CashChain Tip 3: Transport Is Not Transport It Is Inventory In Motion

Posted on January 15, 2015

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CashChain Tip 3:  Transport is not transport it is inventory in motion

The execution of what seems to be a  simple concept (using transported inventory as inventory in motion not  “lost” inventory between origin and destination for a period of time)  seems to be laced with human change challenges that would make “who moved my cheese” experts scratch their head.    So let’s start this tip with the benefit from success then touch on entrenched resistance and why.   Our experience at DCRA Inc. with clients in nearly all industries and all sizes is there is unparalleled potential for pure quick pure profit improvements, dramatic reduction in required working capital, return on investment, growth, market share.       In many respects doing a transport lead time and cost analysis also serves as a very focused indicator of larger issues.    When you ask why certain modes, lead times, over payment to certain carriers it tends to reveal the real underlying issues.   The trick is to fix these not just cover them up with excess transport costs and lead times ?

Also, please revisit Tip 1 understanding theory of inventory to fully execute what we will summarize in this Cashchain Tip 3

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So humor me and leTs imagine a business with a product that can meet this criteria

  • Can be produced (or puchased) after an order is placed
  • and often if not always produced in by a third party manufacturer thus no fixed cost for the order taking supply chain / business.

In the end if you can successfully sell and fulfill / pay after the order the return on investment for this business model can almost be infinite.  That is it generates cash before laying out cash cash inbound is more then outbound.    Cash comes in from customer at time zero, commitment to production at time zero + with delivery at time 1 (days or weeks later).    In this case the only remaining variable is transportation time and mode.     Unless said product is made where it is being consumed the opportunity of using transportation as a lead time manager becomes a major constraint / opportunity.

For this “Cashchain” tip we will explain transportation as an opportunity.   So if in the manufacturing and order example above you can reliably select and execute transportation lead time the magic near infinite ROI, Internal Rate of Return (IRR) is full achievable.     In fact it is this practitioners’ experience that this is indeed the biggest, and least complex and generally most rapidly achievable supply chain improvement possible in almost any business.

Now here it he catch.  There are entrenched uses and modes of transportation as well as “transportation” experts that will fight you every step of the way in achieving this goal.  The field of transport has what we might call “artificial” experts in optimizing a certain transport modes (such as routing or load building)  in lieu of blending with other modes and other approaches.   You will find this constraint everywhere in the transport / warehousing operations, information technology experts managing TMS systems etc.      This concept can best be described by a simple real world example that I would guess 99% of the readers of this tip still suffer but likely are not even aware of.

For example you pay a global freight forwader to move your load (which is less the full container ) by air or sea, you might even pay a premium but most of the time it will set at a consolidated port of origin for a matching load to complete a container (air or sea) costing you valuable time and time value of your cash.      To break through this you might think you just give the forwarder better instructions when in fact without hands on management or detailed electronic tracking it will likely not change as your forwarder likely makes his money based on cube and volume not on timeliness.   Just think of the possibilities for a product, a company and countries GDP if said forwarder / carrier was paid at least part on timeliness ?

The exception where this constraint is long since broken down is in the overnight parcels modes… as the lead time planning is in terms of 24 hours or maybe 48 hours and is well understood and done extensively.    Maybe think of overnight parcel order fulfilment as a proof of concept of a larger moving inventory transport strategy

So where do we go from here.    If you are an advanced supply chain strategist / operational executive you may wish to skip the rest of this tip and skip to this DCRA Inc.  white paper on “Global Transport and S&OP”  https://app.box.com/files/0/f/292876691/1/f_2318844871 .

For those of you who have really never thought about strategically planning and executing transportation as moving inventory we will list a few example no or low risk  efforts you can try to easily test the value proposition.    It is likely you have never thought of your transport function or staff in this manner.  It is more likely you just gave instructions to   “crazy Fred” in the transport department to SHIP IT.   You expected he does not spend to much… he ships it cheapest way ?  right ?   However, if Fred spend to much on transport every month he gets called into the corner office – right ?  So what does Fred do ?   He likely just shoots for average rates and lead times and definately does not have the instructions and / or confidence to propose using transportation as a profit center ?   He does not but he should.

So here are some example of helping Fred or replacing Fred with a transportation expert focused on lead time management (supply chain) not just moving stuff.

  • Setup a series of sample SKU’s and provide customers a discount if they provide enough lead time to ship to order or even make to order.  Imagine that your sales people can propose a very simple idea to customers to save money and one you know you can do.   No special design or production or packaging changes… just time ?
  • Find a resource in your carrier(s) or 4PL who can coordinate this process. Most will just be pushing a commodity of transport giving out baseball tickets to use them but not all.      Work with this contact and pull ideas from him on modes and routes where transport can be reliable to meet customer expectations reliably without inventory buffers
  • Now let’s have some fun. Pick out a SKU or product line or add on sale you have always wanted to offer to create a competitive edge or differentiate your brand.   Carefully select a provider (likely outsourced production) and line up a carrier to make it happen based on orders or very light inventory.   Watch the improvement of overall inventory turns and customer delight start to unwind.  Also be prepared to replace Fred or give him some retraining
  • Obviously, if you are already advanced in this topic you may want to propose a more mainstream test of the concept but if you are not the ideas above are pure profit with no risk to existing product lines.  If it works (which it likely will) then you have a real quantifiable trial to apply to the main line products and markets and then calculate the “Cashchain” benefits.

This leads us to the change management or “who moved my cheese” issues with using transportation more strategically.     I personally have been involved with deploying these tools in supply chains for more than a couple of decades.   Have heard the stories before I was involved and can quite honestly describe some almost unimaginable case studies of how a process falls back to silos between inventory and transport.  Mostly due to lack of a leader quantifying the benefit.     We have been hired to break through this constraint and have always succeeded and would be happy  to share numerous approaches, techniques and analysis to help you capture the value for your business.

However, I don’t think you need outside assistance need to be a supply chain expert to make it happen.   Think back over past 20 years in how modes of transport and  coordination of international transport (e.g. Fedx moving into the LTL ground trucking business) have been blurred.   Think of the drop ship programs (Amazon), transportation management visibility that is radically better (all carriers but not cross carriers).    So there are real mass example of the trend you can use to drive your value proposition so don’t just let the “informed” top 5% reap the cashchain benefits.   In fact today small firms that can nip away at small volumes and spot markets might actually be able to best leverage this concept ?

Some notable examples of this top 5% include Amazon, Apple, Coach, Cisco and what maybe the top players in most industries.   If you are curious what they do and how they pull it off circle back to the Global Transport S&OP White Paper referenced above https://app.box.com/files/0/f/292876691/1/f_2318844871  and realize ANY business any size can now execute these techniques for “Cashchain” benefits J

Contact DCRA Inc. at 214 352 0868 or info@dcrasolutions.com we can coach or advise you in “CashChain” tips and techniques.  Or programs range from casual dialogs by phone and email to full on site diagnostics and custom deployment of strategic IT solutions to create and sustain competitive advantage.

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