On Supply Chain

Introduction

In today's supply chain world, companies are required to focus on developing the necessary capabilities to address key business issues. Getting product from the vendor to the shelf to fulfill consumer demand has been identified as one of the critical business issues. To address this issue, organizations must center on building a flow management capability. As an initiative to support this capability, companies need to optimize their distribution network to enable merchandise flow. This optimized distribution network must also support key changes associated with the new merchandise flow strategies. The optimized distribution network must support product assortments, order practices, replenishment methods, replenishment quantities, increase in imports if applicable, and new store formats that will require stores operating at much lower inventory levels than today.

A preliminary analysis of existing Supply Chain Operating models indicate that there are significant opportunities to rationalize current distribution center networks by exploring new flow path options. These alternatives are driven by many factors. The following are high level attributes and the issues that must be addressed with each of them.

Issues

Customer Demands
Customers have raised their expectations for value-added services and have heightened sensitivity. On-time performance is now assumed and competitors are pressuring transportation service providers to differentiate themselves. Speed and reliability are becoming a new commodity.

Cost Issues

High costs within the industry are driving players to focus on labor productivity and capital investments. Industry players are focusing on the cost of assets, infrastructure and technology because they require large capital outlays. Customers are becoming more aware of pricing and demanding flexible pricing options. There is excess capacity in many traffic lanes that is impacting pricing structures.

Consolidation/Partnering
Transportation service providers are consolidating to be better positioned in the marketplace, causing an increase in partnering on many dimensions. Partnerships are occurring between modes, between warehouses, and between shippers and transportation service providers. A rapid growth of intermodal shipping has created a need for cooperation and sharing of information between competitive transportation modes.

Globalization
A flexible set of service offerings and corresponding business practices are required to meet a diverse and dynamic set of international customer and government requirements. Transportation facilities vary significantly by country and are maturing at different rates. Competition is also targeting the international market as a key growth opportunity.

Technology
Technology is being used as a perceived value-added marketing tool. Many factors are playing into this new information age. The United States is a country in transition switching from the once dominant manufacturer of the world, to the new warehouse for data and information.

The growth of international trade will require greater automation capabilities as this global eCommerce age takes shape. Although the usage of EDI with shippers and partners is increasing daily, time will eventually "weed out" this complex protocol in favor of web-based portals. These platforms will be more enterprise driven and more scalable to meet customer demands.

Government/Regulatory Agencies
New free-trade pacts, environmental policies, taxes and other government strategies are shifting the economics between different modes of transportation. As information requirements increase, insurmountable pressure is on the government to create new standards in all arenas of transportation, ultimately delaying shipping and billing information. As an example, airlines have the opportunity to induct new technology to track containerized shipments, but unless the FAA approves this technology, it could be years before any benefits are gained.

Summary

A successful supply chain demands a number of complex, interweaved capabilities. In turn, these capabilities require expertise in a variety of disciplines, combined with traditional logistics processes such as distribution and transportation. Organizations faced with reengineering their supply chain must carefully strategize each segment, giving ample consideration to technology, while ensuring they can integrate operational excellence. Customers now demand products at eSpeed - companies that cannot deliver will lose their competitive advantage in the marketplace.