Warehousing and World Peace

Nov. 1, 2004
New skills, services and technologies should be applied to meeting the needs of global markets. This will undercut the breeding ground of terror.

"Your performance is central to what happens in industry and commerce. The global reach of politics and trade means we all need one another."

That was John Major, former prime minister of Great Britain, addressing attendees of the Council of Logistics Management's (CLM) annual conference last month. Major said the gulf between the haves and have-nots is fueling global terrorism. Industry is the answer. He suggested that new skills, services and technologies should be applied in meeting the needs of global markets. This will undercut the breeding ground of terror.

Major was talking on a macro level about the well-being of the global economy, but his message resonated through many sessions that were clearly focused on logistics performance. The one hosted by logistics consultant Jim Tompkins illustrated how much work must be done to bridge gulfs within industries before those industries can take on larger global issues.

"I can cite more situations where there's been failure rather than success in collaboration," Tompkins said. "The customer wants more benefit, but the supplier's CFO says reduce inventory. We have to be more accountable through measurements."

Tompkins outlined six stages of supply chain excellence through which companies must evolve for collaborative commerce to take hold:

Level 1 is business as usual. Individual functions are working well, but each works with blinders on. Boundaries prevent the company from functioning as an integrated unit.

Level 2 is link excellence, or supply chain management. That's when departments work as one to enable the enterprise to function well. At this level you can start discussing supply chain excellence.

Level 3 is visibility, where you share information, forecasts and requirements. Each entity then acts on this information.

Level 4 is collaboration. You focus not only on your link, but what you can do for customers.

Level 5 is synthesis, a supplychain-wide continuous improvement process.

Level 6 is velocity, which goes beyond synthesis, and makes you more responsive to the needs of the market.

How evolved are we? Yankee Group says there's $40 billion of inefficiency in today's supply chains. Tompkins teamed with the Soleus Group to study retailers and uncover some of the root causes. The study looked at 50 retail companies in nine industry segments representing $500 billion in sales. Sixty-one percent admitted their current supply chain networks were sub-optimal when it came to achieving transportation cost savings, but when asked if they would change their network design approach, 57 percent said no.

Most were unhappy with vendor compliance. On-time delivery was at 87.5 percent. Most agreed that a 10 percent improvement was called for. Instock at stores was at 94.3 percent; 3 percent improvement is the goal. Fill rate was 93.7 percent; they'd like it to be 4 percent better.

Even with all these improvement goals, none of the retailers is offering suppliers incentives to reach them. Only half monitor vendor performance to ensure they're getting what's expected.

As for technology usage, 55 percent have a transportation management system, 40 percent have a supply chain execution system, or WMS, and only six of the 50 used supply chain event management systems.

Supply chain goals and incentives are set by senior management in these retail organizations. The lesson to be learned is that a common set of goals and incentives is needed to help supply chain collaboration take root. From these supply chains, networks will sprout and grow branches long and fruitful enough to nurture a more peaceful world.

As John Major said, all we need is the will.

— Tom Andel, chief editor

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