In our age of technology, here is a disconcerting thought: more than half of the warehouses in North America and Europe still rely on paper rather than an automated system. Essentially, companies lack inventory visibility, suffer operating inefficiencies and waste resources within the supply chain. Leaders in manufacturing and logistics industries should consider an environmentally responsible strategy which not only offers the universal benefits were familiar with, but also financial ones that strengthen their profit margins.
While the lull in energy prices has temporarily given solace to many, the reality is it furthers our addiction and reliance on fossil fuels, undermining efforts to adopt alternative solutions. Much talk centers on the expense and complexity of adopting green initiatives, but green business and revenue growth are not mutually exclusive of each other.
Several years ago, volatile energy costs spiked significantly and forced logistics companies to drastically rethink how they conduct business. This along with natural and man-made disasters such as the hurricanes in the Gulf of Mexico and the Enron energy crisis in California during the 1990s drove businesses to adapt to a new environment. Those that werent agile enough disappeared.
Not surprisingly, such events create turmoil in the stock markets, affect buyer confidence, and impact supply chain dynamics. We are in a perfect storm where energy costs are as volatile as ever, consumer demand is declining, and economic growth is weak. If brands and manufacturers do not adapt quickly to demand on the sell-side, they face bleak futures, as do their logistics service providers, 3PLs and warehousing centers. Pressures to provide both inventory visibility and adaptive measures to support pull-supply chains have also emerged because of Web 2.0, a paradigm focused around the behavior of individuals, companies and social networks that influence buying habits as a result of the Internet. This is the arrival of the experience economy where customers want a 360-degree experience that includes things such as carbon footprints, real-time product visibility, and availability/delivery times among others.
This falls back to the basic premise of business: if you dont provide customers with what they want, when they want it, and at a reasonable price, your organization is at risk. The supply chain is more critical than ever to your organizations success. Market demands to improve performance while simultaneously reducing costs is changing the playing field, and highlights the need for technology to support both the agile, energy-efficient supply chain as well as for socially responsible green initiatives.
Technology has always been a differentiator for companies as they evolve their business practices. What is not apparent for the logistics community is how far technologies have advanced and how easily available it is with tipping point changes such as Software-as-a-Service (SaaS), on-demand, staged buying experiences supported by consumer access to Web-based information (search engines, web-networks, portals, etc.). The big dilemma for supply chain professionals is how long can they hide the dust under the carpet. In other words, you need to determine truly measurable inefficiencies and wastage within your supply chain. Volatile energy prices and stock market turmoil highlight an endemic problemrigid supply chains and logistics inefficiencies playing foul with higher goals (e.g. going green).
While transportation carriers are sensitive to energy prices, manufacturers face energy surcharges. This uncertainty along with current economic conditions affects the growth of inventory. The consequences are far reaching since shippers will carry extra inventory or safety stock, and order less frequently, adopting a cost-reducing strategy to select a cheaper, slower mode of transportation. Most consumers already feel the effects through higher food and packaged good prices. These same vendors are also dealing with more items and orders, shorter lead times, and higher expectations for service levels. Manufacturers are uncomfortable with static supply chains that are physically unwieldy and bound by insular, legacy order management, procurement or fulfillment systems.
Outsourcing to China seemed cost effective a few years ago, but today its no longer the supply chain bargain it once was. Escalating labor costs and ever-increasing government regulation are creating reverse globalization. As the world becomes smaller, moving offshore isnt a cost-effective way to outsource. Instead, companies view outsourcing from a more strategic perspective with a deeper understanding for what the business demands. Pull-based supply chains are again becoming popular, displacing push-based initiatives that encouraged off-shoring manufacturing and other long-lead, long-life transit time strategies to market. Most forecasting techniques fall short of actual market dynamics, resulting in over-stocking, obsolescence and poor customer service levels. Unless changes are made, the value chain will continue to plod on with shrinking margins.
Companies like Sharp Electronics are shifting their final assembly closer to point of sale, a return to the practices of the 1980s and 90s prior to off-shoring becoming a no-choice option for manufacturers to survive. Normalization of Chinas economy with the global economy has resulted in a reorganization of supply chain networks.
An equal level of discussion also surrounds the issue of the green supply chain. While the majority of investment tied to corporate social responsibility programs, a green strategy provides prudent business processes. Such a framework emphasizes network redesign, packaging changes and business collaboration that promote a smaller carbon footprint and generates cost savings.
Rethinking Your Supply Chain
To ensure your warehouse operates efficiently, you need a warehouse management system (WMS) now. The most strategic way is also the most fundamentalimprove supply chain visibility and tactical knowledge, to help close the gap between the time you learn about something with significant impact and when you can actually do something about it. Without a WMS, youre at a huge cost disadvantage. An increase from 91% accuracy to 99% can mean saving thousands of dollars each month for your warehouse. For example, SmartTurns on-demand, web-based system improves visibility and accuracy, while also reducing the carbon footprint of all products running through a WMS. Paper usage in a warehouse can be reduced by 80%, IT expenditures by 95%, computer power usage by 70% (enterprise-class server setups require significant power, approximately $900 to $1,400 annually!).
One of the biggest shortcomings in the industry is the lack of communication and accessibility to information. A good analogy is your typical teenager or younger business executive who communicates via the Internet or mobile phone, instant messages (IM), text messages, and email messages while sharing information on social networking sites such as Facebook, and LinkedIn. With the average warehouse, no regular collaboration happens so there is little or no access to information necessary to make key decisions.
We need to look at our supply chain networks with a sense of urgency which means developing an understanding of future economic conditions. Review your customer list for profitability. As logistics costs increase, margins shrink, so assess whether letting go of a customer makes more sense.
Carriers of all types need to take collaboration to heart by developing an action plan and adopting industry-wide best practices. If now isnt the time, then when will it be?
When making offshoring decisions, volatile energy prices may make a close-to-home/nearshoring strategy more financially feasible. From an efficiency and optimization standpoint, cost savings from labor are easily negated when transportation expenses come into play.
Unlike other trends that become fads, adopting a green strategy provides long-term benefits. The green movement may seem daunting to many companies, but more resources are becoming available every day. While the challenges may change, the fundamentals of good business remain the same.
Jim Burleigh is CEO of SmartTurn and has more than 19 years of software experience, having served in various senior positions among companies such as Salesforce.com, Oracle and Navis. He is a seasoned SaaS strategist and supply chain innovator. To contact Jim, please e-mail firstname.lastname@example.org.