Freight Focus: Optimizing Your Supply Chain Network to Reduce Freight Costs
By optimizing their supply chain network, ceramic and glass companies are able to develop strategies to support long-term growth.
Most North American ceramic and glass manufacturers and distributors are looking for ways to establish and grow their market share. Business leaders seeking to gain a competitive advantage are honing strategic visions to reach their company’s desired future state and expansion goals. Even though organizations may develop a blueprint for growth, the larger challenge is to execute against that vision to achieve long-term value creation. With commodity costs up and increasing competition from alternative materials, many companies say they have done all they know to do. Their operations run as well as can be expected, but it is still a challenge to hit their numbers.
So how do North American ceramics and glass manufacturers expand into their desired future state and increase economic profit? Executives increasingly recognize that supply chain optimization is the answer to lowering transportation spend and growing business. To reduce freight costs, management must look at the whole picture of the supply chain—not just the hard costs of shipping freight, but everything from raw materials to the final delivery.
Understanding the Process
To start the optimization process, manufacturers should undertake a comprehensive assessment of their entire order-to-cash cycle and to understand key departmental metrics in purchasing, finance, customer service, production, and shipping, among others. Understanding the current state can eliminate failed expectations and is paramount in the development of a strategy that emphasizes enterprise value creation rather than simple, short-term reductions in shipping costs.
For example, perhaps a company is regionally focused but has eyes on new, potentially lucrative geographic markets. Its ability to service the new market is hampered by the location of its current distribution points. Using supply chain network analysis technology, the company can analyze the current state of their supply chain operations and perform “what-if” analysis on its future growth plans. From this, a strategy to enter new markets can be developed, whether through an acquisition or by connecting to full-service warehouses or building a new distribution center.
Analyzing the Supply Chain
A supply chain network analysis can be used to determine the appropriate number of facilities (warehouses, plants, distribution centers) needed to maintain the current fulfillment and customer service levels. Classic network design questions include the number, location, size, ownership and mission of raw material suppliers, manufacturing facilities, production processes, distribution centers, cross-docks, pool points, ports, transportation mode, and more. Typical supply chain network analysis technology incorporates all relevant costs of procurement, manufacturing, transportation, warehousing, port handling, inventory, duties and taxes, capacity limits, throughput, storage, etc.
Data is gathered from all operations and includes information about suppliers, carriers, production, manufacturing and distribution. Data types include the number and location of plants, distribution centers, production lines; facility mission issues, such as raw material procurement and inventory levels; facility ownership; and “what-if” issues such as facility capacity changes, transportation policy, seasonal demand/supply, product introductions or deletions and cost to serve information.
Modeling for Efficiency
After careful data collection, the supply chain model of the company’s business is validated, and modeling scenarios can begin. The process uses this data to evaluate various scenarios, such as choosing a different transportation mode or lowering customer delivery times from two days to one. After further analysis ensuring the modeling results can be implemented, a new, more efficient supply chain network is revealed that lowers costs and maximizes profits.
Once the supply chain structure is determined, companies can take on a lean approach, which focuses on eliminating non-value-added activity in the supply chain. A lean supply chain is one that produces or provides only what is needed, when it is needed and where it is needed. The lean approach leads to improved product availability and customer service at a lower cost.
An organization taking a lean approach typically focuses on improving processes and eliminating wastes within one facility. When focusing on that single plant, the traditional lean plan of attack is to document all activities and processes in the production cycle, identify non-value added elements and eliminate them through “Kaizen” (change for the better). By extending the same lean principles across the supply chain from vendor to customer, companies see a dual benefit of enhanced customer satisfaction and increased profitability.
By optimizing their supply chain network, companies are able to develop strategies to support long-term growth while maintaining competitive cost structures, which is necessary to broaden market penetration and achieve a more dominant position in the industry.
Any views or opinions expressed in this column are those of the author and do not represent those of Ceramic Industry, its staff, Editorial Advisory Board or BNP Media.