Lean Guiding PrinciplesIn the recent troubling economic times, the primary supply chain challenge was fairly clear: reduce costs. The recession called us to manage more tightly, to do more with less, and to find cost savings wherever they may be. While much of the supply chain costs have been wrung out, companies are still facing economic struggles. Have companies done everything they can? Does the challenge to improve today’s supply chains take a different shape? With the aura of uncertainty, it’s natural for supply chain executives to ask themselves, “What spells supply chain success in 2013?”

My perspective is that even in these uncertain times, there are definitely certainties that are present and that can help continue to drive success in the Consumer Packaged Goods (CPG) supply chain. Let’s touch on three.

1)      Continuous Improvement

Companies have removed significant costs from the supply chain, so what’s left? Let’s consider the use of Lean. The techniques long proven in manufacturing are finding application in the supply chain.  The use of Lean in the supply chain is still in its infancy, but those that have adopted Lean and embarked on the Lean journey have discovered two things: First, there are many untested ideas that can improve the business; second, Lean can lead to a workforce that is engaged as never before. With Lean, both of these outcomes are certain and invaluable. Making changes in small increments can lead to significant improvements.

2)      Preparation for Growth of On-Line Shopping

Internet shopping continues to grow as does the convergence of physical and virtual retail. Some examples include Amazon being the second largest retailer, Wal-Mart experimenting with same-day delivery, and Macy’s now delivering to homes from its stores. Marketing and sales strategies are addressing multiple channels of distribution, and that has an impact on the supply chain. The impact includes smaller order sizes, different service expectations, more SKU’s to support a broader product offering, and parcel shipments, just to point out a few.

The convergence of distribution channels affects both retailers and manufacturers, but the response by companies varies – adapt the existing supply chain infrastructure or establish new one; use current processes or create variants; embark alone or with a partner. As Internet shopping grows in significance, the movement to multi-channel distribution will continue to increase. From this, it is certain that CPG companies must address and respond to this shift in buying behavior. They should plan now in 2013 for what will surely be here in 2014.

3)      Collaboration

For some time, manufacturers and retailers have worked together to improve supply chain performance. This manufacturer/retailer cooperation, or “vertical collaboration,” has yielded benefits such as leaner inventory and improved customer service. The resulting supply chain practices have also become a source of advantage for the manufacturer.

Today, two realities are coming into focus and driving a new form of collaboration. First, CPG supply chains are now performing at much higher levels. It is increasingly difficult to achieve competitive differentiation simply through supply chain performance. Supply chain performance and efficiency is now expected, it is no longer a competitive advantage. The second reality is that capacity within the supply chain is underutilized. Transportation equipment often runs with available space left underutilized, or sometimes even empty. Distribution facilities are being utilized well during some periods of the year, but underutilized in others. Better utilization of supply chain capacity represents a tremendous opportunity.

A single manufacturer working alone or with a single retailer often doesn’t have the scope or scale to fully capitalize on the situation, but manufacturers working with other manufacturers do. When manufacturers collaborate by doing things such as storing counter-cyclical products in a common distribution facility, or sharing equipment and trailers to move light-weight product along with heavy-weight product, they can dramatically reduce costs, empty miles, and not to mention their carbon footprint.

This new form of collaboration, termed “horizontal collaboration,” is certainly not easy. It requires accommodation, clear operating rules, and it often requires a third party’s technology and assets to facilitate. But, the results outweigh the trials and this is increasingly becoming a path for success.

Times are uncertain . . . no question.  But adopting Lean, developing capability for multi-channel distribution, and embracing horizontal collaboration are certain to pay dividends. Taking action in these three areas will build a platform for achievement for the future.

 

Written by Paul Lomas, Group Director, Consumer Packaged Goods, Ryder Supply Chain Solutions

Paul Lomas brings 30+ years of supply chain experience. In his current role, Mr. Lomas leads the Business Development function for the Consumer Packaged Goods Group within Ryder’s Supply Chain Solutions division. Prior to this role, he was responsible for Supply Chain Excellence for the Consumer Packaged Goods group. He joined Ryder as part of the TLC acquisition, where he held roles of increasing responsibility in the areas of business development, engineering, IT, and operations. Previously to joining TLC, he did some consulting work with Accenture and Cleveland Consulting Associations and also held positions responsible for Materials Management at General Motors.