Supply Chain Management 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.

I recently received a direct mail marketing piece from a HighJump Software competitor. The mailer included a press release announcing that this company had “enhanced direct store delivery integration” and a one page datasheet which described a direct store delivery value chain as manufacturing + regional warehouse + mobile resources + retail shelf.

HighJump Software is the North American market leader for direct store delivery software solutions. If our primary competitor in the warehouse management systems market had encroached on our market position I needed to know. Perhaps they had acquired a route accounting solutions provider or acquired a provider of mobility solutions for mobile selling and delivery at the retail location. I consulted a trusted industry analyst who confirmed my suspicions… this was marketing hype and this company’s approach to direct store delivery still had significant “holes.”

Anyone familiar with the value chain of direct store delivery companies knows there are some specific complexities that must be addressed in order to have “comprehensive coverage across the extended supply chain.” Here are some things companies should consider when search for direct store delivery software solutions:

Certified Route Accounting Systems

Route Account Systems are unique software systems to manage the complexities of route-based sales and delivery. They typically manage the entire order-to-cash cycle and are geared toward the world where sales, inventory, and business metrics are all tied to a “route.” Although traditional ERP systems can be used for route accounting systems, they typically require customization to deal with complex pricing/promotion, cash settlement, truck inventory, and supplier e-commerce integration. To further understand the complexities in the beverage value chain read It is Hard for Anheuser-Busch to be Procter and Gamble.

Mobile Sales and Delivery Applications

Success or failure in a direct store delivery business is determined at the store shelf. Direct store delivery companies have large workforces of mobile sales and delivery professionals who need to be equipped with mobility technology for them to effectively accomplish their objectives. HighJump Software provides a comprehensive suite of mobility products which support industry best practices for order capture, goal-based selling, delivery tracking and cash settlement. For more details on these solutions read about our latest mobility suite product release HighJump Software Enhances Mobility Solutions With New Release of Mobile Route Sales and Delivery Software Suite.

Load Optimization

Optimized loading of side bay beverage trucks can be complex. While there are numerous packages for creating optimized load plans of traditional van trailers or flatbed trailers, optimizing for side bay beverage trucks is another animal. Additionally, this business problem becomes even more complex when you have a “peddle” environment (driver selling off truck without pre-sold orders) and driver preferences must be taken into account at the load and pallet level.

I think the moral of the story is “don’t believe the hype.” Direct store delivery software solutions are specialized for the unique needs of this industry. Direct store delivery software solutions deal with complexities of supplier integration, cash settlement and truck inventory. A WMS, TMS and retail workforce solution will not meet the needs of most food and beverage distributors in their direct store delivery operations.

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!
 

In the technology world we hear a lot about “best practices.”  This is usually a carefully couched catch phrase that means “we did it our way and you should do it that way.”  This is one of those over abused phrases that needs to be added to everyone’s Board Room Bingo game and never used again.  With that said, there are truly best of breed methods that lead the industry.  However, the application of these methods needs to be highly personalized.  There is more than one way to do things and the term “best” depends on many factors that influence that particular situation.

In software, if there was a best then we wouldn’t need multiple vendors and we certainly wouldn’t need consultants to understand the business and implement solutions that maximize the business benefits to the company.  Solutions need to be highly configurable to adapt to the “best fit” for each and every customer. There are many ways to do that. You can take the workflow modeling process or you can take a flag driven process.  Direct Store Delivery environments are highly dynamic and business processes may need to change on a dime.  Unfortunately, many DSD organizations don’t really have the luxury of IT departments to run their route accounting systems and mobile delivery software. The tools built into the system need to be deployed so that normal business people can change, test and deploy them without the luxury of techie folks.

We hear people talk about “best practices” as a way to combat “highly configurable” as an implementation approach. It sounds so good and it looks great on a PowerPoint slide. After all, it’s the “best.”  Believe me that anyone who is in the business can configure the industry standard methods.  They simply wouldn’t survive in the business if they couldn’t.  Let’s start with that as a given.  The real trick is finding partners and software providers who can reflect your business in the software and help you grow.  Making it a practice is best, not a best practice.

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. 

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.

The level of activity in the direct store delivery and route accounting systems market seems to be at an all time high.  People who are not automated are looking at automation, and long time users are now looking at “the next step.”  The interesting bit is that this year has made virtually everyone look at protecting their businesses against business inefficiencies that are amplified by changing economic decisions.  If nothing else, this year has been a wakeup call to many in the food and beverage industry to take care of some of the easy laziness that develops over time and run more efficient route businesses.

One of the trends over the last few weeks in this blog has been how to grind more sales out of the existing operation.  This week I don’t have any leading advice or best practices to share but I wanted to talk a bit about the act of measurement itself.  Everyone talks about KPI’s (Key Performance Indicators) and metrics.  Everyone has their favorite number that they like to share. One of the things that is often overlooked is the physical mechanism used to capture the metric and whether or not it is a direct result of the activity you are trying to measure or simply an interesting parallel number.  Counting the number of chickens on an egg farm is not a good measure of egg production, it is a good measure of potential producers.  You really need to be looking at the number of eggs per chicken or something along those lines.

Direct store delivery does not have a standard that can be referenced.  Cases per mile is only good if everyone runs the same number of miles and has a similar account base.  What is interesting is the change in the measure itself (damn calculus).  Acceleration is the rate in change of speed (the first derivative of speed for math nuts).  We can capture a lot of great static data in the route world that is similar to measuring the speed of a car.  I think we get into some really interesting measures when we start looking at the rate of change in those metrics.  That rate of change gives you a much more applicable metric to apply to all routes because it rules out the geographic specific pieces of the measure.  Now we just have to figure out how to do it …
 

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

My purple people eaters rolled the dice last week and came to terms with future HOF quarterback Brett Favre.  While I do take some issue with the way in which the Vikings organization handled the courtship, I cannot deny that I am more excited about this season’s prospects and that it clearly makes the Vikings a better football team.

Another reason I am excited is the official release of HighJump’s Performance Advantage!  HighJump Performance Advantage is our supply chain dashboard visibility product.  We have incorporated over 30 industry recognized best practice metrics with the capability for people to build their own dashboards with company specific metrics.  This is an important step in executing on HighJump’s business intelligence vision and offering more actionable data to our customers.  Below is a sneak peak at one of the dashboards.
























 

I look forward to discussing this new product with customers just as I and the rest of Minnesota hopes the Viking’s dice don’t show seven at the end of the season.

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.

• 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.

CobornsDelivers is an online grocery delivery company that services the Minneapolis - St. Paul metropolitan area.  Back by a strong commitment to customer service, the company utilizes the latest technology to ensure easy ordering, fresh products and on-time, accurate delivery.

Its previous WMS warehouse management system had stability issues and downtime was becoming a significant concern. The outdated WMS was hindering the company’s ability to manage growth because it could not accommodate changes and upgrades cost-effectively.  To solve these challenges, the company implemented HighJump Warehouse Advantage based on the system’s depth of functionality, ease of changing processes, and reliability in handling inventory track and trace functions such as expiration date tracking and rotation.

Learn more about how CobornsDelivers and how it implemented supply chain management best practices by reading the success story: Innovative Online Grocer CobornsDelivers Achieves Success With Customer-Centric Distribution. 
 

If you have been responsible for implementing any business applications, you have dealt with a gap between your company’s requirements and what the base application offered.  In the past you were always faced with two choices:  change your process and in many cases sub-optimize it to adhere to the software vendor’s offering or create an expensive change order where the base code is modified which matches your process but results in a less supported product and more costly ongoing maintenance.  In this paradigm, the general approach is to determine if the core business process is strategic. If this is viewed as a differentiator to your company then the general consensus would be to change the software to match your process.  However this is a tough question to answer, especially deep in supply chain processes.  Many companies over-estimate the degree that each process is strategic causing horribly customized and un-supportable applications as a result.  But, does this question have to be either or?  Is there another option? 

Companies such as HighJump Software have architected our supply chain management software solutions to allow the company to match their business requirements without costly modifications.  With the business process configuration tool the customer can match their processes where appropriate but also take advantage of standard supply chain best practices that are resident in the application.  This offers a refreshing change to the either or outcome of previous gap analysis efforts.