Wireless at Celanese

The search for a competitive edge through logistics and the supply chain is also occurring among makers of commodities and raw materials, a world where price has long been the dominant factor. Germany’s Celanese AG sells a variety of chemical and acetate products for everything from paints to fashion apparel. It is deploying both wireless technology and a web portal to link its customers and sales force, according to Mary Haigis, managing partner of Durham, N.C.-based Clarkston Consulting. When completed, the project will allow both sides to view the movement of goods throughout the supply chain.In the first phase of the program, Celanese equipped its sales force with handheld personal data assistants (PDAs). Right away, they could quote prices and make sales on the basis of confirmed availability. The second phase involves creation of the portal, allowing customers to check on the status of an order in real time.With the help of Clarkston, Haigis says, Celanese has already managed to cut its customer-response time from eight hours to less than five minutes. That’s a valuable tool, in a business where prices and product availability can change at a moment’s notice.Haigis says Celanese was the first in its industry to adopt wireless technology for that purpose. Lack of real-time information, she says, “is a common problem in the chemicals market. This has given Celanese a head start.”Business is rife with examples of companies waking up to the competitive power of logistics and distribution. Roger Dik, a Boston-based partner with Accenture, cites Dell Computer as a pioneer of the build-to-order model, which is predicated on reliable logistics and supply-chain management. Among the more recent cases, he says:• Home Depot is selling a full range of products from General Electric Appliances, without carrying large amounts of stock. GE is responsible for actual distribution to the stores;• Following the failure of several “e-tailers” to sell toys over the internet, Toys ‘R’ Us has partnered with Amazon.com, using the latter’s extensive fulfillment capabilities to distribute web-purchased product;• Cemex S.A. de C.V., the Mexican cement producer, uses satellite technology to improve on deliveries to construction sites. According to Dik, customers are willing to pay a premium for this price-sensitive commodity, in exchange for tighter delivery windows;• Zara, the Spanish clothing retailer, has reduced to a matter of weeks the time it takes to get product designed, manufactured and on the shelves, in part because of a reliable logistics process. Zara lets stores capture on a daily basis exactly what’s moving in the pipeline.All of these examples stress the importance of speed, both in the movement of physical goods and the transmission of data. Equally important, says Dik, is collaboration, in light of the growing trend among manufacturers to outsource anything that isn’t viewed as a core competency. For many companies, logistics falls easily into that category.Dik says most businesses have a long way to go before engaging in the kind of collaboration that yields real benefits on the customer end of the supply chain. Lack of trust among partners, coupled with internally focused business processes, are major barriers.Still, given the continued narrowing of margins and increasing demands by customers, companies will be motivated to alter their view of logistics’ role in the organization. What was once a cost center has become an important tool for achieving internal efficiencies. Now, with managers having spent heavily on software systems for the enterprise, it might be time to look outward. “The easy stuff has been done already,” says Grenoble. “Companies are starting to address the hard stuff.”

Coors’s Direct Solution

Coors Brewing Co. has long touted its location in Golden, Colo., as a major selling point. But geography has also proved to be a competitive disadvantage.The main brewery, largest in the world, draws from the waters of the Rocky Mountains for its distinctive taste. The problem, says vice president of logistics Charles Stelmokas, is that Coors is farther from its consumer markets than most rival brewers. So the company has had to depart from the industry model of direct shipment from factory to distributor, in favor of a series of regional warehouses. As a result, Coors manages to ship only about 60 percent of its product direct, versus the industry average of 85 percent.The extra step raises the cost of distribution while detracting from the freshness of the beer, says Stelmokas. Now, Coors is working to correct the problem. With the help of Exel, the warehousing and 3PL provider with North American operations based in Westerville, Ohio, the company has been gradually increasing direct shipments. It has gone from two distribution facilities on the West Coast to one, in Los Angeles, and is currently scouting locations for a centralized warehouse in the Midwest. At the same time, it is installing racks at the distribution facility in Golden, a mile from the main brewery, to make it more efficient. Similar reductions in the regional warehousing network are slated for Coors’s business in the U.S. Northeast.The change has been made possible by an increase in the quality of North American intermodal service, Stelmokas says. With the dust from several big mergers having settled, the railroads are doing a better job of moving product on time and damage-free. And Exel, a large intermodal provider with ties to all major rail carriers, can secure favorable volume rates. Over the next five years, Coors plans to increase its intermodal moves from 100 a week to 500, boosting direct shipments from 60 percent to 80 percent. The result, says Stelmokas, will be a 25-percent increase in product freshness.Coors and Exel are partnering outside the U.S. as well. Last year, the company acquired Carling Brewers, second-largest in the United Kingdom, from Bass Brewers, part of the Belgian conglomerate Interbrew S.A. The move shook up Coors’s long-time domestic orientation, and signaled its determination to become a global player. In addition, Coors acquired Bass’s 49.9-percent share in Tradeteam, a joint venture with Exel that provides integrated supply-chain services to the U.K. brewing and drinks industry.Dan Dean, senior director of client development with Exel, says the 3PL’s relationship with Coors has evolved over the past three years. “It has gone from a transactional one to a strategic partnership, based on our ability to support the initiatives that Coors is looking to deliver.”

Changing Channels at Alcatel

For Alcatel, the big French maker of networking and telecommunications equipment, a revamping of sales channels opened the door to improvements in the greater supply chain. Alcatel’s e-business networking division wanted to stop selling direct to customers and rely entirely upon resellers. Yet it was no less interested than before in enhancing the customer experience. Alcatel’s reliance on multiple third-party logistics providers had resulted in high costs and low service levels. Change was in order.The direct-distribution model, accounting for nearly a third of Alcatel’s sales, had led to a plethora of staff and warehouses in every major country in which it did business. Now it wanted to eliminate all local stocks and centralize distribution to resellers — or “business partners,” as Dominique Rives, global account manager with UPS Supply Chain Solutions, prefers to call them. At the same time, Alcatel hired UPS as its lead logistics provider (LLP) — sole manager of the company’s logistics program for Europe, the Middle East and Africa.“We are the single party responsible for everything that happens in the [Alcatel] supply chain,” says Rives. “It was a joint decision to outsource the totality of it.”Simplicity, at least in the organizational sense, was the watchword. Some of Alcatel’s competitors continue to support multi-channel distribution, says Gabriel Weissenbacher, supply-chain director of the e-business division. But that strategy can lead to confusion in the minds of end customers. Even worse, it can foster resentment among resellers, who see the supplier as competing for the customer’s business.A similar philosophy extends to logistics. UPS Logistics manages all of Alcatel’s European warehousing and transportation, operating out of a distribution hub in Longueil Sainte Marie, north of Paris. The actual operator of that facility is an independent provider, FM Logistics, but everything is done under the supervision of UPS.The LLP oversees inbound and outbound transportation, packaging materials, and the assembly of a wide variety of product, which comes from plants in France, Spain and Mexico, among other places. It handles between 600 and 800 orders, involving more than 3,000 item references, each day. On the delivery side, UPS manages a collection of carriers and integrators, including Danzas/DHL and UPS’s own fleet of planes and trucks.The results have been dramatic. In the last three years, says Weissenbacher, Alcatel’s record of delivering to promise has risen from 60 percent to 95 percent. Before, he says, “customer satisfaction was ranked the number-one problem as seen by our business partners. Today, it’s no longer number one.” That’s highly significant, in an industry that has been hit hard by the global economic downturn, and is looking for every possible competitive advantage.Alcatel has benefited internally, too. Its total supply-chain expense has fallen from 6 percent of cost of sales three years ago, to its current level of between 3 and 3.5 percent. “We have brought value to our customers — and value to the company,” says Weissenbacher

Supply Chain Success Story

Logistics Makes the Difference in Race for the Customer
By Robert J. Bowman
Once considered a cost center, then a tool for cutting costs, logistics today is increasingly being viewed as a means of gaining competitive advantage. Four enterprises show how.

Eddie Jordan burst onto the Formula One racing scene in 1991. The 42-year-old Irishman was a driver in the 1970s, but never in the glamorous yet grueling world of Formula One. Now, going up against big names like Ferrari and McLaren, Jordan assembled a smallish team of drivers and designers. Jordan Grand Prix enjoyed a rapid rise, taking fifth place in its first championship race, and finishing fourth and third in the 1998 and 1999 World Championships. Further victories seemed assured.Then the team started to slip back. In 2000, it fell to sixth in the Championship. A year later, it wasn’t finishing races because of mechanical failures. Eddie Jordan realized that his problems weren’t originating on the racecourse. They were the result of a defective supply chain.Jordan’s revelation came from his ability to straddle two worlds, sports and business. As a veteran racer, he knew that 80 percent of a team’s performance is the result of events happening off the track. His response was that of any CEO who seeks to close the communications gap with key suppliers. In fact, Jordan Grand Prix happens to be the most literal example of an emerging trend throughout the corporate world: businesses employing logistics as a competitive weapon.Up to now, most major improvements in logistics processes, as well as the greater supply chain, have been internally focused. Companies have drastically cut costs, mostly through inventory reductions and more reliable delivery. Information technology has streamlined business processes and allowed for data sharing across the enterprise.But making those improvements visible to the customer is another matter. Today, in order to fuel sales, “logistics has to move away from the opportunity to reduce costs and toward the creation of value,” says Skip Grenoble, executive director of Penn State’s Center for Supply Chain Research. A well-managed logistics program becomes the very reason for winning or retaining customers.

The search for a competitive edge through logistics is also occurring among makers of commodities and raw materials.
Or winning races. Formula One requires the tightest possible integration between a racing team and its suppliers. While the rules specify that teams must design and build their own cars, they are allowed to outsource components. A big, well-funded program like Ferrari fashions almost everything in-house. Jordan, on the other hand, whose staff of around 300 is a third that of Ferrari’s, contracts out between 60 and 70 percent of its parts manufacturing. The strategy saves money and people, but it also creates the potential for error, delays and miscommunication with outside partners. It’s the same equation that every business must calculate, in deciding whether to outsource.At the races and a soccer match, Eddie Jordan crossed paths with Ian Clarkson, a management consultant whose business was similar to that of Jordan Grand Prix in its relative youth and size. Jordan hired Clarkson’s Celerant Consulting, now based in Lexington, Mass., with an office in London, to address the problem.Their priority was speed, both on and off the track. A 36-week Formula One season involves races all around the world, just two weeks apart. In that time, hundreds of modifications to a car might be made. Suppliers must respond quickly, with parts that are perfectly machined.As it happened, defective parts were a big part of the problem. Those failures in the first half of the 2001 season were partly the result of a small, inexpensive component in the hydraulic system that kept breaking. Eventually, after repeated visual inspections revealed nothing wrong, the problem was traced to a series of tiny cracks, caused by a single individual who lacked the training to operate a particular machine. “It’s all too easy to say this looks fine,” says Mark Gallagher, director of marketing with Jordan Grand Prix. “We needed to dig a little deeper.”The successful diagnosis was just one result of an intensive supplier-management program, implemented by Celerant on behalf of Jordan. The team relies on some 400 suppliers, including a dozen or more major ones. They range from small specialty shops to large automotive and even aerospace parts makers. (A Formula One race car, says Gallagher, “is really an inverted aircraft. Only it’s designed to fly into the ground.”) To run its cars this year, Jordan will spend around $70m, of which $30m goes to suppliers.Supplier ManagementOne of Celerant’s first moves was to address the issue of defective or improperly designed parts. A new program put the onus on suppliers for getting it right the first time. The goal was to eliminate rework, which was slowing down the supply chain.A supplier management system, including detailed supplier evaluations, gave Jordan a formal audit process for the first time. A vendor-rating system helped determine the best supplier for a given task. Jordan followed up with diagnostic visits to the place of manufacture, in order to assess progress and head off errors. As a result, it saw a 60-percent reduction in defective components from suppliers, and 50 percent fewer design changes during manufacture. Best of all, says Dereck Clow, Celerant’s head of operations for the U.K., there were no problems attributed to mechanical failures in the second half of the 2001 season. Last season, Jordan had the second most reliable car in Formula One, after Ferrari.Jordan and Celerant were especially keen to improve the flow of information between the team and its many suppliers. “That, to me, is the key point of logistics,” says Clow. Not only did suppliers get a clearer idea of Jordan’s expectations of quality, they were able to deliver the parts faster. During the actual Formula One season, Clow says, suppliers of some critical components sped up the order-cycle time by a race or two. And Jordan reduced supplier lead times by 10 out of 29.5 days. Last winter, says Gallagher, the team was running four weeks ahead of its normal production cycle.Jordan Grand Prix has its own fleet of delivery vehicles, along with three or four drivers, who visit key suppliers each week. In many cases, though, it has become the suppliers’ responsibility to deliver the parts. And that loss of direct control hasn’t hurt the team’s efficiency. A car that was still in the design stage last August was due to be tested by mid-January of this year. Jordan’s engineering group missed the deadline — by an hour and 20 minutes.

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How to BEAT the peak-season BLUES

Two long-time transportation consultants tell how shippers can ensure they have sufficient capacity, even when demand is at its greatest.

Choked highways. Crumbling bridges. Congested ports. Overcrowded airports. Railroads that are short of equipment, crews, and track capacity. Shippers and carriers are facing a mountain of multimodal transportation problems, all of them magnified during the peak shipping season that stretches from early summer through the fall.

The United States has the world's largest and most prosperous economy, yet we have woefully underinvested in transportation infrastructure. And we have done so for such an extended period that reversing course would be painfully time-consuming and enormously expensive.
These issues require concerted action by both the government and the private sector and, ideally, the development of a national transportation vision. Who knows when—or if—that will happen?

In the meantime, shippers can't afford to succumb to the "peak-season blues" and simply wait for a solution. They need to take action now to cope with the capacity challenges that lie immediately ahead. But they also need to plan for the future: The old approach of reacting to peak-season problems as, or after, they occur is simply not an effective, long-term strategy. With transportation-infrastructure issues becoming more troubling, logistics professionals must develop the ability to think strategically—and that they must act earlier in advance of impending problems.

This isn't easy. As outlined here, meeting peak-season capacity challenges requires a change in mind-set as well as the development of enhanced capabilities in information, business processes, and technology.

Information reduces stress
Generally speaking, freight rates for all modes have been on a sustained upswing, spurred by rising fuel prices; shortages of truck drivers, rail equipment, and train crews; and insufficient track, airlift, port, and highway capacity.

Most economists would say that there is no such thing as a shortage of capacity—the market ameliorates shortages through higher prices, which lead to a reduction in demand. Does that mean companies whose sales peak at certain times of the year are doomed to pay increasingly higher prices? Not if they plan ahead. The secret to avoiding that situation is anticipating difficulties and keeping negative outcomes from happening in the first place.

What makes that so challenging is the need to acquire timely information. In fact, real-time supply chain visibility is the single most important component of a transportation system that is both fault-tolerant and fault-anticipating.

Consider the hypothetical example of a shipment of Korean-made, "fashion forward" merchandise that must be in stores in time for a major holiday. Suppose that shipment arrived at the dock in Korea after its assigned vessel had sailed for Long Beach. Those with a "need to know" probably wouldn't find out about the delay until they heard that the shipment wasn't on board or after they initiated a trace when it failed to arrive on time. In either case, it probably would be too late to remedy the problem satisfactorily.

True innovators, however, would have established a system that included specified event milestones and "predictive markers" (indicators of the likely outcome of events).
This type of system has two important benefits: It alerts the shipper when an expected milestone or transaction point has been missed, and it predicts the consequences of that development on the supply chain. As a result, the true innovators are able to respond effectively because they know when a shipment is in trouble—not after the vessel has sailed, but before it has even left the dock.

Thus, a shipper using such a system would have the option, for instance, to airfreight enough units to cover short-term demand until sufficient volume arrived by ocean. Without real-time information, the shipper's only choice would be to react to the problem, and no wholly acceptable alternative would likely be available.

Capacity management steps
A related challenge is capacity management. Here shippers frequently encounter conflicting objectives, such as reducing costs and accelerating delivery to improve sales and customer retention. However, there are several steps shippers can take to help relieve capacity pressures.

Examine your freight-flow networks.
Too many buyers of transportation services see their mission as securing a favorable rate from Point A to Point B. A better approach would be to leverage the value of overlapping networks. This is basically a matter of integrating both buyers' and sellers' objectives: Buyers of transportation services are looking for freight capacity that aligns with their inbound and outbound freight flows; sellers that have capacity want volume that aligns with their networks.

The key is to overlay these networks by illuminating and comparing objectives, sharing data, understanding each side's capabilities and requirements, and then working together to put the right freight together with the right carriers at the right prices.

Share information.
Optimizing networks and rationalizing carrier bases are important. But benefits increase when shippers collaborate with carriers in a more integrated way. A big step is providing carriers with volume forecasts. This doesn't mean telling them you plan to move 5,000 truckloads next year from Los Angeles to Chicago. Rather, it means providing detailed information based on historical data, with adjustments for anticipated increases or decreases by month-of-year, week-of-month, and day-of-week.

With that kind of detail, carriers won't be guessing that your 5,000 loads means 20 loads a day. Instead, they'll know that you move 70 percent of your volume in the last week of a typical month, and that in an average week, you ship 100 loads but 30 of them go out on Monday. Such detailed forecasts also help you plan staffing levels for warehouse and yard operations.

Lock up capacity.
Even shippers that have negotiated good contracts with carriers may run into trouble during peak season. Often the problem is "disappearing capacity": When demand is highest, carriers will seek out shippers that pay the highest rates, and will often leave those that negotiated low prices waiting until there is a lull.

Part of the solution includes tying contract awards to capacity commitments. This is a complex process that should begin at the onset of any sourcing initiative. The concept is based on carriers receiving (and making offers that reflect) complete, accurate information about shippers' business. The quid pro quo is that carriers only bid on lanes and freight volumes that they are willing to cover completely.

Optimize mode selection.
Accenture's observations are that most shippers employ static freight-routing strategies: If it goes by air, it always goes by air; if it goes by truck, it always goes by truck; and so on. A modest amount of demand planning and forecasting can help shippers kick this expensive habit and replace it with "blended service" that dynamically routes freight via multiple modes, based on service demands, providers' capabilities, and cost/service trade-offs.

For example, the first four weeks of inventory for a particular product might move by air from Asia while replenishment stock is en route by ocean. The first two-week allotment of the replenishment stock could move over the road with team drivers while the balance is shipped via intermodal service. The cost advantages of this method of transportation management are significant, but enabling it requires much more information and attention to detail than does the traditional approach to mode selection.

Elements of success

The real and most enduring source of peak-season success is a fully integrated network of supply chain capabilities, stitched together with enabling technology. Let's consider the capabilities needed for managing peak-season constraints and how many companies have positioned themselves to succeed in those areas.

Transportation network management:
Successful shippers have a comprehensive, real-time view of their supply chains and of the available transportation alternatives, including service options, cost/service trade-offs, and preferred providers, with cross-network visibility for all affected managers.

Strategic sourcing and procurement of transportation services:
They systematically procure transportation services on a holistic, multimodal basis, and they leverage overlapping capacity and demand networks to optimize costs and service.

Demand planning and forecasting:
They continually feed updated demand data to all trading partners, with a meaningful degree of granularity (variability by month-of-year, week-of-month, and day-of-week) to enable proactive planning of capacity and service requirements.

Processes for maximizing supply chain visibility and event management:
They provide real-time visibility at the SKU (stock-keeping unit) level so that inventory can be tracked, diverted, or reallocated as needed. This allows them to detect potential disruptions, effect remediation, and track performance, all of which ultimately enable them to identify and address repetitive bottlenecks.

None of these solutions is rocket science, but they do require a level of coordinated strategy, visibility, planning, and execution to which most shippers are not wholly accustomed. Still, "the facts are in evidence," as Perry Mason would say. Those "facts"—infrastructure limitations, insufficient inbound capacity, personnel shortages, and inadequate federal oversight of transportation strategy—took years to develop. And they will take years longer to remedy, in whole or in part.

Despite the daunting and potentially permanent nature of such problems, shippers need to continue seeking aggressive, innovative solutions. Companies that are committed to achieving and maintaining high performance through building differentiating capabilities that are focused on efficiency and growth understand that success demands it.

Author Information
Brooks A. Bentz is a senior executive in Accenture's Supply Chain Management Practice. Gary R. Godfrey is a senior executive in Accenture's Supply Chain Strategy Practice.

© 2006, Reed Business Information, a division of Reed Elsevier Inc. All Rights Reserved.

Supply Chain Outsourcing: More Choices, Tougher Decisions

By Patrick M. Byrne Logistics Management May 1, 2006

Increasingly, organizations are outsourcing part, or even all, of their supply chains. Most often, they're looking to reduce operating costs and more effectively deploy working capital. But in a recent survey, Accenture found that 86 percent of decision makers also believe that outsourcing gives them more control over their operations. And 55 percent believe outsourcing helps them implement changes faster and more effectively.

Supply chain outsourcing used to focus mainly on transportation and warehousing. Now it encompasses anything from demand planning to procurement and reverse logistics.

With so many functions being outsourced and so many third-party providers, it's harder than ever to align structures, requirements, strategies, and capabilities with a prospective third party's offerings.

The following framework can help executives make some of these tough decisions.

1. Am I a good candidate for outsourcing?The only guidelines or clues for answering this question are internal problems, pressures, or shortcomings, such as insufficient planning, alignment, or control; limited visibility; poor process integration; or lack of coordination across multiple supply chain channels. The table above contains a more comprehensive list of issues and warning signs.

2. What function(s) should be outsourced?Outsourcing can address one, several, or all components of a company's supply chain. The challenge is to know which function(s) would perform more effectively in an outsourced environment and how the outsourcing of one or more functions would benefit the entire supply chain.

Key decision criteria for frequently outsourced functions might include:

Transportation.
Inability to capture volume discounts; unacceptable or inconsistent delivery performance; insufficient carrier capacity; poor shipment visibility.

Warehousing.
High employee turnover; excessive inventories; low productivity; a surfeit or shortage of warehouses or space; a network that hasn't kept pace with service or inventory changes; a need for new warehouse management technology or additional process skills.

Network planning.
Increased supply chain costs, insufficient synergies or degraded service following a merger or acquisition; operational shifts, such as new technologies and business changes.

Procurement.
Need for new technology or expertise; high levels of "rogue" spending; too many/too few suppliers; inconsistent processes across units and geographies.
High-quality relationships increase the value of the processes and functions a company opts to outsource as well as those it keeps in house or outsources in the future. This layering of services is key to achieving continuous improvement and building a supply chain that accommodates new opportunities.

3. What kind of organization should handle outsourced function(s)?Outsourcing options used to be limited to third-party logistics providers (3PLs), most of which developed solutions to complement their assets. But another kind of provider has emerged: integrated-services coordinators. These global, "asset-agnostic" organizations manage clients' supply chains by synchronizing the services of 3PLs, functional providers, and internal business owners.

Companies should expect either type of outsourcing provider to demonstrate mastery of appropriate functional domains. Each should also be able to demonstrate its understanding of the shipper's business, its change management capabilities, command of metrics-driven behaviors, scalability of services, ability to leverage best practices from multiple functions/industries, and record of innovation.

Outsourcing relationships should also address the totality of a shipper's supply chain goals. This is where integrated-services coordinators have the advantage. Because their core competence is aligning and maximizing the contributions of multiple parties, they often are better able to help clients capture synergies. They may also be better equipped to help increase visibility across the entire supply chain, improve alignment of supply and demand, and identify improvement opportunities.

Some companies may find that integrated-services coordinators offer more capabilities than they need. But regardless of which type of partner it chooses, the potential for continuous improvement should be every outsourcer's first line of inquiry: "Does my prospective partner offer new opportunities for sustained, global improvement, or is its value proposition simply a fresh coat of paint that will quickly fade?"

© 2006, Reed Business Information, a division of Reed Elsevier Inc. All Rights Reserved.

Case Study - Warehouse Site Selection

Logistics Management June 12, 2006

GREVEN, Germany—DHL opened a logistics center in Greven, Germany—located near Munster, Germany—scheduled to start handling the complete logistics operations for the shopping channel HSE24 (Home Shopping Europe) in July. Up to 40,000 packages can be shipped from the center in Greven on a daily basis.

According to DHL, the decision for the site in Greven was primarily the result of the infrastructure that already existed with the package center. Another factor was the site’s proximity to Germany’s most heavily populated region, the area around the Rhine, Ruhr and Main, and the good transport connections to metropolitan areas in northern Germany.

In a company release, DHL said the basis for the service is a 30-meter tall, fully automatic high-bay warehouse, flexible working hours and the direct link to DHL Express’ neighboring package center. The packages will flow directly into the DHL network, and HSE24 customers will receive their products much faster than before. DHL’s services for HSE24 cover goods receipt, quality control, warehousing, order picking, package delivery, and returns management.

Roughly $44 million was invested in the center and 250 new jobs will be created.

© 2006, Reed Business Information, a division of Reed Elsevier Inc. All Rights Reserved.

Case Study - Customer Service

Very good example on how to improve customer service and improve supply chain = optimum costs.


© 2006, Reed Business Information, a division of Reed Elsevier Inc. All Rights Reserved.
Logistics Management June 14, 2006

MEMPHIS, Tenn.—FedEx has rolled out a new logistics service dubbed FedEx Critical Inventory Logistics. The company said the new service lets customers store inventory items at 18 FedEx Kinko’s locations in the United States—allowing them to ship a critical item within a tight timeframe in certain locations with little advance notice.

The new service will be geared toward customers in the healthcare, telecommunications, semiconductor, and biomedical industries, among others. FedEx did a soft launch of the service last fall, with items moving from its 500,000 square foot global distribution center in Memphis to the 18 FedEx Kinko’s Locations, which each have 5,000 square feet of storage space.
“This [new service] provides various shipping options,” Tom Schmitt, president and chief executive officer of FedEx Global Supply Chain Services, told Logistics Management. “If, for example, a diagnostics equipment manager at a healthcare stent manufacturing company needs to send a stent to a customer hospital ASAP, he or she can use this service to best gauge their options for sending the stent.”

The options cited by Schmitt include: having a service representative go to a FedEx Kinko’s, make arrangements with FedEx Kinko’s for deliveries within a 50-mile radius, or use a local van or courier service that has a relationship with FedEx

Another notable benefit of the new service for shippers, according to Schmitt, is that it will help lower costs by reducing inventory and also provide more efficient network planning and the ability to choose shipping options based on timing and cost.

A major objective of FedEx Critical Inventory Logistics is to help FedEx’ customers’ best determine how to position critical inventories throughout the company’s network, as well as develop plans to optimize their supply chains. The company said once the service is in place, orders are fulfilled by identifying the best sourcing locations and transportation options that meet required delivery times and service levels as requested by customers.

Lecture Note - Day 3

Logistics Cost

Warehousing costs
- are created by warehousing and storage activities, and by the plant and warehouse site selection process.

Order Processing/Information Cost
- Includes costs related to activities such as order processing, distribution communications, and forecasting demand.
- Order processing is important to support good customer service levels and control costs.
- E.g. Order transmittal, order entry, processing order, related internal and external costs such as notifying carriers and customers of shipping information and product availability.
- Information system and technology such as Electronic Data Interchange (EDI), satellite data transmission, and bar coding and scanning shipments and sales. Others are artificial intelligence (AI) and expert systems.

Lot Quantity Cost
- Purchasing or production related costs that vary with changes in order size or frequency and include:
- Setup costs
- Time required to set up a line or locate a supplier and place an order
- Scrap due to setting up the production line
- Operating inefficiency as the line begins to run, or as a new supplier is brought on board
- Capacity lost due to downtime during changeover of line or changeover to a new supplier
- Material handling, scheduling and expediting
- Price differentials due to buying in different quantities
- Order costs associated with order placement and handling

Inventory Carrying Cost
- Includes inventory control, packaging, and salvage and scrap disposal.
- Major categories of inventory cost are:
- Capital cost, or opportunity cost - the return that the company could make on the money that has tied up in inventory
- Inventory service cost – insurance and taxes on inventory
- Storage space cost – warehousing space-related costs which change with the level of inventory
- Inventory risk cost – obsolescence, pilferage, relocation within the inventory system, and damage.


Scope of Material Management
- Material management is typically comprised of four basic activities:
¨Anticipating material requirements
¨Sourcing and obtaining materials
¨Introducing materials into the organization
¨Monitoring the status of materials as a current asset

Why forecast
- Increasing customer satisfaction
- Reducing stock-outs
- Scheduling production more efficiently
- Lowering safety stock requirements
- Reducing product obsolescence costs
- Managing shipping better
- Improving pricing and promotion management
- Negotiating superior terms with suppliers

Type of forecast
- Demand forecast – Investigation of the firm’s demand for the item, to include current and projected demand, inventory status and lead times.
- Supply forecast – Collection of data about current producers and suppliers, the aggregate projected supply situation, technological and political trends that might affect supply
- Price forecast – Based on information gathered and analyzed about demand and supply. Provides a prediction of short and long-term prices and the underlying reasons for those trends.

Material Management Philosophies
- TQM
- Kanban (cards) – Toyota Production System 1950s.
¨Material should be supplied at the very moment they are needed in the factory production process.
- JIT – Kanban linked with purchasing, manufacturing and logistics.
¨Reduce manufacturing costs, eliminate waste, resource utilization
¨Right materials to the right place at the right time
¨High quality products (zero defects), high productivity, lower inventory, long-term relationships with channel members
- MRP System
¨Material Requirement Planning (MRP I)
-computer system
-inventory
-production scheduling
¨Material Resource Planning (MRP II) - upgraded
-financial
-marketing
-purchasing
- DRP System
¨Distribution Requirement Planning (DRP I)
¨Distribution Resource Planning (DRP II) – upgraded
- The application of MRP principles to the distribution environment



Warehouse
- That part of the firm’s logistics system that stores products (raw materials, parts, goods-in-process, finished goods) at and between point of origin and point of consumption, and provides information to management on the status, condition, and disposition of items being stored.

Importance of warehouse
-Achieve transportation economies
-Achieve production economies
-Take advantage of quantity purchase discounts and forwards buys
-Maintain a source of supply
-Support the firm’s customer service policies
-Meet changing market conditions (e.g. seasonality, demand fluctuations, competition)
-Overcome the time and space differentials that exist between producers and consumers
-Accomplish least total cost logistics commensurate with a desired level of customer service
-Support the just-in-time programs of suppliers and customers
-Provide customers with a mix of products instead of a single product on each order
-Provide temporary storage of materials to be disposed of or recycled

Improving Warehouse Productivity
- Methods related – cube utilization, layout and design, procedures, batch picking of small orders, standardized packaging, warehouse consolidation
- Equipment related – optical scanners, automatic labeling, automated material handling equipment, communication devices, computers, automated storage/retrieval system (AS/RSs), conveyors.
- System related – router/location systems, geographical or zone picking
- Training/motivation related – training, management development, incentive systems, awards, etc.

Factors Affecting Warehouse Size
- Customer service levels
- Size of market or market served
- Number of products marketed
- Size of the product or products
- Material handling system used
- Throughput rate
- Production lead time
- Economies of scale
- Stock layout
- Aisle (gap) requirements
- Office area in warehouse
- Types of racks and shelves used
- Level and pattern of demand

MORE........ IN THE CLASS SESSION

Lecture note - Day 2

Where should Customer Service be located?

Case Study 1
In an organization, where do you think Customer Service should function?

Plot/draft an organization structure in a manufacturing environment and highlight the position of logistics & distribution and customer service.





















Customer service represents the output of the logistics systems as well as a place component of the organization’s marketing mix. Customer service performance is the measure of how well the logistics systems function in creating time and place utility with a focus on external customers.

The level of customer service provided to customers determines whether the organization will retain its existing customers and how many new customers it will attract. The customer service level that an organization provides has a direct impact on its market share, its logistics cost and its overall profitability.

Customer service is a measure of how well the logistics systems is performing in providing time and place utility for a product or service. Customer satisfaction represents the customer’s overall assessment of all elements of the marketing mix.

Customer service is defined as a process which takes place between the buyer, seller and third party. The process results in a value added to the product or service exchanged. This value added in the exchange process might be short term as in a single transaction or longer term as in a contractual relationship. Thus in a process view: customer service is a process for providing significant value-added benefits of the supply chain in a cost effective way.



Element of Customer Service

Pre-transaction

Relates to the organization’s policies regarding customer service and the perceptions of customers regarding the organization.
For examples:
-Written customer service
-Accessibility
-Organization structure
-System flexibility


Transaction

Elements normally considered with logistics
For examples:
-Order cycle time
-Inventory availability
-Order status information
-Handling of shipments
-Product substitution
-System accuracy


Post-transaction

Supports the product or service after the customer has received it.
For examples:
-Installation, warranty, repairs and service parts
-Product tracking
-Customer complains, claims, returns
-Product replacement
-Call out time
-Availability of spares




Case Study 2

You are the Logistics Manager for a manufacturing product. You were tasked to establish a customer service department in the organization
The tasks:
-Select an appropriate product
-Identify the roles and objectives of the customer service
-How do you identify your customers’ needs?
-How could the customer service helps you in the production of your products?



Customer Service - Background


Operating a successful business doesn't rest solely on the products you sell. Just as important is the relationship you build with your customers to ensure their return.

Many of your customers may utilize your services only once or twice a year. That's why building customer loyalty is important to ensure repeat visits. Every interaction, whether it's by telephone or in person, is an opportunity for you to showcase superior service and differentiate yourself from the competition.

In today's competitive marketplace, customer loyalty is difficult to build. Products and services are becoming similar. To build customer loyalty, your company must remain in the forefront of your customers' minds and provide outstanding customer service to gain market share.


So, what can you do to make them want to return and/or recommend your company? What steps should be taken to ensure they have a memorable experience that will motivate them to increase their number of rentals? The answer is simple: Provide them with "legendary" customer service by building strong relationships.

Just like you, customers want to go to a place where they feel comfortable, where "everybody knows your name." It just won't be enough to take an order and politely say, "thank you." Doing the bare minimum by responding politely will result in the bare minimum - and it certainly won't help you increase your sales or build loyalty.

Customers expect to be treated politely. That's why you have to do more than that. It takes work to build solid relationships with customers. This can be accomplished with a few simple preparations.


Learn the customer's name and company name

Proper body language is key

Utilize your database

All customers are important

Focus only on the customer

Be sincere

Be proactive to determine your customer's needs

Remain engaged in the interaction

Determine if the inside sales opportunity can be turned into something more

The phone is an important sales tool

Consider a strong marketing campaign

Deliver what you say you will deliver

Follow up

Invest in training



Conclusion

Following these comprehensive steps will allow your company to remain top-of-mind with the customer. Customer loyalty does not happen by accident - it is something you always have to work on. Remember that the effort put forth in building legendary customer service will build unwavering customer loyalty, referrals and the potential for increased sales.

Lecture note - Day 1

When we finish this lecture you should:

Understand the relevance of physical distribution with customer demand.
Understand why the physical distribution customer service level is a key marketing strategy variable.
Understand the physical distribution concept and why it requires coordination of storing, transporting, and related activities.
See how firms can cooperate and share logistics activities to improve value to the customer at the end of the channel.
Know about the advantages and disadvantages of the various transporting methods.
Know how inventory decisions and storing affect marketing strategy.
Understand the distribution center concept.
Pass your exam!



Key Logistics Activities

Customer service
Demand forecasting/ planning
Inventory management
Logistics communications
Material handling
Order processing
PackagingParts & service support
Plant & warehouse site selection
Purchasing
Return goods handling
Reverse logistics
Traffic & transportation
Warehousing & storage



The Definition of Logistics

Logistics management is that part of the Supply Chain Management process that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customers' requirements.

These are the boundaries and relationships of Logistics Management adopted by the Council of Logistics Management: "Logistics Management activities typically include inbound and outbound transportation management, fleet management, warehousing, materials handling, order fulfillment, logistics network design, inventory management of third party logistics services providers.

To varying degrees, the logistics function also includes sourcing and procurement, production planning and scheduling, packaging and assembly, and customer service. It is involved in all levels of planning and execution -- strategic, operational and tactical.

Logistics Management is an integrating function, which coordinates and optimizes all logistics activities, as well as integrates logistics activities with other functions including marketing, sales manufacturing, finance and information technology."



Case Study 1

Plan your logistics requirements if you are the:
Logistics Manager in Samseng Handphone Manufacturing Sdn. Bhd.
Supplier of raw materials to Protone.
Logistics Manager in Nestlay Food Industry.

Define your point A and B accordingly.
You must include key logistics activities between A and B.
You have agents, wholesalers and retailers. Where will you position them and what will be their role in your logistics chain?

Transportation Mode

Good reference from the net.