The bigissue: increasing revenues while controlling costs. One of the key challenges for manybusinesses is to increase profitability by increasing revenues and controlling costs.Companies with a logistics process at the heart of their operations see this as anopportunity to achieve both. By meeting customers’ supply needs more accurately andefficiently, they can make it impossible for customers to move their businesses elsewhere.Therefore, they improve customer loyalty and boost revenues. By removing inefficienciesfrom their own processes, they control costs.
The Food and Beverage Industries are in oneof the most demanding sectors, with both retailers and manufacturers demanding higherlevels of service. The leading retail grocers, for example, are insisting upon uniqueservice level agreements with manufacturers. Within those agreements, they make it clearthat they will refuse to accept certain fresh products, like milk or vegetables, which donot have an agreed amount of shelf life. Manufacturers, or their Third Party logisticssuppliers, must ensure they have the right amount of product, with the appropriate levelof freshness. Also it must be available for the right customer at the right time. To sayit is a complex process is an understatement.
Addressing quality and accuracyissues within the supply chain
Food and beverage producers also need to address product quality concerns. Anumber of high profile scares around the world have led to far greater consumer awarenessof product quality issues. Also, this awareness is now supported by increased regulatorydemands. Retailers, and by definition their suppliers, are addressing these concerns andintroducing systems (typically involving bar-coding) to ensure they can trace specificbatches of product and account for its quality.
Accuracy is a critical issue, too.Manufacturers have to deliver the right quantity of product in the rightpackaging.Barcodes have to be created to meet individual customer requirements. Advancedshipment notes need to be issued confirming the arrival time of every consignment. Thereis a pressing need to develop systems to ensure waste is eradicated, or kept to a minimum.Clearly, the complexity of this task varies according to the size and perishability of theproduct.
All of these challenges need to beaddressed within the context of business to analyze core and non-core business activitiesin order to improve efficiency. The outsourcing of non-core activities to specialistproviders can be a cost-effective means of improving customer service – Third Partycontractors now move over 65 percent of road freight. However, the publicity surroundingnumerous high-profile outsourcing disasters has shown the need for companies to workclosely with their outsourcing providers to ensure customer expectations are exceeded. Incertain scenarios, outsourcing can create more problems than solutions.
The challenges facing logistics managersare many and varied. They must deliver accurate quantities of product to differentlocations at increasingly frequent intervals. Same or next day delivery has become thenorm in the Food Industry, more so than any other industry sector. Logistics managers mustensure that they can trace specific deliveries and products on an historic basis. Theymust meet the demands of different customers accurately, consistently and profitably. Theymust optimize the use of the fleet to ensure that a vehicle is always travelling fullyladen and via the most efficient route. They must also review the various forms oftransport available to them, deploying inter-modal scenarios when that is the mosteffective option.
Understanding the IT revolution
Over the last few years, plenty has been written about how Information Technologycan help food and beverage companies improve efficiencies and reduce costs. However,genuinely documented examples of this are still hard to find. The reason for this is thatthe IT revolution is still in its infancy. After all, the PC was only invented two decadesago. Those of us still working in the logistics marketplace 20 years from now will lookback at the previous lack of technology and marvel that anything got anywhere on time!
To date, many computer systems have beenlittle more than passive, transactional-based processing systems. They may haverevolutionized the accounting process, but their impact on the logistics supply chain hasbeen unremarkable. This is about to change. A logistics manager anywhere in the world isnow confronted by a vast selection of software solutions promising various levels ofbusiness transformation.
From passive to active
This article does not aim to argue the merits of JBA, SAP, Oracle, andManugistics. All have a loyal and growing user base. It is more relevant to consider howthe software that is now being developed goes beyond its passive predecessors.
Software is now able to map industry-developed best practices and demonstrate how those processes can be applied to realbusiness scenarios. This software is also able to be configured quickly and easily.Business Process Modeling has been established as a valid method of process documentation.It is increasingly seen as a critical stage in understanding how any IT solution cansupport the processes within a business. Using such modeling, a company can see how eachfunction, process or workflow that occurs to it maps onto the structure and functions ofthe application software it intends to adopt.
Experience shows that starting with anexisting idea and then molding it to the purpose in hand is often quicker and moreeffective than starting from scratch. A basic model can provide the structure upon whichto build. It may add value in its own right if it contains information or knowledge notavailable within the organization.
Defining best practice
While there are a number of well- established groups involved in supply chainissues, one of the fastest growing and most significant is the Supply Chain Council (SCC).The SCC has developed and endorsed the Supply Chain Operations Reference Model (SCOR) asthe cross-industry standard for supply chain management.
Utilizing SCOR in the context of modelingan enterprise’s operation enables a clear understanding of what a business is to do.Through the model, the company can define which processes are to be executed within thebusiness, and which are critical to the success of the company. The company can define theareas where the opportunity for improvement (through the adoption of best of breedpractices) are greatest, and will therefore warrant the greatest attention. In every case,there is the opportunity to identify and agree where a process could be manipulated to addgreater value to the end customer while removing those activities which add cost withoutcommensurate value.
Does this help reduce cost in the supplychain? Consider a product like milk. The supplier may have contracts with a number ofsupermarket chains. It will have to deliver precise quantities at exact times in specificpackaging. It will have to provide various levels of shelf life, or risk its product beingrejected. Time is not on the supplier’s side.
The supply chain is reliant on all partieswithin it to fulfill their roles accurately and effectively. If a daily order is notreceived by a certain time, the supplier’s stock control system may not be able to cope.Too much stock and product may have to be written off. Too little, and the customer isleft with a partially fulfilled order. Either way, the cost is likely to impact the bottomline.
Using technology to cut costs – atall points in the supply chain
What is needed is a backbone that keeps the supply chain on the move. It mustensure that every element of the chain is working as it should – whether it is thepackaging supplier, the production team, the transport fleet or the customer’s orderingdepartment. Only until recently has this type of system been available.
These systems will prompt any individualwithin the supply chain failing to fulfill a requirement, ensuring the chain itselfremains intact. They can be used in conjunction with systems that acknowledge when anexcess stock situation may be about to arise. This allows the supplier to offer theproduct at a discount price to avoid a write-off. They can identify product which may nothave the requisite shelf life for a certain category of customer, but which may be finefor another. In short, these systems can help to run a business more proactively,effectively searching out opportunities to eliminate waste, and by definition, cost.
Modern technology is also helping to reduceinventory costs. Through cross docking incoming stock, the precise arrival of which isnotified by in-vehicle scheduling software, can be allocated for delivery against outgoingshipments. The concept of a virtual warehouse is getting closer, again providing anopportunity to drive costs out of the supply chain.
The internet is also being considered as ameans of reducing costs in certain situations. A restaurant chain, for example, may have apredictable ordering cycle for a number of products. By supplying each outlet within thatchain with the ability to order direct from a logistics provider, huge cost savings couldbe realized for the chain, the logistics provider and the food manufacturer.
However, none of these systems can achievemuch in isolation. It is critical for logistics managers to ensure that any solution hasbeen suitably developed to allow integration with Third Party products. It is also truethat while many businesses within the Food and Beverage Industries may have common issuesto deal with, no two businesses are the same. Therefore, systems must be designed so theycan be easily adapted, without causing huge upheaval. Then, logistics managers will have areal chance of increasing efficiency and reducing cost within their operation -continually.