Solving the Supply Chain Mystery

I once met a regional sales manager of a large consumer good company at Davao City, the biggest city on the island of Mindanao, 978 kilometres (608 miles) south of Manila, Philippines. 

As I was introduced, the RSM looked at me for a moment and smiled broadly.

“You’re a supply chain consultant?”

Before I could say “yes.”  He says: “I’ve seen marketing consultants, sales consultants, and organisational development consultants, but this is the first time I’ve ever met a supply chain consultant!”

“Welcome, welcome!”  He shook my hand vigorously.  “I hope you can help us.” 

“You see,” he continues, “the supply chain is a mystery to me.” 

“Every time I submit a customer order, I never know what happens after,” the RSM said. 

“I don’t know when stocks would arrive.  I don’t know what and which products would arrive. And I don’t know how many would arrive,” the RSM said. 

He pointed to a few shipping container vans just outside the warehouse office where we were meeting and shared: “container vans like those would just show up and I wouldn’t know what are in them.” 

“I wouldn’t know if the containers have the products I ordered.  At the end of the month, five or more containers would arrive at the same time and I wouldn’t know which container would have the products I need the most.” 

“I’d spend much of my time calling the logistics office in Manila to tell me what’s coming and when but I never get a clear answer.  I spend a lot of time following up the deliveries of products I need when I should be using the time selling to customers.”

“As this is the first time I’m meeting a supply chain consultant, maybe things can change.  Maybe you can solve the supply chain mystery!”  The RSM said.

On the surface, the problem had a straightforward answer.  The consumer goods company’s logistics office just had to share shipping schedules with the RSM to tell him what’s coming and when.  That would right there solve the problem.

The problem, however, goes deeper. 

Why isn’t logistics sharing the information in the first place? 

Why is logistics not communicating with their sales counterparts? 

And aside from logistics, are other departments even communicating with each other?  Do the consumer goods company’s executives communicate with vendors, customers, 3rd party providers, and stakeholders?  Or are they too preoccupied with other problems they consider urgent?

Communication has always been a problem with companies, especially big companies.  Departments hardly talk to each other as they pursue pre-set goals or put out fires within their work boundaries.  If there would be any communication, it would be in the form of phone calls, memos, reports, or hours-long meetings.

Communication in the management sense, however, does not consist of meetings, memos, or phone calls.  Communication in the management sense is about rapport, i.e., active two-way connection between boss and subordinate, between peers, and between people from differing departments and separate enterprises. 

Communication enhances the flow of information in which individuals and groups constantly share pertinent important information with the purpose of meeting communal objectives for the mutual benefit of all concerned. 

So why aren’t companies doing that?  What’s the problem?  Why does a consumer goods regional sales manager have trouble getting in touch with people he sends orders to and waits for deliveries from? 

Communications within and between enterprises require support structures and systems.  Many companies, however, don’t have adequate structures and systems.  This is because these companies have been brought up on a culture of silos, in which managers and employees work in places that have goals and targets of their own. 

In the consumer goods company where the RSM works, there are performance measures and strategies assigned for every department: 

  • Finance seeks higher profits, more cash-flow, and higher rates of returns;
  • Marketing wants brand leadership, strong geographic distribution, and positive consumer acceptance;
  • Sales wants higher turnover, record-breaking selling volumes, and a high level of retail presence;
  • Manufacturing wants continuous uninterrupted production;
  • Logistics wants fewer pending orders and lower freight costs;
  • Purchasing prefers bulk purchases with large discounts on prices.

The consumer goods company’s organisational chart shows a hierarchy of managers and employees working in different functions with different scopes of work each with specific roles and goals.  The chart in itself lays out a plan of silos where individuals and groups work separately.

Separation means differences in priorities and interests.  What’s mine is mine, what’s yours is yours.  Each to our own.  I mind my business; you mind yours.  These become the thoughts of people within the company. 

What more for those who are not from the company.  We’re inside; they’re outside.  Enterprises might as well be islands in an ocean and many are just like that. 

Organisational development trainers and executives have recommended and implemented many ideas to bring people within and even between enterprises together.  They’ve introduced radical solutions such as “flat” org structures that eliminate many layers of authority and they have encouraged “campus” work ethics where individuals from different disciplines work together in open-plan shared work spaces. 

The consumer goods company the RSM worked for had “brand teams” which had marketing managers lead groups consisting of representatives from sales, manufacturing, finance, and R&D.  The brand team would “own” a particular brand of the company and be accountable for its success.  It was a way to break down barriers between functions. 

Unfortunately, these OD and brand team initiatives have only shown limited success.   At the end of the day, the functional employees and their managers go back to their familiar places of work and focus on the priorities of their departments.  The gates of their workplaces close once again as they resume pursuing their own urgent individual targets.   

Supply chains offer a way out of silos.  Supply chains are grounded on relationships.  Relationships, in order for them to prosper, require communication. 

In supply chains, operating functions work with each other to transform and move materials and merchandise from one point to another, one process to the next, one step at a time.  Connections and communications are what makes a supply chain tick.  And for a supply chain to work, it must tick with every part in clockwork synchronicity. 

When the RSM doesn’t know what’s coming and when, the communications and connections aren’t working.  The supply chain link from the transportation of the product to the receiving warehouse is broken.  The supply chain in this sense is not working. 

Hence, the first thing I urged for the consumer goods company is communication.  Fix the link, establish the connection, make active the communication not only between logistics and the regional sales manager, but also between logistics and other RSMs, logistics and transportation providers, manufacturing and logistics, the inventory planners and logistics, manufacturing and inventory planners and logistics, purchasing to planners to manufacturing, purchasing to vendors. 

There has to be rapport.  Not memos.  Not meetings. Not once-a-month reports.  Not emails or text messages.  But active two-way communication of shared information, shared planning, shared direction, and shared implementation. 

It doesn’t take a world-class detective to solve the supply chain mystery.  Just taking the initiative to communicate would provide much of an answer.

About Overtimers Anonymous

Logistics Solutions Can Be Simple

A medium sized retailer of health food items imports products from abroad.  The retailer prides itself with a very well organised warehouse and a crew of workers that swiftly repack the imported products and send them to the retailer’s stores all over the country. 

The retailer’s sales department, however, has constantly complained about lack of enough fast-moving products to stock store shelves.  They frequently request for more items which the retailer’s purchasing department promptly orders.  Yet, the sales people still complain.  Why are store shelves empty despite the inbound volume of imports?

A consulting team the retailer engaged found that the retailer’s warehouse was indeed quickly repacking and delivering needed fast-moving imported items to stores.  Once they arrive at the stores, the fast-moving products were sold within days. 

But the warehouse inventories showed almost no stock available of the fast-moving items at the beginning of every work week.  How can this be since imports via container vans were arriving every week?  The stocks have been arriving but the warehouse says they are not on inventory.  Where were the items? 

It turned out that when container vans of imports arrived, it would take as long as ten (10) days to completely unload, put away, and enter items into the warehouse inventory records.  Every container van would have a mix of as many as a hundred products totalling to as much as a thousand cases or packages.  Some items like paper products were bulky, some like food supplements were tiny.  The warehouse’s personnel would unload products from the container van into pallets, but it would take several days to sort the items, inspect them, and scan them into inventory.

Hence, even as the imported items had arrived, they were still “in-transit” on the retailer’s inventory system.  The warehouse didn’t repack and deliver products until they were entered into the system. 

To complicate things further, sales people would ask the warehouse to put priority in receiving items that were running low on stock at stores.  That resulted in warehouse staff in receiving some items from inbound container vans and putting others in a holding area, in which these latter items would sometimes sit there for as long as one (1) month before anyone sorts and scans them.  This resulted in a vicious cycle where products were alternating in out-of-stock as warehouse staff switched priorities in receiving one item to another. 

The solution to the problem was simple.  Management just had to re-enforce the retailer’s policy of unloading every container van completely before receiving another one.  Management also had to shorten the time to receive inbound imports.  More than a week was too long.  It turned out that the employees assigned to receive inbound container vans sometimes were pulled to do other jobs in the warehouse.  Management only had to put a stop to that and have the assigned employees work full-time in receiving the vans. 

The consulting team also suggested the management review the retailer’s purchasing and inventory policies.  It wasn’t that the purchasing department was buying enough; it was that they weren’t buying frequently enough. 

The purchasing management preferred to buy items in bulk to take advantage of pricing discounts.  They would order only once a month or even less so.  As inventories ran down, the next scheduled arrival of vans would sometimes be weeks away.  Planners and purchasers ended up rushing the dispatch of container vans which sometimes delayed the delivery of other items and again brought on a vicious merry-go-round of items running out of stock. 

Purchasing just needed to balance buying in bulk and scheduling shipments to arrive more frequently, such as weekly versus monthly.  Purchasers could negotiate contracts with vendors to commit to buy in bulk at competitive prices but ask that deliveries arrive in smaller quantities more frequently. 

Logistics is about ensuring a smooth supply of materials and products from one point of the supply chain to the next.  It’s about planning, buying, and transporting enough.  Not too much to cause pile-ups of stock that tie up space and cash.  And not too few that risk run-outs that interrupt production and compromise services.

Logistics is broad.  It covers what comes in, what comes out, where it goes, and where it leads to.  One may say it covers all the things that sales, marketing, and manufacturing do not. 

Logistics is not the supply chain.  It’s a big part of it but not the whole of it.  Logistics is the life-blood that courses through the supply chain but it isn’t the supply chain.  It works with counterparts such as planning, procurement, and production to make sure merchandise moves through suppliers and manufacturers to meet the demands of customers. 

Improving logistics is about improving the flow between points in the supply chain.  That means minimising bottlenecks and focusing resources to move things where they are slowest.  It means making sure stuff are put away and at least cost and risk of damage, at the same time making sure they don’t over-stay in one place.  Scrap and out-of-stock are what logistics practitioners avoid as much as they could.  For when there is scrap or out-of-stock, it’s a failing mark for logistics. 

As the case of the health food retailer illustrated, logistics solutions usually come back to basics.   Inbound receipts were moving too slow and caused stocks to run out at stores.  What was needed was re-enforcing policy and focusing on finishing every job of unloading the container van and putting away the items.  With items flowing with fewer delays, the warehouse would be able to repack and deliver to stores the items they sorely needed week to week. 

Logistics can look complicated but the solutions can often be simple. 

About Overtimers Anonymous