Logistics Viewpoints

A complete analysis of logistics trends, technologies, and services

DC Managers: Use the Right Kind of Metrics to Protect Your Job

Metrics and Standards | By •

ARC Advisory Group surveyed 52 logistics executives and asked them if their companies were using any sort of warehousing costs per unit measurement, defined as “total warehousing costs/total units shipped.” Thirty-seven percent of the respondents were not using this this metric type, which is far too low. Ideally, if a company is doing pallet shipments, it would measure “cost per pallets shipped” to evaluate that zone of the warehouse; if it is building mixed-case pallets, it would also measure “cost per mixed cases pallet shipped” for that portion of the warehouse, and so forth.

Having such metrics in place, and actively monitoring them, helps companies ensure that the productivity benefits associated with their Warehouse Management System (WMS) implementation do not begin to slip. These metrics also allow a WMS to serve as a platform that can help companies measure the effectiveness of continuous improvement programs. Finally, and perhaps most importantly, such metrics are an important tool for protecting the job security of a warehouse manager.

The final point, cost per unit metrics as a form of job security, needs further explanation.

When logistics executives put together their annual budget, the simple approach is to begin by looking at warehousing costs as a percentage of total revenues. Then the distribution manager looks at the demand forecast for the coming year, factors in wage inflation, and produces the budget. The CFO will then generally pressure the executive to reduce the budget, and some back and forth takes place before the departmental budget is approved. If a manager does not hit his budget numbers, then at the very least he looks bad, but the manager may end up in a situation where he is looking for a new job.

This can be unfair. If the warehouse manager is not using cost per unit metrics, he can end up not hitting his budget, despite achieving targeted levels of labor productivity. It costs more to pick mixed-case pallets than pallets, and more to pick cartons or individual units than mixed-case pallets. If the company’s order profile changes, a warehouse manager that uses simplistic budgeting can look bad.

In contrast, visualize a manager that forecasts “We will do this many pallet picks, which will cost this amount, and we will pick this many mixed pallets, which will cost this amount, and we will do this many each picks, which will cost this amount.” At the end of the year, if the manager has exceeded his budget numbers, he can look at the actual number of pallet, mixed pallet, and carton shipments and justify his performance. Further, the trend is toward more frequent but smaller shipments. Order profiles are unlikely to change in ways that will make a warehouse manager look good.

Guest Commentary: The Importance of a Service Level Scorecard with Your 3PL

Guest Commentary | By •

Is your company getting ready to sign an agreement or renew a contract with a third party logistics provider (3PL) or continuing a partnership with an existing 3PL partner? If so, do you have a service level agreement in place which clearly spells out key performance indicators (KPI’s) for your 3PL and do you review it regularly? If you are using a third party logistics provider, then measuring their effectiveness is critical to determine if your company’s logistics requirements are being met. When things are going well — i.e., your company just signed a favorable contract or your logistics costs and service levels are in control — a service level scorecard may seem unnecessary. However, the benefits of a scorecard to regularly measure results will be missed when operational issues crop up or costs are trending in the wrong direction. When this occurs, it can be challenging to get a handle on root causes by wading through data or dissecting specific issues with your 3PL without an accurate view of the whole service.

Agreeing on the critical service level indicators which will be used to measure and track the effectiveness of your 3PL provider or delivery provider is important work – it provides common ground for working through issues, improving delivery service, monitoring costs, and identifying new opportunities. Collaborating with your third party logistics provider to agree on what measures to track along with the target goals, target floors, and criteria for critical failure is a key step which will drive the on-going effort. Reviewing these metrics together month over month to monitor trends provides insight to both parties and lays the framework for developing action plans to address KPI’s that are below the targets as well as to identify new opportunities.

While the key performance indicators that are right to measure will vary by industry, products shipped, and geographies shipped to, measures that are important to enabling a holistic view of your logistics program will likely include:

  • Freight Cost – This is a given and is a critical measure. You can track freight cost in terms of dollars per shipment, dollars per case, and dollars per ton-mile as well as by location, customer, and mode.
  • % On-time delivery – Delivery service levels across your network, for key customers, and for inbound loads is another fundamental measure. Targets for these will and should vary based on internal and customer requirements.
  • % Loads Accepted by Primary and Secondary Carriers – Regularly reviewing this provides insight to cost trends, capacity, and carrier issues.
  • Sustainability Measures – These could include % shipped intermodal across the network, % miles moved via Smartway carriers, or % miles moves by CNG/LNG powered carriers.

There are many other measures and the need for them will vary by industry and priorities. An example includes measuring expedited loads such as actual expedited loads shipped, % expedited, or incremental dollars spent on these loads. Another important measure may be in the area of load consolidation, which could be the number or % of loads consolidated, dollars saved on consolidated loads, or missed consolidation opportunities. Finally, as changes occur within your supply chain or company, the SLA scorecard should be updated to reflect these. A relevant example for us was the need to track and adjust the percentage of drop vs. live loads as a result of changes within one of our warehouses. Live loads were increasing, but the flexibility within our warehouse to manage more live loads had declined. Working with our 3PL provider to develop an action plan to track and address this was needed, and this metric became one of our KPI’s.

In summary, it is important to put a priority on service level agreements including defining and tracking KPI’s and reviewing results regularly with your 3PL and other key supply chain partners. Regular reviews of KPI’s lay the foundation for improving service and lowering costs.

Lisa Dennerll is currently the Supply Chain Director at Sunny Delight Beverages Company, based in Cincinnati, OH. Lisa joined Sunny Delight in 2005 and is responsible for logistics spanning customer delivery, inbound freight, cost optimization and capacity planning. Lisa also has ownership for SunnyD’s customer service operations and supporting Sunny Delight’s brand teams by managing a planning team responsible for leading new product launches.

Guest Commentary: CPG Companies Collaborate on Sharing Best Practices and on the Road

Consumer Packaged Goods (CPG) | By •

For years, collaboration has been a major topic of interest for shippers that focus on best practices and innovative supply chain strategies. But with growing uncertainty around an economic rebound and shifts in capacity, forward-thinking shippers are talking about collaboration to improve their supply chain operations and to better serve their customer base.

For the past five years, Transplace has brought together leading consumer packaged goods (CPG) companies for its annual CPG Summit, where supply chain leaders engage in open, strategic discussion as a way to share knowledge and identify opportunities to work collaboratively. Last month, six leading companies met at a Transplace CPG customer’s headquarters to discuss top-of-mind issues, specifically best practices of collaborative transportation management, customer scorecards and benchmarking.

This event gives Transplace a front row seat to hear its customers and understand their concerns. It also allows the CPG corporate leaders to learn from their peers and make collaborative transportation management an active part of their supply chain strategies. The innovative, actionable discussion produced the following themes:

Improving Service Performance Execution, as Measured by Customer Scorecards: Service is king for CPG companies serving their retail customers. With the added pressure of more retailers adopting compliance programs and levying penalties for not meeting order/delivery terms (e.g., missed delivery window, incorrect shipment weights, etc.), shippers are looking to improve their service performance metrics. To do this, many shippers have focused on aligning their KPIs with their customers’ scorecards. Some CPG companies are even asking retail customers to provide their supplier scorecards so that shippers can measure their performance by the same criteria. During the CPG Summit, the participating companies looked to benchmark their own scorecard initiatives against their peers as a way to ensure they’re measuring the optimal criteria and developing scorecards that will help drive exceptional service to their customers.

Making Collaborative Transportation Management a Reality: While the idea of collaboration has been discussed for years, few companies have taken action on this initiative. Yet, as CPG companies and their logistics partners gain greater network visibility and the ability to more efficiently identify and execute collaborative transportation, more businesses are taking advantage of these innovative and untapped opportunities. The ability to identify network synergies opens the door for shippers to take advantage of several collaborative opportunities, including co-shipping, utilizing dedicated fleets and participating in multi-party bids. For companies already engaging in collaborative shipping strategies, there is an opportunity to bring in additional shippers and expand on how they are working together.

As the idea of collaborative transportation progresses, so does the talk around doing so with a competitor. While previously a taboo subject in the United States, this strategy is being utilized in Europe. Now, some shippers are considering this approach if co-shipping or co-storing with a competitor can significantly reduce supply chain costs and help secure capacity when the market tightens.

Benchmarking Freight Rates to Identify Savings Opportunities: Benchmarking freight rates can help shippers determine if there are opportunities for savings through a bid. This has become increasingly important in an environment of tightening capacity and volatile freight rates. Leveraging timely market benchmarks enables shippers to develop effective strategies to better align their networks with competitive carriers. Seeing the value in benchmarking, many of Transplace’s CPG customers have requested such data across several metrics on a monthly – not just quarterly – basis. An automated process gives these customers access to the necessary market data to efficiently evaluate their freight bid strategy and take advantage of available savings opportunities.

Successful collaborative transportation starts with shippers that recognize its value, are willing to openly share information, and engage in strategic, forward-thinking discussions. As was examined during the CPG Summit, there is tremendous opportunity for CPG companies to reduce transportation costs and better serve customers by collaborating with other shippers both in a forum setting and on the road.

Mark McEntire currently serves as Vice President of Operations for Transplace. Mr. McEntire’s 23 years in transportation and logistics include experience with JB Hunt Transport, Inc. and Penske Logistics. His functional responsibilities have included operations, sales, customer service, and contract logistics. In 2001, he completed a two year Six Sigma certification program with General Electric and is a GE certified Black Belt. In June 2009, he became certified as an APICS CSCP. Mr. McEntire earned a Bachelor of Science in transportation and logistics from Arkansas State University.

SAP Performance Benchmarking in Supply Chain Management

Consulting Services | By •

SAP briefed ARC a while ago on its benchmarking services, the company’s version of the benchmarking metrics offered by the Supply Chain Council (SCC) and the Warehouse Education Resource Council. In fact, SAP tells us that it is “compliant” with the SCC’s Supply Chain Operations Reference (SCOR) model. This basically means that many, but not all, of SAP’s metrics come from the Supply Chain Council, the gold standard for supply chain management metrics.

As with SCOR, SAP uses predefined metrics, and users enter their data into the survey tool and then they can see how they compare on a given metric to others who have used the tool, including others from their industry.

SAP’s benchmarking tool is user friendly. For example, if you put your cursor over a metric, its definition appears. SAP also claims that every survey is validated to ensure accuracy.

SAP offers benchmarking in many functional areas, not just in supply chain management. In the supply chain arena, it offers benchmarking around transportation and warehouse management, supply chain planning, lean, manufacturing, and procurement.

SAP told us that it has three hundred “value engineers” and that it has helped to develop about 1,500 business cases since the end of 2004 when this program started. A value engineer is someone who gets existing or potential customers to use the benchmarking tool and then uses the results to help the customer develop a business case and roadmap for their business transformation. The benchmarking is free, but SAP hopes that in cases where companies are performing below average — are “laggards” in benchmarking jargon — the prospect will understand that investing in supply chain software can be part of the solution to achieve better performance.

For example, let’s say you are a prospective customer and “Inventory Days of Supply” is an important metric for you, a metric where you are a laggard and if you can improve your performance on it you could save a lot of money. SAP’s value engineers have templates that contain best practices or strategies to improve on that metric. In this case, one of the four high-level strategies to improve Inventory Days of Supply is to implement a collaborative demand planning process. There are four things SAP associates with collaborative demand planning, including gaining visibility into customers’ demand and actual sales. And a best practice around understanding a big customer’s demand is forecasting at the SKU/location level.

While there are many KPI’s where a company might be a laggard, the value mapping exercise helps a company understand where improvement will have the highest value in terms of ROI or in fitting with its core strategies. That in turn can help companies engage in more intelligent implementations. If the timeline starts to slip, the company understands the functionality that is most important in driving strategic alignment and ROI and so it doesn’t skimp in those areas.

Much of the value of benchmarking depends on the number of participants. The more companies that have entered data, particularly in your industry, the better the benchmarking data is. SAP told us that there have been 10,000 submissions of benchmarking data. This sounds like a lot, but when you divide that number by the 31 operational areas that SAP benchmarks, and then by 8 main industry groupings, the sample size is actually not that large. Indeed, SAP showed us the KPIs for transportation in the CPG industry. Certain metrics, like “transportation spend as a percentage of company revenues,” varied substantially from what I believe is the true average for that industry. The SCOR metrics, based on sheer numbers of supply chain participants, are probably still more accurate for many industries. However, because of SAP’s massive installed base, and because this service is free, these numbers will continue to scale.

What I like most about the SAP benchmarking/value management service is that it provides a good tool for measuring the success of an IT project. In my role as an industry analyst, I’ve had many conversations with logisticians about what kind of payback period they have experienced implementing a WMS, TMS, or other supply chain application. Almost always the logistician I’m talking to says they didn’t measure the ROI after the fact but that they think, based on how smoothly the implementation went and other factors, it was “probably about X”.

SAP says that 37 percent of the companies that go through its value management program are now measuring the business value from their IT-enabled projects after the fact. That is fabulous! It is what everyone should do.

(Note: SAP is an ARC client)

Guest Commentary: Are You Ready for a Smarter Supply Chain?

Guest Commentary | By •

In order to compete effectively in demanding global markets, shippers are looking for more creative supply chain solutions from third-party service providers. While logistics outsource providers are rising to the challenge with innovative service packages, shippers need to be open to the kind of change that can take supply chains to much higher levels of efficiency. Building the necessary level of alignment to effectively manage change within a shipper’s organization is critical to taking a more holistic approach to global supply chain challenges.

Supply chain directors or leaders who are actively looking for fresh ideas to raise the performance bar can argue that they are already pursuing new directions. However, even within these organizations there can be unseen limitations that make it difficult for new ideas to take hold. Involving a third-party through a logistics outsource engagement can add the expertise and technology to identify the most mission-critical outcomes in order to make better informed business decisions.

For example, a shipper in collaboration with their logistics outsource provider has identified a way to cut transportation costs by switching a large portion of their LTL in one facility to multi-stop truckload. The shift requires a primary distribution center to hold certain shipments for an extra day, but the overall improvements more than justify the delay. It turns out, however, that the DC’s performance is measured on the basis of getting shipments out the door according to a computerized schedule. Delaying the loads for a day negatively impacts the facility’s internal scorecard, and the DC manager is less than supportive of the new strategy.

The root cause of the disagreement is a misalignment of key stakeholders and performance metrics. It is the type of issue that should have surfaced early in the project, but is easily overlooked. Logistics outsourcing should provide you with the necessary analysis and proposed modifications of key metrics by offering visibility to the entire supply chain. Key stakeholders throughout the organization can commit to business critical metrics and understand the upstream and downstream affect of supply chain improvements. The continued monitoring, analysis, and reporting of these metrics by a third party will provide the flexibility to adapt to evolving market conditions and core business objectives.

There are misalignments that are wider in both organizational and geographic terms that can frustrate more strategically ambitious projects. Aggregation of all transportation data through a single platform global TMS, for example, would help bridge the information gap for stakeholders in local, regional, and global geographies. In this case, a US-based director wants to streamline a domestic distribution network. The products are manufactured in Asia and shipped to West Coast ports. The logistics outsourcing provider has generated a proposal that reaches beyond distribution in the US, but yields much greater savings.

The director is enthusiastic because the proposal achieves impressive cost reductions and service improvements. However, the strategy involves big changes to consolidation practices in Asia that will require cooperation from the director’s counterparts across the Pacific. The proposal is not supported by the other region due to the necessary operational and process changes along with the need to retrain employees in Asia. The strategic vision is lost on the Asian counterpart as there is no direct benefit to them, even though it would benefit the company as a whole.

In addition to causing the company to miss out on some substantial benefits, senior executives get wind of the original proposal and question why the manager did not implement the changes. They are under pressure to free up working capital because a major competitor has cut inventory volumes by streamlining its transpacific supply chain.

There are a number of possible reasons why the director declined to pursue the higher-level strategy. Perhaps he was not able to clearly articulate the value of the strategy or communicate the ROI in terms that could be supported by senior leadership, was unaware of the market changes his bosses were tracking, or stumbled over divisive misalignments between functional and geographic silos in the organization. Regardless, the bottom line is that a project that promised to give the company a competitive advantage never got off the drawing board because the enterprise was not ready to accept it.

How can companies avoid frustrations like these? Here are some pointers.

  • Look before you leap. Your logistics outsource provider should be able to review every facet of the supply chain for potential conflicts such as metric and organizational misalignments.
  • Give key managers sufficient responsibility to implement strategic measures that have a robust AND sustainable ROI.
  • Pick project teams that include representatives from all relevant functions and geographic areas.
  • Make sure that everyone involved – including senior executives – share the same expectations.
  • Invite senior executives to be part of the process and to share confidential market information where relevant.
  • Include language in proposals that speaks to the needs of C-level executives.

The advance of globalization and the need for greater operational agility are just two of the business trends that are raising the competitive stakes in most markets. Third party providers can help companies meet these challenges by partnering with them to develop smarter supply chains; but only if shippers are ready and able to make the necessary changes.

Ronnie Davis is Managing Director, Customer Strategy at C.H. Robinson Worldwide, Inc., where he previously served as a director of outsource solutions. Ronnie has been with C.H. Robinson since 1998, and holds a Bachelor of Science from Texas Tech University. Previous positions with C.H. Robinson include strategic account manager and general manager of Dallas national accounts. Ronnie is a member of Council of Supply Chain Management Professionals (CSCMP) and Strategic Account Management Association (SAMA).

A Monsanto Plant Tackles Manufacturing Risks

Metrics and Standards | By •

Process manufacturing plants have distributed control systems (DCSs) that are connected to plant floor sensors that monitor pressure, heat, temperature, etc. These sensors are used to regulate processes. For example, flow measurements can be transmitted to the DCS; when the measurement reaches a certain point, the controller instructs a valve to open or close. These sensors can also generate alerts if measurements fall outside desired parameters. These alerts are a key part of supply chain risk management at the plant level.

However, too many alerts can cause problems.

ARC’s Dick Hill recently wrote a detailed case study on how Monsanto’s Soda Springs plant in Idaho addressed this issue. I’ll briefly summarize some of the key points, but ARC clients are encouraged to read the article itself. 

Monsanto’s Soda Springs plant in Idaho produces elemental phosphorus. More than seven years ago, the plant began a journey to analyze and fix its nuisance alarm problems. The plant traced these problems to too many alarms with little or no defined response. While overloading operators, the nuisance alarms also hid some real problems.

As Monsanto’s plant in Soda Springs, Idaho came to realize, being able to create alarms freely in a distributed control system is not necessarily a no cost feature. What happened is typical in many DCS implementations; a large number of measurements were alarmed, yet many of these alarms had no defined response. This made it too easy for operators to ignore important alarms that may have come in with the nuisance ones. As a result, they simply suppressed many alarms.

Prior to the digital era of distributed control systems, alarm policy generally required justifying the not-insignificant cost associated with establishing each additional hard-wired alarm. Once DCSs appeared on the scene however, alarms could be added with minimal effort and at no additional cost. This resulted in far too many alarms being added to control systems, often without a clear purpose or, in many cases, without a defined response. Alarms with no defined response tend to overwhelm operators to the point where they ignore even the important ones.

Monsanto put a project team in place to address this issue. 

The Monsanto Soda Springs project team approached the problem by first assessing the plant’s most active alarms. Once they got into it, team members found the problem was even more severe then they initially thought. Not only were there far too many alarms, but in many cases, the operators had no idea how they were supposed to respond to them. Not surprisingly, over time, the operators became desensitized, often ignoring even important alarms.

The team used metrics to help address the issue.  The team focused on these metrics:

  • Average Alarm Rate: the average number of alarms per hour per day;
  • Operator Alarm Loading: the number of 10-minute periods per day when the operators experienced 10 or more alarms;
  • Standing Alarms: alarms lasting longer than 24 hours;
  • Alarms per console point count;
  • Alarms per plant process area.

The project team took this data and implemented a Six Sigma continuous improvement process to tackle the problem. 

In reviewing the alarm situation during the control phase of the DMAIC (define, measure, analyze, improve, and control) process, however, the team discovered that there is entropy in everything.  A large number of alarms had crept back into the system without always showing up on the alarm activity analyses. This is because many alarms had been suppressed. Soda Springs then established a quarterly review of the alarm situation in manufacturing with suppressed alarms becoming a major addition to the effort. Since then, the plant has implemented a number of methods to keep the benefits of the initial effort evergreen. These include smart alarming to produce a single alarm for a single event rather than individual alarms for each data point associated with that event.

The best practices established at Soda Springs were than disseminated to other plants. 

Today, the operators at Monsanto’s Soda Springs plant are much happier. The benefits from the ongoing alarm management project go far beyond reducing operator loading and nuisance alarms, allowing the operators to think more clearly about what actions they need to take to head off problems and improve the operation of their plant.

I found this article interesting because, just as with DCS, modern software architectures make it much easier for companies to generate alarms in a variety of different supply chain execution and visibility systems. The key lessons that Monsanto addressed at the plant level also apply to other supply chain processes.

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