Vantage Point: "Looking "Up" the Supply Chain as the Economy Improves

By: Darin Cooprider, VP and General Manager of Retail, Ryder Supply Chain Solutions

In a volatile business environment where consumer demand is fickle, retail and CPG companies are challenged with improving speed to market while at the same time, reducing total supply chain costs. The dramatic growth in off-shoring often works against these goals -- lengthening the supply chain overall and adding transportation and distribution costs as a trade-off to lower product costs.

 
Off Shoring in Asia

It comes as no surprise that there are many challenges associated with off-shoring. Despite lower labor and manufacturing costs, additional touch points and a lengthening of the supply chain increases costs in other areas, such as distribution and transportation. Now, as the economy begins to show signs of recovery, tight freight capacity is further increasing transportation expense as shippers are forced to pay increased ocean freight rates.

A longer supply chain also makes predictability more difficult, increasing risk. And historically, the lack of strong distribution infrastructure in Asia has been another obstacle for manufacturers and shippers to overcome.

Looking at the upside, there have been a number of changes in technology and processes that have improved the international shipping environment. Visibility has improved to address planning and predictability. For example, companies can now view and report on data related to product details, like style, size and color, all the way down to piece level in a carton. There is now better infrastructure in developing countries. New security processes have been put in place, such as C-TPAT and 10+2, that help reduce port clearance times. Because of these improvements, the velocity of commerce has increased. This gives us the opportunity to rethink the global supply chain, and where work gets done, to ultimately address total system costs.

With greater visibility to understand product flows, we can now better pinpoint where bottlenecks exist in the supply chain. While the longest lead times typically occur when products are in ocean transit, companies are now taking a closer look at other activities even further up the supply chain; namely, at the point of origin. These activities are most often associated with purchase order fulfillment by Asian-based vendors and factories, and the consolidation of product shipments from various vendors at the port.

Purchase Order & Vendor Management Practices in Asia

Many CPG manufacturers and retailers have sourced products in Asia for decades. The vendor relationships are long-standing, albeit most often at an arms-length. Managing the relationship between retailers/purchasers in the U.S. and the hundreds of vendors and factories throughout Asia is critical to an effective international sourcing program. Coordinating with overseas buying offices, managing vendor compliance, and timely and accurate documentation are mission critical functions for success. A greatly underserved segment of the market is knowing when and how to move merchandise from factory to port with all the inherent export procedures unique to the country of origin. Currently, most retailers rely on multiple agents to manage this process. However, working with multiple agents can often add waste to the supply chain.

For example, the overall impacts to time and compliance penalties that can occur if a purchase order is not fulfilled correctly can spell disaster for store shelves once the product arrives in North America. The solution: an exacting, closely monitored working relationship with vendors in Asia -- a service we call "PO Management" at Ryder.

PO management helps to provide a "control tower" end-to-end view of the planning and delivery of a PO from beginning to end. PO management practices include working with customers to identify what aspects of the PO need to be compliant (customer code, style, sku), checking on discrepancies flagged by the system, and monitoring PO delivery status against shipment windows and delivery standards, including quantity and quality. The PO is managed through the cargo receiving, load planning and shipping stages. This also involves working with vendors to ensure processes are being executed correctly to meet customer requirements. This is done through seminars and training sessions to educate vendors on compliance issues and new programs. Lastly, but most importantly, the success of any outsourced service should be measured closely by a pre-determined set of Key Performance Indicators, that provide the foundation for regular, systematic continuous improvement.

Benefits of Outsourcing PO and Vendor Management

There are many benefits that make a PO Management solution worthwhile. These include reduced transportation costs, reduced network failures, increased network visibility and responsiveness, optimal inventory levels and reduced process times. Companies that have complex relationships with their vendors or who are sourcing from multiple factories and other disparate locations can especially benefit from the help a 3PL can provide. 3PL providers can serve as a retailer's eyes and ears to make sure deadlines are met, quality is good, and generally manage the international supply chain more proactively.

Because one of the most prevalent issues associated with off-shoring is on-time delivery, a 3PL offers the added ability to manage vendors face-to-face. The 3PL can make on-site inspections at the factory to verify that production is running on schedule and quality levels are where they should be. This allows companies to find problems early on and avoid losing time and money caused by late deliveries or defective products. This also adds value for the receiver because delivery windows are more predictable and store shelves remain stocked.

3PL's can also implement systems to track milestones and provide detailed information about the life cycle of a purchase order. These systems track a PO through its creation, delivery to a factory, production and, ultimately, the final delivery of an order. At Ryder, we use an event tracking system that provides customers with visibility to such activities as cargo booking, cargo receipt, cargo ship, documents, customs clearance, estimated versus actual delivery time, delivery at destination, and shipment authorization. The graph below depicts the life cycle of a PO through the order and shipping process.

-->Hover image to view larger. (Source: LIMA)

A Case Study: PO Management in Action

One Halloween retail products manufacturer reaped the benefits of outsourcing its purchase order and vendor management. The manufacturer, located in Shenzhen, China, needed to fill an order of 222,000 units for final destination in Felixstow, United Kingdom. Working with 9 vendors and more than 1,100 pallet boxes, it needed a solution that would make distribution seamless, while providing increased visibility. Services outsourced included pick and pack, labeling, palletization, packing list preparation (per pallet box). As a result of outsourcing this process, this manufacturer realized a 20 to 30 percent reduction in end-to-end delivery and transport costs, shortened lead times, and a reduction in required DC capacity levels during the peak Halloween season.

 

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