Tight Performance Wins

March 1, 2009
Demand driven and service focused suppliers are winning and keeping customers. Achieving customer goals requires close, careful measurement and monitoring

Demand driven and service focused suppliers are winning and keeping customers. Achieving customer goals requires close, careful measurement and monitoring and frequent adjustments to operations.

In an economic climate where even the healthiest companies need to be more cost conscious, monitoring orders to measure shipment performance levels takes on a new, heightened importance for supply chain executives. Lower consumer demand and capital constraints have an increasing number of companies slimming inventories. This, in turn, makes exacting service performance even more of an operational imperative.

In light of these heightened demands, the supply chain execution solutions space (transportation and warehouse management systems) is on the rise. That technology/service sector was performing strongly and is bullishly forecast for future growth, according to a November 2008 report by Gartner Inc. With constant pressure to squeeze supply chains, it's becoming increasingly clear how important it is to meet required service levels with solid and consistently repeatable performance, and track service levels in such a way that companies can further improve and reap cost savings while positioning for future revenue growth with their customers.

But there are still more compelling reasons to monitor performance levels. One area to improve — and where manufacturers and their customers typically incur additional costs — is when performance requirements are not met. This can have a domino effect where the customer, say a retailer, may decide to reduce shelf space allocated to that manufacturer's product line or seek private-label alternatives where they can control the service performance more directly.

Information Equals Insight

With so much pressure on manufacturers and retailers to have the right amount of product at the right place at the right time, it is imperative service performance metrics are developed at a detailed level and reviewed on a regular basis. Data, converted into information, is an extremely valuable and powerful tool. In order for this to occur effectively, as many parties within the supply chain as reasonable need to gather and agree on performance standards. They all must understand the current benchmark performance and how these measurements were derived. And, moving from the data perspective, it is imperative to understand, as deeply as possible, the service performance variables and how they act and behave given certain changes within the supply chain that is being analyzed.

A good place to start is in collecting data, analyzing it, and applying it meaningfully to improve supply chain practices and change sub-standard behaviors. Next, companies should consider deploying a continuous improvement framework, as service performance is achievable only for a short time unless something like a Lean Six Sigma (LSS) approach is applied to change outcomes positively and consistently over time.

For those who are challenged for capital to develop deeper capabilities, the companies that provide transportation management services and logistics technology have the ability to share a plethora of information via robust on-demand dashboards, gauges and reports. These reports track shipment information and contain the critical data that allow analysis and review of key performance levels. Additionally, those companies can typically work with users to develop specialized reports to analyze performance metrics, provide a detailed and proactive view of all shipments, as well as pinpoint potential service violations that may occur prior to delivery. The reports identify where the problem occurred and what actions should be set in motion to remedy the problem.

Results of on-time performance

When shipments are consistently delivered on time, manufacturers begin to establish a reputation of predictability, which can lead to an invitation to join a retailers' preferred supplier network. From there, further opportunities exist in being viewed as a strategic partner that can contribute by improving their bottom line through enhanced operational efficiencies. To reach this level of high predictability, shippers should align their performance scorecards with their customers' goals and set up meetings regularly with the objective of assessing opportunities to reduce avoidable costs and address lingering performance gaps.

After comparing and aligning scorecards, turning data into actionable intelligence is key. Data fosters improved communication, visibility and potential collaboration into purchase orders and shipment pickup and delivery. It also has the benefit of providing 360-degree visibility into the supply chain.

Setting “listeners” or triggers on expected actions/outcomes in the transportation management system is also a good option. Such signals can alert companies accepting loads to on-time pickup, ship and delivery issues and other factors they need to deal with to boost on-time percentages and standing with the customer. Many companies measure success according to meeting the customer's first delivery date each and every time and signals help companies discover why they might not be meeting those requirements. In the same vein, supply chain predictability is another crucial building block for creating a successful partnership with retailers. Enabling a customer to focus on their core competencies frees up their time to be more strategic and positions the manufacturer as a valuable partner.

On-site associates

Another opportunity that can drive improvement across a series of performance metrics is derived from putting a customer service manager on site with the customer. The improved collaboration and feedback that come with the role can be shared among the team. The on-site customer service manager also develops a better understanding of the company's culture and inner-workings, and ultimately what drives the customer's business.

In today's market, where service is a top priority, shippers that have the flexibility to adjust to meet high performance levels are the ones that will succeed in both good and bad economic times. Close collaboration with customers such as setting frequent meetings to review data, stationing a key associate on-site and heading off problems before they get out of control are just a few ways to ensure predictability and boost performance metrics.

A High Performance Example

A leading consumer packaged goods manufacturer has a simple mantra: Service to customers prevails above all. This Fortune 500 company realized the importance of implementing some of the concepts described here and had the following goals in mind:

  1. Become more demand driven.
  2. Improve planning and collaboration.
  3. Assure capacity in a volatile market.
  4. Effectively manage risk.

This manufacturer is focused on investing in transportation technology and managed services to improve its “sense and respond” abilities on the demand side. This was and continues to be accomplished by working with key customers and getting store-level demand data. The company was able to improve its responses to improve what is commonly referred to as the “customer bill of rights,” namely, having the right inventory at the right place and right time.

From there, the company combined effective execution practices and close collaboration to improve and strengthen relationships with its customers, ensuring the right resources were devoted to projects important to the customer. Closer work with transportation service providers allowed refinement of bi-lateral capacity-to-volume commitments. Finally, the company dealt with any posed risk via quarterly financial reviews of carriers. In doing so, it was able to spot problems before they escalated and work to resolve them.

The tangible results have yielded improvements, such as:

  1. Achieved 30% item out-of-stock reduction at the distribution center level.

  2. Brought on-time delivery performance level to 98%.

  3. Received recognition by the one of the largest retailers as a top supplier twice within 18 months.

  4. Reduced costs for expedited/premium freight dramatically over previous year.

  5. Incurred zero delays at manufacturing facilities due to transportation equipment-related issues.

Monitoring a company's performance levels can have multitude benefits for 3PLs, manufacturers and retailers alike. By implementing strategies to help manage shipments more efficiently, shippers can increase their predictability factor with faster, more consistent on-time deliveries and reap the benefits of becoming a preferred supplier to its customers. And it all adds up to positive impact to the bottom line — where every penny counts in this current market.

Matthew Menner is senior vice president, sales and alliances, for Transplace. Transplace describes itself as a lead logistics provider. It serves a number of customers across a variety of industries, offering third party logistics, freight services and supply chain consulting. www.transplace.com

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