Planes, Trains And Automobiles: Get Them Into Your Supply Chain
Talk to any manufacturing executive and no doubt he or she will be familiar with the usual "hot" topics - Lean Manufacturing, Six Sigma, asset management, or inventory control, for example. But bring up the integration of transportation providers into the supply chain and you may as well be talking about Britney Spears.
Though many manufacturers have adopted supply chain "best practices" within their plants, the time has come to start thinking differrently about total supply chain integration.
"The type of thinking that the supply chain is only important within the four walls of the plant is provincial and has to stop," counsels Pete Stiles, vice president of Lean Logistics Inc., a transportation management systems provider. "Manufacturers need to think about the entire supply chain — ingoing from suppliers and outgoing to customers."
It's important for manufacturers to make their operations "carrier-friendly." By working closely with the transportation provider and increasing the quality of communications - like giving advance notice of shipping plans - "a manufacturer can become a preferred customer and get better service," Stiles said.
''Manufacturers should view their supply chain holistically," said Mike Glasgow, carrier management account executive with Manhattan Associates Inc., a supply chain solutions provider. "Many manufacturers tend to keep inbound and outbound transportation segmented from the rest of the supply chain."
A good for-hire carrier will collaborate with a manufacturer to plan the best movement of goods into a facility, through and around the plant, and outside to the final destination. But this can only happen if the manufacturer is willing to "open-up" to their transportation provider.
"Historically, manufacturers have not been willing to share their 'family secrets,'" Glasgow said. "This attitude has to change if manufacturers are to compete successfully in the global environment."
Indeed, logistics and transportation should not be viewed as an afterthought.
"Manufacturers have tended to focus on R&D, production, marketing, and sales — a manufacturing strategy, not a supply chain strategy," said Raj Penkar, vice president, consulting services for UPS Supply Chain Solutions. "But many times the cost of the supply chain can outweigh the savings made in manufacturing, if not planned for properly."
Glasgow suggests manufacturers sit down with their transportation provider and pick-apart the supply chain. A partnership with a transportation provider allows the provider to offer solutions that will help the manufacturer get to the next level of success. Integrating and managing the flow of information about shipments is sometimes even more important than managing the physical flow of goods.
"It's really important for a manufacturer to get shipment and ordering data into their information (ERP) system as early in the manufacturing process as possible," explained Dick Metzler, chief commercial officer for Greatwide Logistics Services, a trucking and logistics provider, "even before the product comes off the production line or leaves the manufacturing plant."
According to Metzler, if the information flow is not correct it doesn't make any difference because the physical product probably won't be in the right place anyway.
"Good information flow is crucial," Metzler said, "to having the transportation function integrated into the supply chain. It encompasses everything from the factory floor to the warehouse door."
But what about the cost of shipping goods? Rate shopping is not always the best management/business plan, cautions Glascow. He suggests looking for providers that can not only move goods efficiently, but can also manage the transportation details. An Electronic Data Interchange (EDI) system can save manufacturers time and money by allowing them to electronically send shipping information to a carrier.
"The concept of the 'Advance Shipping Notice' came into practice in the '70s," said Stiles, "but not many manufacturers nowadays seem to adhere to it." With this concept, the manufacturer knows ahead of time when a supplier is ready to ship parts, allowing the manufacturer to control shipments into their plant and helping them control inventory.
"It's interesting that many manufacturers invest in stock reduction programs internally," Stiles said, "but usually these programs are not tied into anything." By integrating inventory programs and buying contracts with a transportation system, a manufacturer can better regulate the flow of goods into and out of the supply chain.
Trucking companies are becoming more educated on the importance of integrating their services with a manufacturers supply chain, and they have the software technology to analyze freight and labor costs, fuel expenses, and other incidentals such as tolls.
"Sometimes it's not always a rate problem - it could be that better scheduling is needed to help keep costs down," Glasgow said. "Everyone needs to work together to shrink supply chain time down."
Offshoring of manufacturing is another area where manufacturers can benefit from a good relationship with a transportation provider.
"A manufacturer that makes a decision to offshore production based on manufacturing costs only, and forgets about shipping costs and lead-time, could end up with it costing them more money than if they produced the product domestically," Stiles said.
Products produced here in the U.S. can be transported to customers in a day or two if needed, versus up to three weeks to get a part or product shipped from overseas. "In which time the manufacturer is now out-of-stock on a particular item. Is this worth it to the business plan?," asked Stiles.
Metzler concurs, saying any manufacturer involved in offshore production must take into account the "Total Landed Cost." This includes transportation costs (land, sea, air), handling at origin of product (manufacturing plant), port charges, value-added services (tags, labels, information on cartons) customs clearance, and moving the product once it has reached its destination.
"This can involve 15 to 20 trading partners moving product from the manufacturing plant to the shipping area and to the warehouse or customer," Metzler said. All these costs need to be added to the final equation when deciding on the benefits of offshoring production.
If a manufacturer is changing their manufacturing base to a foreign country, they should think about changing the supply base as well.
"It doesn't make sense to ship supplies from the U.S. to a foreign country for product assembly," said Penkar. "The sourcing strategy should change to foreign suppliers."
In this situation, it's important for the transportation provider to have options available for moving goods between and within borders. Penkar gives examples such as a port strike causing ocean shipping problems, or weather-related airport delays.
"A manufacturer needs a supply chain partner that has the ability to move from ocean transport to air shipping and even to trucking for small packages," Penkar said, "whatever gets the supplies to the plant and the package to the customer."
Although a manufacturer could "knit" all these transportation functions together if it had the capability, only the bigger companies can really accomplish this — "the companies that can afford a Vice President of Supply Chain," Penkar noted.
According to Penkar, for smaller- to medium-sized organizations, the best choice is a transportation provider that has all the options for travel and has the technology to integrate with a manufacturer's supply chain.