Evaluating Your Inbound Supply Chain Five Steps to Maximize Value and Realize the Best Landed Cost Contents 2 Gain Support and Classify Inbound Steps 1 and 2 3 Assess Inbound Strategy Step 3 4 Landed Cost/Service and Implement Steps 4 and 5 5 TMS and Benefits How s your inbound supply chain performing? Is it time to take it to the next level? Is your answer, I m not sure? Unfortunately, this is the answer many companies have when it comes to a proper assessment of their supply chains. And in today s economic climate, the inability to do the necessary analysis can have consequences, both financially and operationally. A Higher Priority Customer service. Innovation. Project management. Systems expertise. Companies invest substantial time and money in these core competencies, with the goal being a big return in the future. But when it comes to studying their inbound supply chains, many companies allow vendors to control the transportation and visibility required to effectively manage the costs associated with inventory. Pushing inbound studies even further down the priority list is their complexity coupled with the fact that many companies lack the necessary tools, resources, skill sets, and internal support to complete an in-depth dive into their logistics operations. Even with these components available, companies efforts to credibly assess their inbound supply chains are thwarted by factors such as misalignment with the project objective and inaccuracy. To successfully evaluate their inbound supply chains, companies can follow a repeatable, consistent approach that determines whether a change can be implemented and identifies the associated risks. 1 Evaluating Your Inbound Supply Chain
Road Map to Success The key to recognizing and capitalizing on the opportunities to maximize the value of your inbound supply chain lies in the following five steps. Step 1. Gain Senior Leadership Support and Authority. Typically, numerous levels of organizational leaders have an investment in the success of the inbound supply chain. It s this stake that determines whether your project is a go or a no-go. 1. Gain senior leadership support and authority. 2.Classify and quantify all inbound activity. 3 3.Assess current and desired supplier management strategy for inbound. 4 5 4.Evaluate the best landed cost/service combination by supplier. 5. Implement, measure, and monitor compliance. As such, it s critical to engage these stakeholders to set the stage for obtaining senior leadership support and authority. To gain complete support from senior leadership and all stakeholders: Clearly articulate your vision for evaluating the inbound supply chain. Explain the process and rationale. Provide the framework for a successful change by outlining the benefits and risks. This ensures complete understanding of the initiative and prompts other stakeholders to get engaged. Get senior leadership s commitment to clear internal barriers that threaten to stall the process. Clearly define roles because transportation, procurement, and inventory management are often led by different people. A significant portion of the project s success relies on the level of stakeholder support and how empowered you are to move forward. Step 2. Classify and Quantify All Inbound Activity. Faced with evaluating multiple strategies for managing their inbound supply chains, companies have a difficult time carrying out this step. Exacerbating the problem is that critical information resides in various places in their systems. The typical inbound supply chain management strategies are: Prepaid supplier controlled Prepaid and add supplier controlled, but paid eventually by company Collect supplier controlled Collect company controlled through routing guide Collect company controlled through active shipment management 2 Evaluating Your Inbound Supply Chain
Road Map to Success (continued) As they move their inbound from prepaid to collect, companies you need to understand how a potential transportation often will be able to more clearly segment, analyze, and change change might affect the supplier relationship. Beyond this their separated costs (product and transportation). However, intangible, before making any adjustment, you must have rather than automatically ruling out the prepaid strategy, your transportation strategy in place to know which factors companies need to determine that a prepaid inbound shipment are key to managing these relationships. produces the best landed cost. When costs are clearly segmented, the company s procurement staff can focus on Critical to developing a solid understanding of your the product cost more effectively. company s inbound supply chain strategy is nurturing the support of the key internal stakeholders whom you engaged At the bottom of the page is the framework of a sample in step 1 for the overall company mission for inbound supply shipment history that represents the type of data that a chain management. You ll need to learn each stakeholder s company needs to obtain to properly classify and quantify specific interests and motivations for supporting the process. all their inbound activity. In addition, continue to gauge the support from each Step 3. Assess Current and Desired Supplier Management functional area that will be affected by the change. Strategy for Inbound. At the same time, stay up to date with stakeholders and Low cost, partnership fit, loyalty, and joint ventures help senior leaders on any potential changes to the supplier to define companies supplier-management strategies. management strategy. In evaluating your inbound supply chain, Sample Shipment History File 3 Evaluating Your Inbound Supply Chain
Road Map to Success (continued) Step 4. Evaluate the Best Landed Cost/Service Combination by Supplier. The foundation for this evaluation is a robust rating engine that allows each lane to be costed while also taking a logisticsengineering approach to consolidations in transit. This rating engine should contain all the contracted rates that the company has with its carriers. The costing must be true landed cost (linehaul, fuel, known accessorials, etc.), which is then compared with the historical cost (from the shipment history file in step 2). The fuel surcharge in this costing should reflect the surcharge that would have been in place at the time of the shipment. Pay close attention to the typical shipment attributes (weight, size, quantity) as well as any standard deviations. Also, evaluate any relevant changes in transit time that could affect (positively or negatively) inventory levels. The key is that a decision on the typical/average shipment attributes may not be the best decision for all the shipments from a supplier. From access issues to an inability to handle thousands of shipment ratings en masse, problems often prevent companies from building their own rating engine or using a home-grown rating engine in Microsoft Access or Excel. In these cases, a strong transportation management system (TMS) or third-party logistics (3PL) provider often has this rating engine available. Also, determine what process changes are necessary to capitalize on these opportunities. In our experience, the most successful supply chains move toward active transportation management with supplier-compliance measurements. When recommending a change to your supplier, remember that you are partners, and your approach should reflect this relationship. With this strategy, the supplier might be able to offer lower transportation costs than the historical shipments show. Step 5. Implement, Measure, and Monitor Compliance. To ensure that savings are realized and that historical assumptions remain unchanged, the team must monitor all changes and stay engaged throughout the implementation. Often a subteam will carry the inbound supply chain management forward. This subteam must have the skill sets to manage the implementation and the tools to monitor and measure compliance. The original sources for the historical shipments should match those that will be used going forward to ensure that continual data streams append to that shipment history. This shipment history should be accumulated monthly, if not weekly, in order to monitor compliance and identify new trends. Lastly, repeat this step at least quarterly to maintain the best inbound supply chain management. When identifying opportunities, you need to evaluate the risk of change with your suppliers. For example, suppliers that ship prepaid might resist a change in freight terms or could absolve themselves from the success of the delivery if the freight terms change to collect. However, contractual language could be written to ensure that suppliers take an active interest. 4 Evaluating Your Inbound Supply Chain
Road Map to Success (continued) The Importance of a TMS Beyond the five steps outlined here, an indispensible part of the evaluation process is a TMS and experienced professionals who can effectively manage the inbound supply chain. At a minimum, the TMS should interface with all supply chain partners via electronic data exchange (EDI, XML, Web services, etc.) and offer a Web portal for supply chain partners unable to exchange data electronically. This Web portal should be customizable to include business rules to ensure compliance. This connectivity with the supply chain partners will give companies full access to the shipment status for tracking purposes as well as event alerts for exception management. organizational strategies, and stakeholder support are critical to having your product in the right place, at the right time, and at the best obtained cost. The five-step approach outlined here is designed to achieve these objectives. By using this approach, companies that are committed to improving the performance of their inbound supply chains will see traceable results (see box), a more nimble inbound supply chain that can adapt to changing needs (place, time, cost), and powerful landed cost information. Financial and Operational Benefits The TMS should also: Have a rating engine that meets all standard and most nonstandard rate methodologies to include automatic interface to standard mileage databases. Calculate transit times and have an interface to the LTL industry s transit times. Activate an optimization engine for suggested consolidations and routing coupled with automatic tender capabilities. Summary From transportation execution to your relationships with suppliers, the success of your inbound supply chain relies on several substantive elements. Balancing these elements and making sure that they are aligned might seem daunting and appear to detract from your core competencies. However, evaluating your inbound supply chain and determining the validity of changing it the timing, risks, alignment with Improving your inbound supply chain could yield benefits beyond best landed cost and improved supplier relationships. For example, if your inbound transportation spend is $5 million, and there is a potential 12 percent savings, you can deliver $600,000 to your company s bottom line. In addition, your company could enjoy operational benefits, such as: Improved receiving processes through enhanced inbound visibility. Better inventory management resulting from upstream visibility. 5 Evaluating Your Inbound Supply Chain