When improving your processes to get greater efficiencies, you must ask the right questions.
By Jason Lockard
The typical life cycle of consumer-packaged goods (CPG) goes something like this: a product is designed, its raw materials are sourced, the item is manufactured and the finished good is stored in a warehouse. Historically, it is at this point in the value chain that a logistics partner is called in so that the product can go from warehouse to end-customer without further involvement from the shipper.
Times have changed. Consumers expect to be able to get what they want, when they want it. If they go into a physical store, they expect products there. If the shelf is empty, they will go elsewhere, or buy it online. When Amazon promises same-day delivery, competitors are pushed to offer the same or similar services. That pressure moves back up the supply chain to the manufacturer.
Unsurprisingly, because the challenges relate to delivery, CPG companies tend to think of this situation as a logistics issue. So, they put pressure on their logistics providers to deliver to a retailer’s demands, including new industry standards such as on time in full (OTIF) or must arrive by day (MABD), without thinking about how their own operations and supply chain are organized. In other words, they may overlook the costs and waste that may exist in their entire supply chain.
Unless those existing pre-warehouse processes change, shippers are effectively asking their logistics partner to operate in a digital environment with analog operations. When carriers struggle to meet shippers’ demands or refuse to work with them, products fail to be delivered on time, and shippers fall foul of retailer compliance requirements, resulting in penalties such as chargebacks.
Hold your 3PL accountable to ask the question, why?
Who is to blame? Shippers are not logistics experts. They are experts at manufacturing a product that retailers want to stock and consumers want to buy. What they need are logistics professionals to fit in the gap between production and consumer buying the product.
If the product manufacturer is out of compliance, if they are continually missing OTIF or MABD deadlines, then the fault should be laid at the feet of the logistics partner. Not because they failed to deliver, but because they failed to ask the most critical question. Why?
Act Like a Child
Being a good 3PL in the digital era means acting like a small child. As soon as they can talk, children will start to ask why. They are curious, they want to know how things work, and they refuse to accept initial explanations at face value.
It is exactly the trait a 3PL needs to have when it works with a new shipper. Why do you do that? Why does that need to be at that point on that day? Why do the products arrive in your warehouse at that point? Why is your warehouse based there when your customers are all here? For a good 3PL, asking why will give it the information it needs to start to analyze, optimize and improve a shipper’s supply chain so that it sheds all superfluous costs and waste.
Data is King
The idea of continuous improvement, of stripping back anything that is not vital to a lean operation, can only be realized if all the component parts in the supply chain, from planning through production to transportation and return of goods, are visible and are in view. However, to achieve this holistic supply chain visibility and be able to make informed decisions, you need data.
Take, for example, a manufacturer of healthy protein goods which had enjoyed rapid growth at the cost of its ability to transport its products efficiently. Carrier invoices were high, with warehouse space lacking and no central system to manage distribution. By deploying a transport management system, revising its carriers in line with its distributor’s preferred list, and working with consolidators to manage multiple shipments, thereby freeing up warehouse space, the manufacturer was able to enjoy a much-improved logistics process. It even cut carrier costs by 14 percent, equating to around $225,000.
In another instance, a 3PL identified that if a shipper could provide an additional three days of notice for shipments, the client would save a significant amount of money on transportation rates. This was because the added time meant carriers could improve truck utilization and optimize the delivery route.
This was all achieved by the 3PL first questioning the existing processes and then using the available data to redefine parts of the supply chain. With that visibility, people can ask better questions and, potentially, uncover greater efficiencies.
The Continuous Nature of Improvement
When a shipper decides to improve its logistics process, what are the steps it will need to take? Realistically, it breaks down into four parts:
+ The process – the shipper needs to understand the current state. This is the asking why – it helps build that picture of what things look like now.
+ The people – once it knows what it has, shippers can identify the right people, whether in its own organization, the 3PL’s or even the customer’s, who can support the changes needed.
+ The plan – the shippers know what needs to change and who can change it. Now it needs to know what it wants the future to look like. Defined by specific, measurable, achievable, relevant and timely (SMART) targets, this is what will guide the project and ensure it stays on track.
+ The bottom line – this is the point of review. Is it driving savings or having a measurable impact on the shipper’s profitability? If it isn’t, what needs to be adjusted to make sure it does?
The beauty of it is, once this has been set in motion, it is a process of continuous improvement. If the SMART targets are met, new ones can be set; if they aren’t, the process can be reviewed and adjusted accordingly. As each review cycle comes around, the factors holding the process back are stripped away.
The Only Thing That Stays the Same is Change
Processes need to keep improving because the only constant is everything changes. Think about it – a shipper starts working with a retailer, adjusts its processes to meet the new demands, performs to, or above expectations, so the orders increase. Great news, but it also means more pallets that need to be shifted, more product to hit the warehouse, greater quantities to be manufactured.
Perhaps an existing supplier cannot meet the increased demand, so someone else must be found. The shipper only knows this because it can see the trends and spot the red flags thanks to the visibility of the data across its entire supply chain.
Suddenly, the process that achieved success needs updating. Due to changes outside of the shipper’s control, what was once lean now has some waste which needs cutting out in order for it to function effectively. This can only be achieved if both shipper and 3PL are acting like children and constantly asking why.
Focus On What You Do Best
It might seem insulting to a shipper to allow a third party to look beyond their point in the supply chain deeper into the manufacturing and warehousing operations of the company, and yet it is only by doing so that shippers will be able to deploy lean processes which allow them to rapidly adjust to increasing consumer demand.
Shippers know their products and customers inside out, and 3PLs know logistics inside out. Manufacturers will benefit greatly if they lean on the expertise of 3PLs, embrace their desire to continuously improve, and recapture the efficiencies waiting to be reaped in their supply chain.
Jason Lockard, senior vice president of enterprise for BlueGrace Logistics, has over 12 years of logistics industry experience, and he has been with BlueGrace Logistics since its inception. Jason is responsible for the oversight and strategic direction for the Enterprise Channel at BlueGrace Logistics including sales, implementation, operations and support for all U.S. locations. Jason has a Bachelor’s degree from the University of South Florida, and a Six Sigma Green Belt Certificate from Villanova University.