Supply Chain Myth #5: It’s all about Trucks and Sheds

Like Myth #1, this is one myth that persists. It stems from a lack of understanding that results in people focusing on the physical elements of the supply chain, as well as the way warehousing and distribution costs appear on an organisation’s books. While this is understandable outside the workplace (no-one wants to bore their friends at a BBQ by explaining the ins-and-outs of Economic Order Quantities or Seasonal Statistical Forecast Models) from an organisation’s perspective it is neglectful at best. As a result, warehousing and transportation projects may overlook potential opportunities and sources of improvement. That is, the bigger picture – including upstream causes – may be lost in the desire to get quick cost savings.
To illustrate this, consider the perspective of a Financial Controller who notices that freight costs are rising and begins to renegotiate freight rates. If this has not been done for several years, this process may yield some results. However, given the commodity nature of freight rates, it’s likely most rates are already competitive and there’s not a lot to be gained. In addition, if these costs are rising as the result of something such as changing customer behaviour or an outdated inventory policy, this undertaking will never get to the root cause of the issue.
As an alternative, consider tackling this as a holistic supply chain project involving three key steps:
  1. Review your Supply Chain Network Design in light of current strategy. This may be as involved as running a detailed network modelling project (also known as Supply Chain Network Optimisation) or as simple as mapping out your current network and looking for potential bottlenecks, constraints or redundancy. Regardless, your network should be capable of supporting your Customer Offer in an optimal manner.
  2. Focus your Supply Chain Planning capability on the drivers of inefficiencies. Having reviewed and possibly revised your Supply Chain Network, focus effort on improving planning to reduce noise and imbalances in inventory as well as redistribution and expediting costs. The potential for improvements from better use of inventory can far outweigh the benefits of better freight rates.
  3. Analyse the Delivery / Order Fulfilment Task for potential improvements. As a final step, it may be worthwhile to improve your transport utilisation, such as by running a Route Optimisation analysis, and remove further redundancy at the execution stage.
Having followed these three steps, should you then decide to undertake a freight rate review, you’ll be in a much better position to negotiate rates that meet your needs, based on a supply chain configured to your organisation’s requirements.
The benefits of a well-run warehouse and distribution network are clear, however what is needed to drive and support it can be deceptive or less obvious. Taking a broader perspective of the potential causes and sources of supply chain network improvement will help drive long-term, sustainable benefits. And your Warehouse Managers will thank you.
Read Adam Kidd's entire article “5 Supply Chain Myths to Bust to outperform your Competitors” to uncover the following supply chain myths:
  • Myth#1: Supply Chain is all about lowest cost - we need to be more efficient
  • Myth #2: Supply Chains Managers must be exceptional technical experts
  • Myth #3: If we just get our forecasting right, we’ll be able to execute perfectly and solve our supply chain issues
  • Myth #4: Technology is the best source of Supply Chain Improvement
  • Myth #5: It’s all about Trucks and Sheds