Building an integrated supply chain - TransportGistics logistics management

Solutions should not be more complicated than the problems they are trying to solve!

Building an Integrated Supply Chain

Summary

Ever since the supply chain was envisioned, there has been a focus on integration to improve customer service at a lower cost. This paper discusses reasons why this is not as easy as it sounds and outlines some interesting observations.

Current situation

The supply chain is all about flowing material “from source to end-user”, using various forms of transportation. When material is not being transported it is:

	Either in a manufacturing facility for “value added” purposes
	Or being held in a warehouse until its required destination is known

The ratio of warehouse time to manufacturing time is extremely high, but that is the subject of a future white paper in our series. So, despite the concept of “flowing” material along a pipe-line, the supply chain still exists as a collection of discrete elements, or separate facilities somehow connected by transportation. This is illustrated in the diagram below.

Integrated supply chain flow - transportgistics logistics management practice

The vendor has his shipping warehouse and has several options to transfer RM material to the manufacturer (or value added agent). He can use his own transportation, or the manufacturer can collect, or a third party (3PL) carrier can be used. In theory, the appropriate choice depends on which transportation agent can provide the best load and/or drop consolidation in order to minimize cost and maximize service. We have a similar arrangement for transporting FG material from the manufacturer to the customer.

Just as transportation transfers the material as freight between the facilities, the various information technology (IT) systems transfer the data. Data can exist in three formats:

	Information – to communicate plans
	Control – to manage performance to the plan
	Statistics – for analysis purposes, specifically to drive improvements

This white paper is focused on the transfer of information. There are two types:

Information that flows upstream, e.g.

Orders

Specifications

Such as routing guides

Information that flows downstream, e.g.

Advanced shipping notes (ASN)

Typically via electronic data interchange (EDI)

Bills of Lading (BoL)

Invoices

Issues with the current situation that detract from creating an effective supply chain

We can look at the issues under the same headings of facilities, material flow, and information flow.

Facilities

The existence of discrete facilities tends to constrain the management of operations to the respective facilities. Most business are still at the Stage I development phase – i.e. subject to budgetary control (Stages of Excellence is the subject of a future white paper). This means that Vendors, Manufacturers, and Customers are each trying to independently maximize the performance and productivity of their respective facilities. This is true whether or not the facility (warehouse) is set up as a profit center or as a cost center – a future white paper will discuss the merits of both options. It is often the case that an action taken by an upstream warehouse to improve productivity can so disrupt a downstream operation that there is a net loss to the supply-chain.

These “silos” of inefficiency are still very prevalent. They exist both between the different companies along the supply chain, and between different departments within a given company.

Material flow

	The key interruption to the material flow is the need to hold inventory. A certain amount of inventory can be justified by the need for manufacturing to have economies of scale, whereas customer service demands the fulfillment of many smaller orders. However excess inventory is caused by the need to bridge discontinuities in the planning and control function of items (SKUs) as they are moved through successive facilities in the supply chain
	Facility specific handling process also cause flow delays. Customers expend considerable time and effort to get manufacturers/distributors to conform to their packaging standards and vice versa. He who shouts the loudest does not necessarily have the correct process
	The choice of the correct transportation mode to flow the material is also a major issue. One reason for this is the bundling (hiding) of the transportation cost within the vendor’s price structure. Our future white paper on strategic sourcing deals with this issue

Information flow

Even in the age of on-line real-time systems, and of the internet, the information is not flowing as well as it might. Most warehouses still have an excess of receiving labor to enter receipts into the facility specific system. If we cannot operate on the dock-to-stock principle, then we can presume that there is an information flow issue. The use of ASNs, EDI, and possibly RFID can simplify the process, but the issues still exist of:

	How do we ensure the efficient transfer for information between “facility specific” systems?
	How to we ensure that the transferred information matches the transferred material?
	How do we efficiently compare receipts against the order?

A major issue is that the information needed to operate transportation is markedly different to that needed to operate a warehouse

The table below shows typical data fields

The only common elements are time, cube, dock

And even these have different formats between transportation and warehousing

The issue is compounded by the fact that many companies do not benefit from effective TMS (transportation management systems) and WMS (warehouse management systems)

Integrated supply chain data base elements - transportgistics logistics management practice

We have found considerable benefit in creating processes that are not necessarily facility specific, but are supply chain specific. For example, with reference to the diagram above, the need is to design, implement and manage two supply chains

	The first is concerned with the efficient movement of material from the vendors’ inventory to the manufacturer’s/distributor’s inventory
	The second is concerned with the efficient movement of material from the manufacturer’s/ distributor’s inventory to the customer’s inventory

The philosophy is that the movement of material should not be started until its route has been accurately defined to its required resting place. True just-in-time, cross-docking, lean operations, etc. demand this type of approach. There are three requirements that have to be met

The supply chain is not considered in terms of warehouses and transportation, but in terms of freight management from inventory source-1 to inventory source-2

Freight handling processes need to be integrated and consistent across the warehouses and transportation

One consistent, practical, and accessible data base

Data base duplication is a major step on the path to failure

Note that the data base needs to accommodate variations in the time & distance capability:

Both the “second & foot” requirement of a warehouse

And the “hour & mile” requirement of transportation

Observations

The facility management approach is looking for one consistent system/process within a facility. However the manufacturer in the diagram above may well require two system/processes within his facility

One to manage Supply-Chain A – inbound logistics

One to manage Supply-Chain B – outbound logistics

No longer is the dock the natural break in the material flow - inventory is now the natural break

TransportGistics has found that an effective way to start the building of an integrated supply chain is to address the information flow. Accurate and timely information can improve a mediocre process, whereas the best process available will rarely overcome mediocre information

For more information please contact Robert Munro, Consulting Division, TransportGistics bmunro@transportgistics.com

At TransportGistics we practice what we preach

Our ASP tools are designed to make information available real-time to support the efficient flow of materials. In particular, our TRaIDS (tracking, receiving, and internal delivery system) links the freight tracing of transportation (e.g. using EDI) with the internal delivery needs within a facility (e.g. using RF)

About TransportGistics, Inc.

TransportGistics is a global, multi-product and services company that provides market leading, simple, incremental solutions for transportation management and logistics functions within the supply chain.

TransportGistics commitment to education is portrayed through its advancement of professional logistics and transportation programs. Its white paper site presents important and timely transportation and logistics subjects each month, and is regularly visited by more than 125,000 clients and readers representing companies in the private and public sectors, universities and governments, worldwide. TransportGistics is a founding partner at the Center of Excellence in Wireless Internet and Information Technology at the State University of New York-Stony Brook.

Disclaimer

The information presented herein represents the opinion of the author, but not necessarily the opinion of TransportGistics, Inc. This white paper is not presented as a legal position or as a recommendation.

“Freight Lifecycle Management”, “Convergence” and “Today’s Freight Paradigm” are sales marks of TransportGistics, Inc.

TransportGistics simpler is beter transportation management and logistics solutions enable you to reduce costs and improve operations

All content copyright by TransportGistics, Inc. All rights are reserved. The authors of the articles retain the copyright to their articles. No material may be reproduced electronically or in print without the express written permission from the individual authors and/or TransportGistics, Inc. (papers@transportgistics.com)

TransportGistics Products

Solutions should not be more complicated than the problems they are trying to solve!

Generate, Distribute and Manage Bills of Lading on the Web

Tracing and Tracking information in a central location to all authorized users

Freight Bill Management, Shipment Information, Cost Control Portal

Generate Return Authorizations via least cost carriers, generate bar coded return Bills of Lading and facilitate the receiving and accounts payable/receivable processes

Communicate routing guides rules of engagement and carrier selection

Extend visibility & gain accountability to the desktop by tracking shipments & goods

Additional Resources

The Freight Audit Function and Utility. Driving Corporate Performance.

The Role of the Logistics Leader in Driving Supply Chain Value Co-Authored by Frito-Lay

Logistics, The Beginning of the New Potential

Micrologistics and Macrologistics - The Dichotomy of Logistics

ABC Product Costing