by Hugh Finerty
What percentage of your foreign sourced orders, shipped by ocean carrier, arrive at your warehouse within two days of your original plan window? In supply chain language, this difference from actual vs planned is referred to as “variance”.
The answer I get from most companies is pretty bleak. It is often accompanied by a facial expression of frustration and exasperation. This is a common experience of most organizations sourcing overseas.
The largest of companies have been attacking this specific variance issue. Larger staff, sourcing staff located in the foreign countries, technology and Lean type of process improvements, all contribute to the reduction in the delivery time variances.
But, even the larger firms are struggling to eliminate the last few days of variance in the extended supply chain.
The Cost of Variance in the Extended Supply Chain
When I ask companies about the implications of this variance, I can sense the blood pressure rising, pupils dilating and memories of unpleasant conversations and failed initiatives.
The answers include lost customers, lost orders, reduced orders, air freight costs to meet order delivery dates, low customer satisfaction scores, substitution costs, high levels of safety stock, costly buffer inventory levels, replenishment whipsaws, multiple fire-fighting meetings, rescheduling manufacturing runs, excessive time spent tracing orders and communicating changes, stresses on relationships with suppliers, stress on internal staff, cost of switching suppliers etc…
When these implications are summed, the cost of lead time variance in the extended supply chain crosses functional and organizational boundaries, and can overwhelm any margin the organization planned to achieve by sourcing off-shore.
Where to Begin
In the logistics segment of the extended supply chain, there are more variables than with an on-shore sourcing point. Identifying and categorizing these variables is a good starting point. These should include categories such as: controllable, uncontrollable, predictable, unpredictable, high risk, medium risk, low risk.
I like using Value Stream Mapping to help me identify the significant activities along the logistics process. Once I have the process mapped, I can begin my analysis, assessment and design tasks.
Within each activity, I can now analyze the partners handling that activity, identify the controllable and uncontrollable risks, the predictable and unpredictable risks, current KPI’s, the visibility to the organization of that activity, categorize each activity based on its impact on the process, and identify which activities are having the greatest negative impact on achieving the on-time delivery goals.
Once this analysis and assessment is complete, we can begin adjusting the logistics structure to meet on-time delivery goals.
The solution often includes scorecarding tools that will bring the suppliers into compliance on cargo tendering, technology tools that enhance visibility of the lifecycle of the order, partnership configurations to leverage core competencies and technology, and “leaning out” relevant processes.
These are highly achievable goals that have significant impacts on ROI , customer satisfaction and staff morale. To explore this topic in more detail and as it applies to your organization, please email me at email@example.com or go to www.hughfinerty.com.