Supply Chain Best Practices

I spent some time last week with a HighJump Software customer who is considering further expansion of HighJump WMS solutions in their distribution centers. The customer is undertaking a massive ERP program that will allow the ERP system to be the IT backbone of their worldwide operations. They are also evaluating WMS solutions from this ERP provider.

In a meeting with senior IT leaders of this organization, I explained that I was highly confident the outcome of their pending due diligence regarding total cost of ownership (TCO). I contend that a best of breed solution will result in lower long term costs for this IT organization. Here are a few things that make me confident in my position:

Best in Class Functionality

While ERP-based WMS solutions have advanced significantly, they are limited to the “classical” warehouse operations including receiving, put-away, inventory control, picking and loading. Supply chain best practices such a labor management, slotting management, advanced wave planning, and last mile delivery are not traditionally supported with ERP WMS solutions. This means that when supply chain operations teams demand these capabilities, IT organizations are forced to address them with expensive customizations or bolt-on solutions with multiple integration touch points.

Upgrades

A WMS solution typically has a 10 year lifespan. In this lifespan a WMS could be upgraded five times. ERP upgrades are generally more expensive to upgrade because of the interdependencies between modules and re-application of source code customizations. Additionally, corporate IT governance and change management processes often make it difficult to upgrade a single module. Therefore the business users may be forced to wait for new features because of dependencies on modules that have nothing to do with distribution and logistics. View this video to learn more about HighJump’s approach to simplified upgrades.

Adaptability Tools

If your organization views distribution as a source of competitive advantage, then ERP-based WMS could be problematic. By definition, a competitive advantage must be unique to the organization. Business processes available in commercial off-the-shelf software packages (like ERP) therefore cannot contain business processes that are sources of competitive advantage.

To really ensure you have the flexibility to maintain and create further sources of advantage in your distribution operations, your supply chain logistics software must have the ability to create processes that are unique to your business.

HighJump has a unique approach that allows customers to define unique workflows that does does not involve any source code modifications. I am not aware of any ERP based WMS solutions with a similar architecture.

Without this architecture it can be very expensive for IT organization to deliver these workflow changes.

A trendy term bandied about for years by process analysts, project managers and business managers in general is ‘best practice’. You’ve all heard it, but I wonder if everyone knows what the term really means? I use it all the time and was recently challenged as to what I meant when I said it.  I offered my professional explanation, but afterwards wondered if my definition was correct.  So, remembering my childhood instruction on how to find out about something - I ‘looked it up’.

Wikipedia’s definition is: “A best practice is a technique, method, process, activity, incentive, or reward that is believed to be more effective at delivering a particular outcome than any other technique, method, process, etc. when applied to a particular condition or circumstance”.

I choose to quote Wikipedia’s definition because it provided validation for the point I’m about make. The operative phrase in Wikipedia’s definition is ‘believed to be’… the best. Ah ha! That indicates a best practice may or may not be the best, or worst.  Let me illustrate – Is it better to put peanut butter on both sides of the bread with the jelly on top of the pb or put all the peanut butter on one side of the bread and just jelly on the other when preparing a PB&J?  Which would be considered the “best practice” for this task?  Both methods achieve the desired outcome; neither requires significant extra effort, time, or materials and each is suitable to the maker’s personal preference and skill. In this case both methods can be considered a ‘best practice’.

So the next time you’re told that how you’re doing something in your warehouse isn’t ‘best practice’, don’t hesitate to challenge the teller! Clearly there are proven methodologies that are better than others, but the ‘best practice’ isn’t always applicable to every circumstance. A supply chain best practice is often suggested by the eye of the beholder who is not the doer!
 

I suspect, although it wouldn’t be admitted to in mixed company, that the presumption has oft been made that having any sort of route accounting software in place puts that direct store delivery business ahead of most. Quite a stretch, considering the increasing complexity of food and beverage distribution processes and requirements, and the extreme range of RASs out there (think old pick-up vs. shiny new SUV).

Now, that old pick-up was, in its day, the envy of many. It could even drive through some bumpy terrain. But now, although it [usually] starts, and can [almost] reach highway speeds, it’s not too reliable, and you need to visit salvage yards to find replacement parts. Not exactly the chariot you want your precious cargo riding in, and not exactly cost-effective. Not the most inspired metaphor, but not too far off?

So how do you know if you’ve got a route accounting system akin to that old pick-up? 
 

• Your processing times seem to be getting slower and slower. 
• You spend days trying to extract data for reports you need to run your business.
• It’s tough to get applications to work together and you’re spending a lot of time and money making integrations work.
• There’s only one person there who understands the necessary workarounds of your RAS – and he’s retiring next fall. 

No, we haven’t been shadowing you. The fact is: the symptoms you’re experiencing are quite common to DSD businesses running on dated technology. While your system may still work at a basic functional level (the pick-up still starts and runs, remember?), modern technology can provide new features, better access to company performance and smoother integration with other systems. 

You may even be interested in the “full maintenance plan” (to extend the vehicle metaphor painfully further) for a modern route accounting system – otherwise known as an on-demand, or hosted system. This option removes the maintenance headache completely by having your supply chain management software vendor host your system for you. There is no hardware to purchase or maintain and patches and upgrades are done automatically. 

This year may be the best yet for your direct store delivery business – do you have a swift, reliable and easy-to-maintain “vehicle” to get you there?
 

Since launching our blog earlier this year, it’s been exciting to watch the number of visitors to the blog soar since its inception. As we close out 2009, it’s fitting to take a look back and see which posts were the most popular in terms of page views.

1. What Makes a Good Metric?

2. When Choosing Metrics, Start at the Top

3. Be Careful What You Ask For With ERP Based WMS Warehouse Management Systems

4. What Really is in a WMS to ERP interface?

5. When Metrics Turn Evil

6. My Friends Are Getting Old, Your WMS May Be Getting Old Too!

7. Is RFID Dead? Should it be?

8. Don’t Underestimate the Value of an Integrated Manufacturing and Warehouse Solution

9. Is SKU Reduction Good for Consumer Goods Supply Chains?

10. Another Logistics Service Provider Chooses HighJump

We’ve enjoyed providing insights on supply chain best practices and hearing your thoughts and opinions too. Here’s to more great conversation in 2010! 

HighJump Software just announced the dates for Innovation 2010, which will take place at the Fairmont Scottsdale in Arizona. Mark your calendars for HighJump's user conference, October 24-27.

HighJump Innovation gives our customers a chance to network with industry peers and gain valuable insights into how to better leverage their HighJump solutions to achieve ongoing success. Attendees expand their understanding of successful supply chain management best practices in today's demanding environment.

Visit the Innovation website for more information.

When reviewing supply chain best practices, visibility to inventory levels throughout the different nodes in your supply chain should be one of the practices your company has embraced. This allows your company to be more nimble and still meet customer service levels when supply chain disruptions and exceptions occur.  RSM McGladrey recently released their 2009 Manufacturing and Wholesale Distribution Survey (registration required) which interviewed 923 leaders of United Sates manufacturing and wholesale distribution companies. Over 80% of the respondents held a C-Level position at their company. This report uncovered some interesting opportunities for improvement across the different functional areas of the company but I will focus on the supply chain and information technology responses.

An overall theme of the report is the global structure many of the respondents have established as two thirds of the companies source products internationally and 62% export products to at least one foreign market. However, the study notes:

           “Approximately 25 percent of companies indicate information flow

and inventory management information from their company’s supply chain consistently meets their business needs only some of the time or not at all.”

This is a fairly large percentage of companies that do not have the necessary inventory visibility to run their business. As has been stated many other places the largest cost in virtually every supply chain is the amount of working capital that is tied up in raw materials, work-in-process, and finished goods. If a company does not have good visibility to inventory levels, that generally drives up the amount of inventory required to continue to meet desired customer service levels. This is a clear area where modern supply chain logistics software can add significant value by providing more accurate and real-time visibility to inventory levels throughout the supply chain.

Another area of focus about the study was on the topic of information technology.  Just like in the area specific to supply chain, there are several areas for improvement:

• About one in five companies indicate current systems are not meeting reporting and data analysis needs
• A nearly identical number indicate current systems are not meeting operational and process improvement needs
• One in four companies indicate they do not have effective systems to communicate with customers and vendors

The above statistics show the rigidity of many legacy systems that hinder rather than enable process improvements and do not provide easy and effective ways to make data available for internal or external consumption. If your company is like the companies above, this provides a key list of criteria to evaluate solutions against when you are upgrading your information technology infrastructure to make sure you can meet the needs of today but easily adapt to the new requirements of tomorrow. 

I know most sequels don’t live up to the original (Lord of the Rings: Return of the King, being a recent exception) but there was a lot of interest from the first post I thought it warranted another chapter.

One question I was asked was: what are the other game changers that Vitasek and Dittmen have identified?  You cannot have a top ten list and only talk about one.  While I encourage you to read the full report, the top ten are (in no particular order):

• Mandate for Measurement
• Supply Chain Collaboration
• Lean/Six Sigma Applied to Supply Chain
• Managing Complexity
• Supply Chain Technology
• Network Optimization
• Global Supply Chain Implications
• Sustainability
• Risk Management
• Managing out Costs and Working Capital

What struck me about several of these game changers is the need to embrace technology permeated throughout many of the themes.  Whether it is a collaborative planning and forecasting (CFPR) systems, interlinked execution software, network optimization tools or risk management models; there is a need to invest in supply chain logistics software.  Companies cannot be best in class and in some industries will not be able to survive without having a strong technology backbone that captures the necessary information and provides the tools to make important strategy decisions.

I encourage every company to take a hard look at their supply chain technology infrastructure and domain knowledge of these solutions so they can identify gaps and the action plan to address.  Then your company won’t get surprised like the orcs did when the king/economy returns… 

HighJump’s new VP of Sales, Jim Bork, was in my office the other day and asked me, “Why don’t more people implement our Yard Management solution?” After hearing a customer case study at Innovation 2009, HighJump’s annual user conference, where the customer claimed benefits from yard management in excess of $1 million, Jim wondered why all of our customers wouldn’t leverage this technology. As I started thinking about this question, I realized that maybe companies are looking at the wrong business case for yard management.

What is Yard Management?

Yard management is a kind of supply chain logistics software solution that tracks trailers and containers in a yard outside of a manufacturing facility, warehouse or distribution center. Using workflows, the software can support the following activities:

·         Driver check-in or check-out including collecting all relevant data from the driver and tying the arrival to a specific dock appointment

·         Optimized storage of trailers or container within the yard. Trailers with “hot” product can be moved directly to dock door locations. Other trailers can be dropped in the yard for unloading in the future.

·         Visibility to trailer aging is provided so companies do not incur demurrage charges for holding a trailer in the yard for excessive time periods. (Trailers and containers are typically owned by a 3^rd party and holding them for too long can trigger a charge called demurrage).

·         Optimized work instruction is provided to yard drivers for moving trailers to and from dock door locations.

Work Optimization – The Old Thinking

Yard management provides benefits on multiple levels, however, most supply chain management professionals first think of the work optimization as the primary benefit. Work can be optimized creating labor savings and more efficient flow of inventory. However, if you “run the numbers” on a typical yard, labor savings alone will not drive a strong ROI on a labor management system.

The Safe Thinking

Safety and security has become a primary concern for many businesses in light of focus on national security in many countries.  A yard management solution will also provide benefits in the area of safety and security. Yard management systems help facilitate a single point of entry and exit from the yard. Additionally, a yard management system will systematically collect information about specific loads that could be used to comply with internal or homeland security requirements. While safety and security are important it is difficult to build a hard business case around these factors.

Inventory Optimization – The New Thinking

Companies with the most successful yard management initiatives find ways to optimize inventory across the yard, manufacturing facility, and distribution center. As companies in the US and Western Europe are transitioning from manufacturing-centric to distribution-centric, inventory in the yard has become a serious issue. Import-centric supply chains leverage low cost of materials and product, but suffer from long lead times and product obsolescence. Often this results in large amount of inventory being held in containers in the yard.

The best way to build a business case for a yard management system is treat your yard like an inventory buffer. An inventory buffer in the yard will allow many companies to carry additional inventory without facility expansion in their distribution center.
An additional inventory buffer provides significant benefits in terms of supply demand matching and perfect order performance.

HighJump has one yard management customer who drops orders to the warehouse for fulfillment even when the expected inventory only exists in the yard. This means they must coordinate a trailer move of inventory to the dock door, cross dock the needed product, and marry it with the other product required for the customer’s order. Clearly, this logistics capability is something to build a business case around!

So before taking your yard management system business case to the corner office, ensure you have considered all aspects of intelligent inventory positioning and supply chain management best practices that can be gained from a yard management system.

Since wine and spirits distributor Empire Merchants implemented HighJump Warehouse Advantage, HighJump's WMS warehouse management system, in its distribution center, the company has seen improvements across its operations. The HighJump solution has enabled Empire to implement just-in-time (JIT) replenishment, ousting its previous paper-based replenishment process and virtually eliminating wait times in its pick lines.

“We couldn’t have picked a better software package and implementation partner than HighJump Warehouse Advantage and CIBER.” says Tony Magliocco, COO, Empire Merchants. “The software is working as the project team designed it. As a result, our fill rates have increased and our distribution costs have decreased dramatically.”

Read the full story here.

Built with supply chain management best practices in mind, HighJump's supply chain logistics software helps companies optimize complicated distribution operations.
 

Cal Petty of CIBER continued the discussion of thought leadership in the supply chain with a great presentation on apply best practice benchmarking in warehouse operations. In his presentation, Cal highlighted three required components in driving continuous improvement in warehousing.

1.       A quality measure of current operational performance (baseline metrics)

2.       An understanding of what is possible based on the nature of the warehouses involved (best practices benchmarks)

3.       A roadmap for planned movement from baseline to best practices

How long after implementing a best practice can you expect to see savings? Cal says it’s best to be patient. It can take from one to three months to see changes. 

Here are three resources Cal suggests for benchmarking data:

WERC: Warehousing Education and Research Council

CSCMP: Council for Supply Chain Management Professionals

APQC: American Productivity and Quality Center

• Wal-mart is actually growing square-shaped watermelons in order to facilitate packing/shipping (they stack better than oval watermelons!)
• Home Depot is moving toward "self-distribution" - a logistics model favoring direct store delivery from suppliers to a model that moves most products first through Home Depot distribution centers
• Kimberly-Clark is consolidating distribution operations into regional mega-distribution / mixing centers positioned close to key customer markets

HighJump Software has partnered with John B. Sanfilippo & Son Inc. (JBSS) to create a video highlighting the use of supply chain management software solutions to improve food safety and traceability of food products for recall management. JBSS is the manufacturer of the Fisher Nuts and various private label brands of nut products. Watch the video at http://www.highjump.com/Sanfilippo/.

Food recalls of recent years – peanut butter and spinach among others – have propelled food safety issues into the national spotlight. Also making headlines is the Food Safety Enhancement Act of 2009 for enhanced traceability and regulation of the food supply chain. Supply chain execution technology is a critical component in adhering to these new regulations and ensuring food safety. For effective recall management, full traceability is required – from the supplier, through production, distribution and last mile delivery.

Read the full release.

Today, HighJump Software announced the release of HighJump Performance Advantage, a business intelligence dashboard specifically designed to enable supply chain process improvement. The solution combines modern graphical dashboard technology with industry-developed standards to produce actionable visual data for executives and management.

For more information, read the press release or visit the HighJump Performance Advantage page on our website.
 

There has long been debate about off-shoring or near-shoring manufacturing capabilities and whether this is good for the United States. While I will not delve into the heart of that lengthy debate, “Made in the US” has long been an important buying criteria for large segments of the American population and has become even more important in the economic downturn as a renewed emphasis has been made on buying American, albeit with protectionist risks.

However, a recent study by the American Small Manufacturers Coalition (ASMC) states “over a quarter of American manufacturers – representing over 90,000 firms – are at risk because they are not at or near world-class in any of the six strategies.” So what exactly are Americans buying if a product is “Made in the US”? The ASMC study details six strategies that are required for global competiveness:

• Customer-Focused Innovation (CFI)
• Engaged People/Human Talent Acquisition, Development and Retention (EPT)
• Superior Processes/Improvement Focus (SPI)
• Supply-Chain Management & Collaboration (SCM)
• Green/Sustainability (GS)
• Global Engagement (GE)

This is particularly concerning as companies in China, Eastern Europe and elsewhere continue to build out more robust manufacturing capabilities. Of specific concern are our deficiencies in Supply Chain Management and Collaboration. A key component of world-class supply chain infrastructure is an investment in modern technologies such as manufacturing execution system software or manufacturing data collection. If our manufacturing companies, due to macro economic factors or industry specific dynamics are under-investing, it is unlikely they will be able to compete in an increasingly global marketplace. While this is concerning, we need to heed the warning bell that the ASMC raises and use this as a catalyst for action, rather than let it become a leading indicator to a decline in the “Made in US” moniker.

You can read the full report here.

Image via Flickr user shawdm.

Okay, I admit it is highly unlikely your metrics turn into a diabolical Lex Luther or another super hero nemesis, but it is quite possible you might rue the day a metric was deployed to the field.  In many organizations it is common to develop metrics, deploy them to the field and then tie some form of variable compensation to successful metrics attainment.  I believe many would consider this is an example of supply chain management best practices.

However when it comes to incentives, humans take on the role of lemmings.  Whatever a person gets more compensation for, they are likely to exert a little more effort to achieve.  Herein lies the beauty and evil of deploying metrics-based compensation.  An example of this is the metric ‘Average Warehouse Capacity Used.’  According to a recent study by the Warehousing Education and Research Council this metric was one of the top 10 most popular metrics used by member companies.  The more warehouse capacity used (i.e. 90% vs. 80%) in theory the better you were performing on this metric.  While I agree a higher percentage means you are better leveraging your fixed asset, but what is also happening at the same time?  To go from 70% to 80% or 80% to 90% you are buying more product.  More product means you are likely tying more money up in working capital.  In addition to negatively affecting other metrics in the business, much of supply chain best practices and deployment of technologies are aimed at reducing the amount of working capital tied up in the supply chain.  In certain instances, like a new product launch or seasonal rush, it makes sense to increase inventory to meet expected demand, but as a general rule it is not advisable to stock inventory for inventory’s sake.  Can you imagine if this metric was deployed to a company’s entire supply chain organization including the purchasing department?  The more they ordered, the fuller the warehouse, the more compensation for that specific metric. I am sensing the need for Superman.

When rolling out a compensation plan tied to metrics carefully consider human nature to avoid creating your own personal Lex Luther.

Image via Flickr user Xurble.

There are hundreds of metrics that you could use to manage your supply chain, but what are the right ones for your company?  When deciding what metrics to use, it is important that you take a step back and look at your corporate strategy and corresponding corporate metrics.  To select metrics for your WMS solutions or supplier enablement in a vacuum would be a common mistake.  While it is quite likely the metrics you select will be valid, it is also likely they won’t help the company advance its corporate strategy.

The need for company specific metrics is apparent after looking at two different retailers.   As we all know Wal-Mart has invested heavily to develop a world class supply chain.  They attempt to optimize every facet of the supply chain in attempt to bring the lowest price to the consumer.  They have been pioneers in supply chain innovation as evidenced by their previous RFID project and now their product sustainability initiative.  The majority of Wal-Mart’s supply chain metrics should measure cost reduction/cost containment.  Successful results in these metrics reinforce Wal-Mart’s corporate goal of providing the lowest competitive pricing to their customers. 

In sharp contrast to this is Zara, a European fashion retailer.  Zara strives to have their fingers on the pulse of what trends/fashion are selling well in a given locale and then design, manufacture, and deliver to the stores in time to take advantage of the current market trends.  For Zara’s supply chain, speed and time-to-market are paramount.  In many instances they might be willing to go with a higher cost option if it means they can capitalize on a current market trend.  The supply chain best practices that Zara uses are likely to be very different than Wal-Mart’s and the corresponding metrics should be different as well.

When deploying new metrics, significant time and investment are potentially needed to capture the data, develop effective dashboards, and communicate metric goals to the team.  Hopefully the above illustrates the importance of taking time to analyze your corporate strategy and validating that your supply chain metrics and incentives positively reinforce the company goals.

At HighJump Software we are working on a new performance dashboard for our WMS Warehouse Management System.  This is a very exciting project which will allow customers to view key metrics throughout their distribution center operations.  While ensuring the dashboards are esthetically pleasing is a key element of the process, the more important part is determining what are the right metrics to include in each dashboard.  In addition to relying on industry associations such as the Supply Chain Council and the Warehousing Education and Research Council, we evaluate potential metrics according to the “SMART” criteria:

S – Specific

Is the metric detailed enough to be meaningful?  A metric like ‘Outbound Order Progress’ sounds interesting, but probably lacks the specificity to be useful.  Metrics like order pick accuracy or number of cases shipped are more specific and tangible.

M – Measurable

There are a lot of interesting metrics, especially in supply chain, but many companies do not have the data to actually measure the metric.  Total landed cost is one that comes to mind as challenging for many companies.  Before selecting a set of metrics, make sure you validate your supply chain management software solutions have the data needed to calculate the metric. 

A – Actionable

If the user looks at a metric and finds it interesting but is unable to take action to improve the metric, then it will not be very useful.  When a metric falls below a goal or a certain tolerance, the user of the metric should be able to determine the root cause and take corrective action to improve the metric.

R- Relevant

The metric has to be relevant to the user.  It would not be relevant to display outbound order metrics to the inbound receiving manager.  This is why it is important to have multiple dashboards so that only relevant metrics are presented to the user.  While there will be some overlapping metrics between the DC manager dashboard and the customer dashboard, it is important that only metrics that are relevant are displayed to the targeted user. 

T – Time Based

The metric perfect order fulfillment sounds like a good metric, but if I just said the value was 98% that would prompt a series of questions:  for what time period, is it trending up or down, how it compares to last year at this time, etc.  Metrics need to have a specific timeframe associated with them and depending on the metric that timeframe could be hours, days, weeks, months, etc. 

Hopefully this is helpful when you evaluate what metrics to use in your supply chain operations.  More to come as our dashboard product nears completion.

• Improve throughput
• Reduce new employee training time
• Improve safety with hands-free and eyes-free picking
• Leverage configurable, voice-enabled picking options

Voice for Direct Store Delivery Software
You can use voice recognition software in conjunction with HighJump Load Management to manage picking of pallets. Here’s how it works:

• HighJump Load Management optimizes the load for the vehicle and creates the pick instructions. It passes the pick instructions to the handheld device which converts it to voice commands.
• The picker interacts with the software to record any changes to the picks.
• The completed transactions flow back to HighJump Load Management for completion.