With shortages of 2009s must have Christmas gifts once again bringing the challenge of managing long distance supply chains into sharp focus, according to Davies & Robson, new ways of working can help prevent a repeat performance in 2010.
Andrea Harris, Consultant at Davies & Robson says: As well as reducing production or purchasing costs by outsourcing to or sourcing from distant locations, manufacturers and retailers continue to challenge their logistics managers to reduce both transportation costs and inventory in the supply chain.
Although the logistics manager will always aim to use the most cost-effective transport modes, given the distances involved, the trade off for doing so is a significant increase in lead time to market. At the same time, reducing inventory in the extended supply chain also comes at a price, by increasing the risk of costly stock shortages. Despite the considerable skill and best efforts of most logistics managers, balancing these conflicting factors in supply chains which rely on the vagaries of forecast demand is nigh on impossible.
In many cases, this means that the cost benefits of sourcing from distant locations are effectively cancelled out by the cost of failures in the supply chain a classic case of robbing Peter to pay Paul.
However, by adopting lean techniques which align supply to actual, rather than forecast demand, logistics managers can configure their supply chains to more reliably, accurately and cost-effectively meets future customer demand, regardless of variability or the distance between point of origin and point of consumption.
Firstly, by establishing a stock holding at source, the cost of shipping and handling in the destination market can be postponed until absolutely necessary.
Critically, a stock holding at source allows the flow of product to be switched from push to pull, allowing production to be driven from customer demand through the use of Kanban signals to trigger replenishment of product as it is withdrawn for despatch. This effectively prevents costly overstocks and removes over-reliance on forecasts.
Allied to the above, logistics managers should review distribution channels to ensure that the optimal mode of transport is employed. Whilst bulk sea freight is undoubtedly the cheapest option, the actual delivered cost must also take into account the effect of long lead times on working capital and cashflow and the cost of handling, storage and inventory control of product in the destination market. Increasingly, consolidation centres at origin are supporting the introduction of smaller, more frequent deliveries and in most cases, the optimal solution is likely to involve a mix of FCL, LCL and air freight transport.
Andrea Harris concludes: The most efficient supply chains match the transport mode as closely as possible to the production replenishment cycle, to improve flow and minimise lead time to market.
By adopting these and other lean principles, logistics managers can increase flexibility, reduce lead times, improve cashflow and reduce total delivered cost to ensure that the cost saving benefits of sourcing from distant locations are fully realised.