Accredited
supply chain partnership program broker with total Organisation
Performance Owen Tilbury discusses how we can increase profit
in the 21st century.
There
is mounting evidence that we are headed for a global slow-down
and possibly a global recession. There is an oversupply of retail
space and there is likely to be a big shake-up in the manufacturing
sector.
The
issues for Australian businesses are more than ever about how
to cut costs and improve productivity and profitability.
Logistics
and supply chain management is one area that holds a great deal
of potential for achieving these objectives.
Keith
Halferich PhD. director of the supply chain management program
at Michigan State University cites case histories where the
improvements have been nothing short of dramatic.
Sun
Micro Systems for example, achieved a reduction in the number
of their suppliers from 200 to 20, inventories were reduced
by half, turnaround was cut from 15 days to one day, direct
shipment time was reduced by 47 percent, inventory turns increased
from five to 14 and product design time to market was reduced
by 11 percent.
So
how were these results achieved and what are the lessons for
Australian companies?
On
a recent trip to America, along with 6,000 people from 49 countries,
I attended the Council of Logistics Management annual conference
entitled "Logistics Excellence... Vision, Processes and
People."
Two
main points came out of the conference that I believe will have
a powerful effect on how we manage production, increase profit
and reduce costs into the 21st Century.
The
first, is that over the next decade or so the prediction is
that our customers are going to be fewer, larger and more sophisticated.
Our
suppliers are also going to be fewer, larger and more sophisticated
and to deal with this we will need to view the whole process
from raw materials to the ultimate consumer as a single process
across an "extended enterprise."
In
an extended enterprise we will form key relationships with companies
up and down the supply can, making a commitment to one another
that is longer than a transaction., that is longer than a contract,
that is longer than a year, that is in fact a commitment to
work together to make the whole process better over an extended
period of time, literally indefinitely.
The
pay-off is that by working together in these long-term relationships,
we will ultimately be able to achieve far more than we ever
could alone.
The
second major point involves our perceptions of the supply chain
and the effect of technology on it.
The
supply chain is one of the most expensive, dysfunctional processes
that we can possibly imagine.
It's
a "push" driven system. Someone interfaces with the
raw materials and creates a pile of inventory from it, then
they hire a sales force to go out and push that product downstream.
We
store all sorts of inventory because we don't know what our
customers might request of us and we feel we need to be prepared
for everything. Put another way, "uncertainty becomes the
mother of inventory."
It's
not unusual to have a year's worth of inventory in the pipeline
and it's not unusual to have a year's worth of money in the
pipeline flowing back up to the people dealing with the raw
materials.
This
process is too costly and too complicated and worse, it's not
good at delivering customer satisfaction. It, therefore, has
all the hallmarks of being a prime target for the application
of new technology and creativity.
The
result of the application of technology to this problem will
be an information flow that starts with the ultimate end consumer.
We will need to understand what is happening in real-time with
the consumer's decision making process and then fill those needs
back down the supply chain to the producer of the raw materials.
In
retailing that's relatively easy to do. In most retail outlets
there's a point of sale computer and I can find out exactly
what happened.
Then
if I'm smart, I can match that up with enough information to
know a little bit about why it happened.
The
next step is to take the process one step further by calling
the customer and asking what we could do better to serve them.
The
questions are: "Why do they buy?" and "What can
we do to do an even better job of serving them?"
We
have to learn to think of a customer as a lifetime stream of
revenue through a relationship that we build with that customer.
If
we collect the information and then transmit it along the supply
chain back to the producer of the raw materials we eliminate
the need to try and forecast what the next person in the supply
chain is doing.
We
will be able to operate the supply chain with dramatically less
handling, dramatically less transportation because we can move
it directly to the consumer.
