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Move: A Supply Chain Shouldn’t Suffer from Your Growing Pains

Dec. 10, 2012
As your supply chain grows, learn how to better manage manufacturing costs and more complex inventories.

For businesses, growth is both a goal and a challenge. Getting bigger means more customers, more employees and more supply chain links to get a product to market. Each link added offers potential to better manage manufacturing cost—and fulfill the imperative for just-in-time production—but it also exposes the business to more possibilities for disruption. It’s easy, then, for fast growth to jettison the best-laid plans.

Consider the plight of one Texas company, a large multinational corporation that made various electronic products for the home appliance sector. It had grown to the point it was sourcing from 37 different factories in Mainland China. The parts were shipped to a Mexico factory for assembly. We were called in to evaluate their supply chain and squeeze efficiencies into it wherever possible.

Product Invisibility

To monitor and manage the inventory in this relatively complex supply chain, the company had acquired a multimillion-dollar inventory system from SAP AG. An entire yard on their leased Mexican property was filled with containers that had been shipped from the Chinese suppliers. It seemed like a foolproof system, except for one oversight: no one knew what was inside the containers that had accumulated on the site. Without that knowledge, the SAP software was worthless and the client was vulnerable to a supply chain breakdown due to unidentified inventory overload.

Called in on this project, we set it up so our client could “see" all the moving parts of its supply chain, starting from the factory in China, and identify which parts—and how many—were en route.

On-Site Customs Clearance

Tackling the issue on the other side of the Pacific, we asked our client company to buy the building they had been renting. It was available for a small investment because there were so many vacant commercial properties at the time.

The building needed to be bonded by the Mexican government. This step put Mexican customs officers in the facility so that when shipments were emptied, inspections were handled at the source—only 200 yards from the factory.  Now, when shipments are delivered, containers are opened and warehoused. The SAP inventory system has the information it needs to track, anticipate changes and make recommendations.

With a more visible and efficient supply chain, and the fact that no duty was required on the shipments until they were used, this company’s cash flow increased by more than $250,000 a month. The total overall reduction of cost was close to 12%—which amounted to millions of dollars for this particular company.

Monitor Key Indicators

Scalable economies like these are available to companies of any size as they grow. But they need to realize this is not only a “just in time" world—but also a “just in case" one. Often, the first place a disruption shows itself is in the key numbers. They should be watched on a daily basis to monitor trends and identify vulnerabilities. Weekly changes could be trends that need attention.

These are the key indicators to watch:

  • Sales increasing or decreasing
  • Profits going up or down
  • Performance improving or declining
  • Product line expansion

What can a flux indicate? Maybe you have the right cost and quality from a supplier in China, but you are experiencing unpredictable deliveries.  Or, some suppliers cannot keep up with a sudden jump in customer demand. Perhaps raw material costs are unexpectedly rising at some point in the chain, impacting your final cost.

By monitoring the numbers, you can decide when and where to investigate changes. If a broken link in the chain is the problem, businesses might need to identify a new source for that product or service, and reconfigure accordingly.

Can You Afford to be Lean?

As your company grows, it’s not just mile marker #1 to mile marker #2 you need to police, but mile marker #1 to mile marker #10. Building a smaller supply at each of those inventory points means you cannot take the impact of failed deliveries. The pressure to keep costs down will continue to multiply.

Visibility of those sites affords economies of scale and leverage throughout your company’s growth. It also gives business decision-makers the ability to get involved in managing the supply chain at different stages of manufacturing. The resulting intelligence will afford you the wisdom to recognize and serve priority customers.

Keith Buford is vice president of global operations at ICAT Logistics, Inc., a provider of global transport logistics and expedited freight services.

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