Home' MHD Supply Chain Solutions : MHD Spt-Oct 2014 Contents 30
overall objectives and effects in mind. For
example, if existing capacity and operations
do not allow the level of customer service
required, building a new distribution centre is
not necessarily the only or the best solution.
Reconfiguration or changes in existing resources
or processes might cost less and work better.
Reaping the benefits
The advantages of real improvements are
clear. An enterprise improves its profitability by
lowering operating costs, reducing inventory
levels, increasing customer satisfaction,
sales and loyalty, or a combination of any of
these. The route to these advantages will vary.
Business logic may dictate the transformation
of a supply chain, closing some facilities,
opening others, and using all of them in new
ways. Expansion into e-commerce may mean
finding a more integrated approach to serving
both online and offline markets. Changes in
consumer behaviour and buying patterns may
require products and services to be brought to
the market through new channels.
The importance of boosting performance in
distribution networks means that projects for
this now find their way into company annual
reports. Indeed, this motivation drives many
company acquisitions and mergers within a
given industry sector in order to reduce related
costs for both enterprises. Distribution network
cost savings alone may be worth hundreds of
millions of dollars to the new organisation post-
acquisition or merger. But that value can only
be realised through using the right metrics,
planning and timely change.
When Coty, the cosmetics and fragrances
manufacturer, acquired Unilever Cosmetics
International (UCI) in 2005 with its parallel
but different distribution network, it focused
first on the ‘retailer experience’. Leveraging
internal cost-efficiencies was only tackled when
customer satisfaction in the new configuration
had been clearly brought under control.
The trend to flow path modelling
Whichever improvements are appropriate to a
distribution network, it’s crucial to understand
the flow of a product (or a service) through the
whole supply chain, from the supplier to the end
customer. A key concept to grasp is that there
may be several different paths a product can
follow. Moving a product from manufacturing
to a central warehouse or to a local distribution
centre already represents two different
options. Flow-path modelling helps companies
understand the best path for each product.
A number of factors have an impact on flow.
Service lead time determines the proximity and
the number of stock locations for a customer.
Supply reliability determines overall stock levels
(more stock must be held for less reliable sup-
pliers), as does demand consistency (irregular
demand leads to high stock levels). On the other
hand, if a company can buy in products, com-
ponents or materials in smaller quantities more
frequently without sacrificing price advantages,
stock levels can be better evened out. However,
modelling inventory costs in the flow also
requires care, because they are often non-linear
for instance, holding twice the amount of stock
may not generate twice the inventory costs.
Other assumptions may need to be revisited,
too. For instance, co-locating sales and ware-
housing may not be justified. Proximity is likely
to be more important between the sales force
and the customer, in order to maintain good
contacts (customer mindshare), help define new
projects and purchases, and offer other sales
assistance. But warehoused stock only needs
to be close enough to customers for supply to
be possible within the lead time defined as part
of the overall business objectives. Stubbornly
trying to co-locate sales and warehousing too
often leads to excessive warehouse locations
and inventory costs, paucity of sales offices and
reduced revenue, or both.
Changing planning horizons
with new inputs
The pace of change in customer requirements
and environmental constraints is reflected in the
way organisations now plan their distribution
networks. The planning horizon that is used
to model and analyse a network, is being
systematically reduced. Recent statistics
indicate an average of around four years. That’s
short, considering that enterprise-wide initiatives
to improve distribution may take several years to
be implemented and bear fruit.
The fundamental questions to be asked
about future alternatives remain the same.
Understanding the key outcomes, i.e. questions
to be answered or possibilities to be explored,
is the starting point of a planning or modelling
exercise. Different scenarios to be investi-
gated may differ both in detail and in focus.
The number, size and position of distribution
centres, the types and rates of vehicles or trans-
port modes to be used, changes in demand,
and the impact of changes on service levels,
and customer perceptions and purchasing are
all factors to be taken into consideration.
Safety in Numbers.
In 1896, Gottlieb Daimler built the world’s first truck and ever since we’ve been reinventing.
We were the first to introduce Anti-Lock Braking System (ABS), Acceleration Skid Control
(ASR), Stability Control, Telligent Proximity Control, Lane Assist, Active Brake Assist, SRS
Airbag and Seatbelt System and Standard Stability Control (ESP) to the transport industry.
From our Actros to the all new Zetros we’ve got the range to protect you and your load.
The world’s 1st truck
The world’s 1st
The world’s 1st
The 1st anti-lock
braking system (ABS)
The 1st Acceleration
Skid Control (ASR)
Start production of Actros
The 1st Stability
Control for trucks
The 1st autonomous cruise
control with Telligent®
Proximity Control and the
1st Lane Assistant
Actros the 1st heavy-duty truck
to meet Euro 5 in Australia
The 1st automatic
emergency brake system
for trucks with Active
Standard SRS driver’s
airbag and seatbelt
“Trade-offs are likely to be part of the deal. Indeed, the
best distribution network may be the one that offers the
most acceptable compromises. The classic inventory-
customer service balance is a case in point.”
MHD SUPPLY CHAIN SOLUTIONS — SEPTEMBER / OCTOBER 2014
MHD Sep-Oct 2014 18-33.indd 30
5/09/2014 3:03 pm
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