Better routes to delivering value?

Manufacturers cannot rely solely on their engineering, manufacturing, procurement and supply chain planning and scheduling activities, and the associated supporting IT – important though these are – to deliver improving customer service, reducing costs and better competitiveness and profitability. Transportation and logistics (T&L) – so often the butt end of manufacturing businesses – should increasingly be in our sights as one of the improvement targets. In the automotive sector, for example, sales and distribution of a vehicle come to a full 28% of the sticker price on every one, while inventory is around $500 per vehicle. Figures like these put a very interesting perspective on just how much better methods and better technology can contribute to the bottom line. But how far can we go? Some sectors are more developed than others – automotive, food and beverage and retail, for example, are classic examples of greatest sophistication and speed. In the broad swathe of middle discrete manufacturing, however, there’s a lot of variety in terms of T&L practice and, it has to be said, scope for improvement. Some change will be forced on us as European corporate consolidation and initiatives like the retailers’ current drive towards ‘Factory Gate Pricing’ (ex delivery costs) force transparency. The rest will be discretionary, assessed on pragmatic cost/benefits justification and business preference. And strictly, that applies just as much to in-bound production materials logistics as it does to out-bound customer deliveries. Ultimately, collaborative processes and operations – automated and assisted by web technologies and workflow – have to be the way to go. But inevitably there’s much more to this than ‘integration’ of technologies, applications, departments and organisations. The drive is to make warehousing and the movement of goods seamless parts of the whole, serving customers efficiently. And that means looking at everything from the implications of newer technologies, to outsourcing to 3PLs (third party logistics providers) and 4PLs (integrated 3PLs with authority for planning and scheduling, supplier and warehouse management, etc), to returns management routes and responsibilities, to the people and company culture issues. There’s a lot to consider. Faced with a hype versus reality disconnect, notably from some of the IT vendors and consultants, managers have every right to feel anxious about which way to turn. And it’s for that reason that last month we invited senior manufacturing users, analysts, consultants, 3PL/4PLs and software vendors to get round a table for our latest MCS Forum, and thrash out ways forward. Outsourcing logistics First up was the whole business of 3PL/4PL relationship management; indeed more fundamentally, the choice of outsourcing or bringing/keeping T&L in house. If those round the table were anything to go by, most companies have long since outsourced, although only to a 3PL (or several 3PLs for global deliveries and maintaining competition). Why? Because you cut your T&L department to the bone and get rid of the cost, turning it into a monitoring organisation only. So key concerns for logistics managers today are quite specific. How many 3PLs do you need to deliver appropriate cost/service and what do they look like? What levels of service do you actually need across your business and product ranges? What are your costs now and where could surgery help? How much planning authority do you want to give and how much withhold? How collaborative can you tolerate being? How real time would you like to be? How much ought you to integrate the 3PL’s systems with your own so that it becomes a virtual extension of your organisation (4PL)? And what IT infrastructure do you then need? Instantly, the issues to resolve are not only technical, but cultural/people – inter-company trust versus departmental empire building, competitive data concerns and so forth. Forum agreed that, after the soul searching, most important is the logistics management framework of people and systems (infrastructure) you need to put in place to manage and secure this. Then there’s the contracts and SLAs (service level agreements) you negotiate, plus the KPIs (key performance indicators) by which you measure their adherence. Examples of the latter include the usual OTIF (on time in full) delivery, but there’s also responsiveness to change (lead time reaction) and then, perversely, internal back-end manufacturing/packing scheduling accuracy – ensuring goods are at the loading bay when you have said they will be. All that implies a need for ‘visibility’ – your own and your customer feedback, proof of delivery, sophisticated or not, with track and trace or not – and some level of system integration. Although with web technologies, adequate inter-system messaging shouldn’t be that difficult, most suggested it’s actually not straightforward. John Lowe, managing director of system integrator KT: “It’s really the fact of needing in-depth knowledge of different systems, software solutions and operations.” You can’t afford general solutions when you intend to fire business information between systems and companies. As Guy Adams, T&L consultant for the MoD, said: “The main issue is integration of systems. The IT is there: the problem is what to do with it. The big buyers have the muscle to say ‘this is what you do; you provide information in this format’. It’s much more difficult for a smaller company to do that.” Definition of what’s required and overcoming the cultural and business issues around confidentiality, trust, payment and movement and positioning of goods are the key points here. Adams again: “You should know your costs and what information you’re prepared to integrate, and a responsible 3 or 4 PL will expect that. That should be a key part of any contract.” Either way, what most of us will need is messaging between our ERP and that of the 3PL/4PL at least to automate three way matches, invoices and proof of deliveries, etc, but ideally also to provide nearer real time visibility of plans and schedules. And with web technologies already developed for streamlining ‘supply chain execution’, for example, where there’s a will there’s certainly a way. As George Foy of Modcomp said: “Web Services provide excellent technology for real time integration across supply chains. Instead of doing things in batch, you can build real time networks across the Internet. It makes life a lot easier, and we can plug in different services from providers in hours rather than the months it used to take.” Ultimately, how far you want to take this depends partly on the value of the goods you’re shipping and partly on the importance of OTIF and responsiveness to your customers. As Elizabeth Hall, technical director of enterprise management systems consultancy Hamilton Hall, said: “Whether it’s cornflakes, or traceable things that you need to know about individually and identify, makes a big difference to the pressures and the problems that you have when you’re doing integrated supply chain management.” Warehouse integration Moving on to more ‘internal’ management, ERP remains fundamental, and current thinking is still to integrate ERP systems with WMS (warehouse management systems). This might not be an issue on the incoming materials side for those that have gone to just in time deliveries served directly, or via the suppliers’ 3/4PL to forecast and call-off. The classic Toyota arrangement of suppliers given arrival and departure times of trucks, each with drivers in communication, to facilitate timed line-side delivery – and stiff penalties for failure – obviates most of the big stuff there. But on the outbound side, although better forecasting and/or collaboration with customers can reduce our dependence on warehouses as repositories of stock, for most of us ERP/WMS integration generates substantial ROI (return on investment). You get the clear benefit of visibility of real time and historical information. As Lowe said: “you can respond faster, you can control your costs better, and you can deal with your vendors better because you can bring in stock and replenish at the appropriate times. Without that integration, without that visibility I can’t see how you can manage a business effectively.” And to these others added: you get facilities to support late product customisation and assembly, as well as order-based loading bay and transportation scheduling – and real time event management. It is also fundamental to enabling intelligent allocation of product orders – from production packing lines and warehouses for optimised order fulfilment. This alone remains a relatively untapped opportunity, particularly for companies in the mid-range and below. For most users implementing systems today, ERP systems often include WMS (as well as SCM (supply chain management)) modules. That’s not to say it’s all easy – warehouse functionality and operations criteria are not identical to those of manufacturing – but mostly it’s all there. Meanwhile, for users with existing separate WMS, integration with ERP is much less of a problem in technical terms than it used to be. Reverse logistics Beyond these, Forum agreed that other key areas worth tackling include reverse logistics (returns management) and product tracking and tracing. Returns are important precisely because, since they go against the conventional flow, they’re mostly poorly served in terms of robust, efficient processes, except where they’re a regular part of the business, as in toys and books manufacture and distribution. But it’s not simple: there are often quite complex routing and decision issues. Someone has to do something with returns, and it could be any or all of salvage, decontaminate, disassemble, repair, re-pack, re-shelve, resell, dispose of, depending on the business and the reason for return. Then there are issues like who pays, who is responsible and how far down the lifecycle this goes – disposal of materials is high on the European agenda. It ain’t easy. As Hall put it: “Your business problem is, you’re sitting there, you’ve made a commitment, you’ve got a warranty that you have to manage (yours or a third party) and you don’t know what’s going to hit you.” Forum agreed that in terms of integration, you need to consider everything from component suppliers, to service engineers (mobile and workshop), to sales and third parties – as well as engineering and version control. Agility and responsiveness are the watchwords – balance, plan and manage for the unpredictable. And that involves marrying data from your ERP and CAD systems, not to mention CRM, as well as your WMS, tying in as-built and as-maintained data, adding tracking and tracing and work management, and making all that available to all parties. One thinks again of extranets or portals and collaborative mobile communication-based infrastructures. Track and trace Moving on to track and trace, Forum agreed that with the prevalence of barcoding and growth now of RFID labelling and smart tagging to assist manufacturing and packaging management in terms of visibility, plus web- and GPS-based services from the likes of Fed Ex and DHL, this is improving. As tracking technologies become cheaper and smarter they will spread further – and not simply for enabling the traceability requirements of, for example, the pharmaceutical and food and beverage sectors, but also for facilitating more intelligent upstream factory and warehouse operations. Web-enabled wireless PDAs (personal digital assistants) for mobile shopfloor, goods in/out and warehouse use, can transform operations from relatively simple item barcode reading (followed by batch reconciliation), to instantaneous ERP feedback and interaction. So at goods in, scanning will instantly indicate items required for urgent orders and direct staff to the lines. On the shopfloor or workshop, operators and engineers will get real time snapshots of build volume requirements or whatever, supported by automatically changing label status as items go through to aid validation. As Andrew Armitage, manufacturing director at instrumentation manufacturer Servomex, said: “It would be great to just give customers the tag and say here’s the calibration information, here’s the build information, here’s the quality level.” Notwithstanding problems around originating and reading correct labels (with all that this implies in terms of supply chain interaction and printer technology at the two extremes) and picking and interpreting correct items and instructions (training and system sophistication issues), this will be pervasive. Costs to suppliers are low and savings to manufacturers high. The only issue to debate is technology choice, and that’s down to cost/benefits/requirements analyses, all of which have been well aired.