The Network Effect

Identifying best practices in transportation management and implementing those best practices across a company's supply chain network are a fundamental element of good supply chain management. Whether the network is international or domestic, managed in-house or outsourced to a thirdparty logistics provider (3PL), someone needs to keep a well-trained eye on transportation. It all starts with performance measurement.

"Knowing what to measure is key for our clients," says Scott Szwast, international freight marketing manager with UPS Supply Chain Solutions. UPS supplies customers with daily displays of key performance indicators (KPIs). Some companies lack the experience to understand what's important to measure, says Szwast. Since KPIs can be industry or company specific, he urges clients to benchmark similar industries or companies with similar challenges to measure intelligently.

"For example," Szwast explains, " distribution of high-tech products and healthcare products requires different strategies. High-tech inventories typically depreciate rapidly, so speed is essential. On the other hand, some proprietary pharmaceuticals actually appreciate in value over time so those companies manage inventory velocities differently."

The evolution of technology tools in supply chain management has included new systems for transportation management.

"When it comes to systems," says Szwast, "the biggest challenge for clients is in understanding and buying into the network effect. The more parties that are using the network, the more beneficial it can be," he claims, because suppliers and customers alike know when product will be available. "In fact, with an information feed from suppliers in China and visibility from the ocean carrier, the broker, and the intermodal carrier, this visibility combined with reliability reduces the need for speed," he adds.

"Carriers, 3PLs, and shippers all have their own systems and those systems talk to each other through defined protocols. We all have the ability to flow information from these contributors into our information databases. That information flow means customers can carry less inventory. If a shipper lacks this visibility, it has to increase safety stock," Szwast explains.

The technology that links all parties involved in the supply chain facilitates more complex supply chains, and it fundamentally changes what people are selling, and what consumers are buying. "When a customer purchases a cell phone, for example, they are buying a customer management service," says Szwast.

"The cell phone must be programmed and customized or configured. That process starts with a customer management system and an order management system that reside with the seller. A warehouse management system (WMS) manages the actual inventory. A transportation management system (TMS) manages the physical delivery. All this requires an agile system that can flow information while the product moves physically. The 3PL doesn't own the customer management system but everything it does supports that system. The WMS, OMS, and TMS have to work with it.

"If your company still operates on the silo concept, with no one talking to anyone else, rather than seamless information flow, you are enabling all the bad things that can happen in supply chain," adds Szwast. Rather than enabling "bad things," it's a much better strategy to identify good things and spread them around the transportation network.

A systematic approach to improvement
In a company as large and complex as IBM, it may make sense to have a senior person responsible for driving best practices across the supply chain. However, any worker should be encouraged to offer suggestions for process improvements and be eligible for recognition and rewards. Rather than leave idea generation to chance, IBM has regular global forums and supplier reviews in which it seeks ways to improve processes. These have resulted in a number of significant process improvements within IBM's supply chain.

"When we find a better way, we share it across the global community," says David Lowrie, director of global logistics with IBM's Integrated Supply Chain

group. He describes a few of the transportation management process improvements that IBM has implemented across its global supply chain:

  • A team in Japan developed an e-pod tool that simplifies providing proof of delivery.
  • A new customs clearance tool, developed in Argentina, automates the customs clearance in each country.
  • Improved systems eliminate the shipping of PCs from a warehouse in one country to a warehouse in the destination country, then to the customer. The new system allows shipment of PCs direct to customer. "Now we're using the same model on our server business," Lowrie notes.

Once an improvement has been identified, says Moe Trebuchon, a partner with the logistics and distribution arm of IBM's Global Business Services group, implementing best practices throughout the supply chain requires a number of fundamental organizational priorities to drive change:

  • Senior level sponsorship. The company must create a learning platform. Leadership buy-in promotes translating the need for change to constituents.
  • Understand benefits. Once executive leaders have pushed the need for change downward in the organization, the next step is a clear understanding of the benefit streams. Employees who understand potential benefits are more committed to realizing those benefits.
  • Emphasize line responsibility. "The line has to accept ownership of the change and maintain a clear customer focus," suggests Lowrie. "To effect change, customers, suppliers, and employees must buy into the process improvement. You must recognize the need to change the culture and reward performance."

People certainly make a difference. You can debate whether systems or people drive improvement, but there's no denying systems are a necessary tool for transportation management improvement.

Helen Richardson is a freelance writer with 18 years experience covering logistics/supply chain. She lives in Pagosa Springs, Colo.

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