Managing transport and distribution costs
The big issue: increasing revenues while controlling costs. One of the key challenges for many businesses is to increase profitability by increasing revenues and controlling costs. Companies with a logistics process at the heart of their operations see this as an opportunity to achieve both. By meeting customers' supply needs more accurately and efficiently, they can make it impossible for customers to move their businesses elsewhere. Therefore, they improve customer loyalty and boost revenues. By removing inefficiencies from their own processes, they control costs.
The Food and Beverage Industries are in one of the most demanding sectors, with both retailers and manufacturers demanding higher levels of service. The leading retail grocers, for example, are insisting upon unique service level agreements with manufacturers. Within those agreements, they make it clear that they will refuse to accept certain fresh products, like milk or vegetables, which do not have an agreed amount of shelf life. Manufacturers, or their Third Party logistics suppliers, must ensure they have the right amount of product, with the appropriate level of freshness. Also it must be available for the right customer at the right time. To say it is a complex process is an understatement.
Addressing quality and accuracy
issues within the supply chain
Food and beverage producers also need to address product quality concerns. A number of high profile scares around the world have led to far greater consumer awareness of product quality issues. Also, this awareness is now supported by increased regulatory demands. Retailers, and by definition their suppliers, are addressing these concerns and introducing systems (typically involving bar-coding) to ensure they can trace specific batches of product and account for its quality.
Accuracy is a critical issue, too. Manufacturers have to deliver the right quantity of product in the right packaging.Barcodes have to be created to meet individual customer requirements. Advanced shipment notes need to be issued confirming the arrival time of every consignment. There is a pressing need to develop systems to ensure waste is eradicated, or kept to a minimum. Clearly, the complexity of this task varies according to the size and perishability of the product.
All of these challenges need to be addressed within the context of business to analyze core and non-core business activities in order to improve efficiency. The outsourcing of non-core activities to specialist providers can be a cost-effective means of improving customer service - Third Party contractors now move over 65 percent of road freight. However, the publicity surrounding numerous high-profile outsourcing disasters has shown the need for companies to work closely with their outsourcing providers to ensure customer expectations are exceeded. In certain scenarios, outsourcing can create more problems than solutions.
The challenges facing logistics managers are many and varied. They must deliver accurate quantities of product to different locations at increasingly frequent intervals. Same or next day delivery has become the norm in the Food Industry, more so than any other industry sector. Logistics managers must ensure that they can trace specific deliveries and products on an historic basis. They must meet the demands of different customers accurately, consistently and profitably. They must optimize the use of the fleet to ensure that a vehicle is always travelling fully laden and via the most efficient route. They must also review the various forms of transport available to them, deploying inter-modal scenarios when that is the most effective option.
Understanding the IT revolution
Over the last few years, plenty has been written about how Information Technology can help food and beverage companies improve efficiencies and reduce costs. However, genuinely documented examples of this are still hard to find. The reason for this is that the IT revolution is still in its infancy. After all, the PC was only invented two decades ago. Those of us still working in the logistics marketplace 20 years from now will look back at the previous lack of technology and marvel that anything got anywhere on time!
To date, many computer systems have been little more than passive, transactional-based processing systems. They may have revolutionized the accounting process, but their impact on the logistics supply chain has been unremarkable. This is about to change. A logistics manager anywhere in the world is now confronted by a vast selection of software solutions promising various levels of business transformation.
From passive to active
This article does not aim to argue the merits of JBA, SAP, Oracle, and Manugistics. All have a loyal and growing user base. It is more relevant to consider how the software that is now being developed goes beyond its passive predecessors.
Software is now able to map industry- developed best practices and demonstrate how those processes can be applied to real business scenarios. This software is also able to be configured quickly and easily. Business Process Modeling has been established as a valid method of process documentation. It is increasingly seen as a critical stage in understanding how any IT solution can support the processes within a business. Using such modeling, a company can see how each function, process or workflow that occurs to it maps onto the structure and functions of the application software it intends to adopt.
Experience shows that starting with an existing idea and then molding it to the purpose in hand is often quicker and more effective than starting from scratch. A basic model can provide the structure upon which to build. It may add value in its own right if it contains information or knowledge not available within the organization.
Defining best practice
While there are a number of well- established groups involved in supply chain issues, one of the fastest growing and most significant is the Supply Chain Council (SCC). The SCC has developed and endorsed the Supply Chain Operations Reference Model (SCOR) as the cross-industry standard for supply chain management.
Utilizing SCOR in the context of modeling an enterprise's operation enables a clear understanding of what a business is to do. Through the model, the company can define which processes are to be executed within the business, and which are critical to the success of the company. The company can define the areas where the opportunity for improvement (through the adoption of best of breed practices) are greatest, and will therefore warrant the greatest attention. In every case, there is the opportunity to identify and agree where a process could be manipulated to add greater value to the end customer while removing those activities which add cost without commensurate value.
Does this help reduce cost in the supply chain? Consider a product like milk. The supplier may have contracts with a number of supermarket chains. It will have to deliver precise quantities at exact times in specific packaging. It will have to provide various levels of shelf life, or risk its product being rejected. Time is not on the supplier's side.
The supply chain is reliant on all parties within it to fulfill their roles accurately and effectively. If a daily order is not received by a certain time, the supplier's stock control system may not be able to cope. Too much stock and product may have to be written off. Too little, and the customer is left with a partially fulfilled order. Either way, the cost is likely to impact the bottom line.
Using technology to cut costs - at
all points in the supply chain
What is needed is a backbone that keeps the supply chain on the move. It must ensure that every element of the chain is working as it should - whether it is the packaging supplier, the production team, the transport fleet or the customer's ordering department. Only until recently has this type of system been available.
These systems will prompt any individual within the supply chain failing to fulfill a requirement, ensuring the chain itself remains intact. They can be used in conjunction with systems that acknowledge when an excess stock situation may be about to arise. This allows the supplier to offer the product at a discount price to avoid a write-off. They can identify product which may not have the requisite shelf life for a certain category of customer, but which may be fine for another. In short, these systems can help to run a business more proactively, effectively searching out opportunities to eliminate waste, and by definition, cost.
Modern technology is also helping to reduce inventory costs. Through cross docking incoming stock, the precise arrival of which is notified by in-vehicle scheduling software, can be allocated for delivery against outgoing shipments. The concept of a virtual warehouse is getting closer, again providing an opportunity to drive costs out of the supply chain.
The internet is also being considered as a means of reducing costs in certain situations. A restaurant chain, for example, may have a predictable ordering cycle for a number of products. By supplying each outlet within that chain with the ability to order direct from a logistics provider, huge cost savings could be realized for the chain, the logistics provider and the food manufacturer.
However, none of these systems can achieve much in isolation. It is critical for logistics managers to ensure that any solution has been suitably developed to allow integration with Third Party products. It is also true that while many businesses within the Food and Beverage Industries may have common issues to deal with, no two businesses are the same. Therefore, systems must be designed so they can be easily adapted, without causing huge upheaval. Then, logistics managers will have a real chance of increasing efficiency and reducing cost within their operation - continually.
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