-label tires from both domestic and international factories. One manufacturer has both domestic and international production facilities. This supplier makes a specific series of tires that is a high seller for the distributor. The supplier’s plant makes this series and few others, so the plant is basically dedicated to making this tire.
The distributor uses an integrated forecasting system to project order demand. The system uses the known manufacturing lead time and transit times to calculate the inventory levels and order points for the high-volume tires made by this supplier at this specific plant. Because of the high consistency of supply performance, the distributor has dialed the safety stock levels for this series of tires low because of the consistent dependability of the supplier.
Due to raw-material supply issues and an increased demand for this specific series, the supplier decides to move the manufacturing of this series to another plant that has higher capacity and better supply. The supplier increases production and makes “ahead” sufficient stock so they can shut down the line and move the molds to the new plant and then restart stocking. The supplier does not inform the distributor of the move until after production has already moved.
Disaster strikes when the first shipments are ready to ship from the new location. The distributor controlled inbound transportation, so they were caught unawares by the new origin point. The distributor’s logistics group had fine-tuned the service and costs from the old plant, using a specific intermodal rail service to provide the most consistent service at the lowest cost. The new location does not have the same transportation service offerings. In fact, the transit time grows along with the cost of transportation. Worse, there is a lack of available capacity from the new origin point. Not only do transportation costs go up, but now the distributor must increase safety stock for the performance failures - increasing inventory. The impact on Working Capital affects the distributor’s cash flow. It is not long before the distributor is demanding a cost reduction in order to recover his cash losses.
Hello! My name is Dave Schneider, I'm founder of WATP. Going to the ends of your company's many supply chains will reveal how much opportunity there is for improvement. I'd love to help you get started.
Give me a call anytime at 877-674-7495