Guest Commentary: Catch the “Big Fish” Savings by Optimizing Orders Upstream!

Many Consumer Goods companies today are wasting too much time and resources trying to figure how to consolidate orders manually or with their transportation management systems (TMS). The order management process requirements from big-box retailers such as Walmart, Target and others is critical, particularly since they can make up more than 50 to 60 percent of a CPG company’s revenue. Freight costs and the ever-increasing demands from retailers on inventory levels continue to put pressure on Consumer Goods manufacturers to consolidate orders to fully maximize both store shelves and truck load levels.

Day in the Life Challenge (Fishing Without the Proper Bait)
Today, the Consumer Goods customer service rep manages consolidated orders using spreadsheets, emails and traditional TMS order consolidation capabilities. Here is an overview of the typical process:

  • Order management receives multiple orders from a retailer covering multiple categories.
  • After the initial order is received, the customer service team continues to wait for additional orders, based on retailer directed policy, that will consolidate multiple orders into a single shipment.

Other possible constraints/policies include:

  • The retailer may also provide information regarding the purchase order group number to ensure the orders sent are consolidated together to make up a delivery.
  • The retailer may provide a specific time that orders must be delivered.
  • The retailers may provide a window of time (4 to 5 days) that the order must be received.

This process can be tedious and time consuming. In addition, the customer service rep may receive emails from their own internal buyer specifying additional orders to be sent to consolidate into one delivery.

All of these activities cause inefficiencies in the order management process and are manually intensive in today’s fast-moving, demand-driven world. More importantly, the opportunity to ensure optimal full truck loads is lost.

Optimize at Order Receipt Upstream to Catch the “Big Fish” Savings
Ideally, customer service processes in today’s market should be as automated as possible to ensure customer service levels are being met and are able to respond to the fast pace of retailer replenishment demands. TMS solutions have always been good at matching less-than-truckload (LTL) shipments either for multi-stop deliveries or even to the same delivery point. However, best-in-class order consolidation requires in-depth detail about the characteristics of the SKU, the quantity and the customer’s “ship to” location, which is why customer service reps spend more time than necessary building the shipment.

Therefore, the ideal time to solve this predicament is further upstream, at the time orders are received, preferably in your ERP system.

In this optimized scenario, the advanced order building capability identifies the freight savings for order consolidation at the point of order entry, rather than using spreadsheets to group orders and then execute capabilities downstream where the decision-making is too late. Companies can use optimization technology to identify the optimal orders that provide the best utilization of the shipment. This capability looks at each SKU’s dimensions, stackability rules, compatibility rules, TI-HI, pallet sizes, trailer dimensions, axle constraints, top loading rules, customer specific constraints and delivery date min/max window. If allowed, the automatic consolidations can even auto backfill if the truck is not full.

The outcome is automatic generation of the orders into one or more shipments respecting the retailer’s purchase order consolidation rules.

Optimization technology has traditionally been thought of as an enabler for strategic decisions such as network design, route planning, master planning scheduling and transportation carrier selection. Real-time “Perfect Shipment” decision-making requires fast performance given the amount of daily orders sent from a retailer. The optimization process, therefore, has to occur in seconds, not minutes to determine optimal combination of sales orders into a shipment.

What is the Value?
The benefits are “whale size” and easily quantifiable. First and foremost, by using optimization to perform order sizing at the time the order is received, the manufacturer can identify freight utilization savings by optimally combining orders shipping to the same location. Consumer goods manufacturers using this optimization approach have generated savings from 5 to 15 percent. Streamlining the order consolidation process reduces the time required to manually match orders using only tribal knowledge. And it allows customer service to spend more time servicing the customer, helping them manage inventory availability issues, for example, rather than grooming line items on orders in an effort to move, mix and match them in hopes of creating a good shipment with the time constraints laid out by the retailer.

Next generation optimization technology is available to capitalize on this opportunity. Further, this technology adoption is most commonly embedded, not just integrated, with an ERP system. IT resources are scarcer than ever, and the CIO and his team always prefer any solution that can leverage IT resources in this manner.

A few examples where leading consumer goods companies have innovated with this approach include:

  • Interplant replenishments to enable full truckload shipments.
  • Promotion orders to prioritize and combine with turn orders to ensure promotional demand is met on time, with full truckloads.
  • VMI replenishments (hundreds of SKUs) for both cube and weight opportunities.

Retailers are expected to continue to push Consumer Goods companies in terms of service level expectations and demand responsiveness. The “Big Fish” cost savings await manufacturers using optimization technology that resides directly into the lifeblood of the company, order management. This technology enabler (embedded within ERP) shifts the paradigm by providing decision making upstream where there is advance time to deliver full truck loads. If it’s outside the ERP system, you’re fishing without bait. Customer service also benefits through greater automation and significant increases in data intelligence and graphical order management/load visualization.

Bobby Miller is currently responsible for Product Innovation and Customer Experience at ORTEC. Bobby pioneered the innovative ORTEC solution ‘Perfect Shipment’ which utilizes demand forecasting to generate optimal shipments, enabling organizations to plan and reduce freight cost in advance of execution. He has over 25 years of expertise working in the Consumer Goods Industry and developing supply chain software solutions that help companies globally such as P&G , General Mills, Coca-Cola and Clorox. Prior to ORTEC, Bobby was Sr. Manager of Supply Chain Excellence for Georgia-Pacific, where he pioneered the concept of sales order load optimization. He has also held various positions with Kraft, Coopers Lighting, Information Resources, IRI Logistics and Manugistics. Bobby received a B.S. degree in Information Systems from Chicago State University.  He is currently chairman of the Technology Association of Georgia Logistics Society.

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