Organizational Excellence: Optimizing Speed and Productivity for Increased Shareholder Value
To leverage the supply chain for shareholder value, both speed and productivity levels within the supply chain and within the organization as a whole are important to assess. However, it's not as simple as setting out to improve these functions; reducing costs through assessing speed and productivity is a goal that can be achieved in some surprising, not-so-obvious ways.
Speed
Do it quicker (and better). This is a common imperative these days. Speed to market for new products, tighter and more effective sourcing, more streamlined manufacturing processes, quicker movement through the DC, increased order picking efficiency, more frequent deliveries, and improved transportation transit times are all aspects of greater supply chain velocity.
However, there is an interesting juxtaposition to all this speed. Environmentalists and, in fact, economists suggest that sometimes slower is better.
Ocean container ships are reducing steaming speeds (and thus fuel consumption) to something reminiscent of the days under sail. Low-cost country sourcing, while increasing the length and timeline of the supply chain, is financially attractive.
Nevertheless, the consumer’s desire for instant gratification and the ever increasing risks of these extended supply chains are driving companies to rethink their sourcing policies. More and more, the economic focus is on “Total Delivered Cost” of goods rather than “Landed Cost.”
As such, the proximity of production to market has the environmental edge – all of which continues to feed the need for speed.
There is no question that the old adage of “the right product, to the right place, at the right time, in the right condition, for the right price” (the four Rs) still rings true. “Time is everything” might be the mantra, but it must not be at the expense of the other four Rs in the adage.
How do companies become quicker, smarter? They benchmark and leverage best practices. They develop strategic, tactical and operational supply chain action plans. They factor the supply chain into product development. They rationalize and strengthen supplier relationships. They employ appropriate, current technology. They optimize the distribution network(s). They develop and monitor key performance metrics. They outsource where and as appropriate. And they listen to the voice of the customer.
Perhaps the most important “how” is innovation. Being open to new ideas, designing modular and scalable operations/systems, and embracing the Internet will generate the speed needed to remain competitive in the whitewater of change being experienced today.
The benefits of speed can be seen in areas such as:
- Transportation mode optimization: Improves delivery times, thus increasing sales and reducing inventory in transit (lower inventory carrying costs);
- Dynamic warehouse slotting: Increases picking efficiency, and in turn, reduces labor costs; and
- Pre-packed orders from suppliers: Allows crossdocking at the distribution center, consequently, reducing handling, leading to reduced losses due to product damage and reduced labor in the receiving, picking and shipping functions.
And, as speed increases in these and so many other areas, margins improve and shareholder value grows.
Productivity
Companies recognize that an improvement in productivity can have a direct improvement on the bottom line of monthly budgets. What are they doing to improve value and reduce the bottom line?
Within the supply chain, there are great opportunities to monitor and affect the current productivity with each element and across the entire supply chain. Productivity improvement can be found throughout the supply chain, but the two most frequent areas of focus are direct labor and materials.
The bread and butter of productivity is labor. Enormous efforts have been used to create optimal lot sizes and improve changeover times in manufacturing to increase productivity, because that is where a large focus on labor has been concentrated. The key is to understand which areas of the organization have not been challenged with improving productivity and combined with the greatest concentrations of labor to yield a prioritization.
Where do companies have the most labor?
- Is it in the manufacturing plant?
- Is it in the call center, order fulfillment and/or customer service?
- Is it in the transportation fleet?
- Is it in the office and support operations?
- Is it in the distribution center?
Knowing the number of full-time employees and cost is critical in assessing which areas will be prioritized.
In addition, improving the productivity within material can be critical to the success of an organization. From raw material purchase to consumer sell, it is the one component that consistently moves within the entire supply chain.
Optimally, purchasing the correct quantity of material with the cost of handling calculated at different break points yields bottom line results throughout the entire process. Some effects include increased receiving, less space, lower utilities, reduced transportation, cost of capital for obsolesce, reduced replenishment labor and improved inventory turns.
As current technologies have continued to evolve within the supply chain, a continuous improvement process must be in place to evaluate internal metrics measure productivity levels and establish improvement goals. Some metrics include cost of goods sold (COGS) per piece, COGS or handling per case, costs per transaction, turns, inventory accuracy, inventory, fuel consumption per mile, and more.
Metrics must be posted in a central, easily visibly and visual management system.
Posting current activities and future goals on a frequent basis shows the entire workforce the importance of these factors in upper management’s dedication to improving the operation.
As the process to improve evolves, companies need to investigate complex scenarios for continuous improvement. Some considerations include:
- Evaluating various automated material handling methods to handle products in consolidation centers;
- Automating crossdock facilities that only hold minimal inventory;
- Semi-automating loose-pick crossdock processes for promotions and weekly circulars; and
- Examining other processes to yield higher productivity.
Every improvement in productivity is a bottom line, trackable metric that can be published and presented. These unbiased improvements provide increased value to the shareholder and investors.
For more, download the White Paper:
Leveraging the Supply Chain for
Increased Shareholder Value
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