My Experience With Freight Cost Reduction Using Supply Chain Software

One of the reasons I invest so much time and resources of our company in keeping current with the information technology is that good supply chain depends almost entirely on good information.

And, your information is only as good as the technology deployed to collect, collate, store, parse and reproduce the information on demand. It is no secret that most of our supply chain transformation projects are highly time intensive and heavily data driven.

We trust all participants in the supply chain, and we verify everything – from several angles. However, if you have been working in freight cost reduction for over 30 years like I have been, you know the reality on ground. But that raises a big question about the data.

A data scientist can only be as good as the data s/he has.

In most projects the data is woefully inadequate – even today in 2016.

Rather than talk about our current freight cost reduction projects, I will give an example from several years ago (for sake of propriety and confidentiality I will disguise some details).

When our team completed the initial 8 week diagnostic on that project for an industrial corporation with $1.3 Billion supply chain, it was clear that despite heavy investment in SAP, supply chain data was far from adequate. In fact for ocean shipping it was so inadequate that we had to employ temporary staff in to digitize a paper trail of transaction details in order to conduct our analysis.

I could probably spend another 5,000 words just writing about how difficult it was to get hold of the data, and then how difficult it was to verify the veracity of that SAP extracts. After all my team was sharing their travails with me on a daily basis.

We had signed a fixed price 10 week contract for completing the work.

We anticipated the usual data problems for the first week or 2. What we did not anticipate was a 5 week run around to get hold of the SAP extract, and then another 2 weeks to verify its veracity. As a result our team had to find additional resources, and time, to conduct a 6-7 week analysis in 3-4 weeks in order to meet the deadline for senior executive off-site meeting scheduled for the end of the diagnostic.

I asked the team to make full record of all the inadequacies they found in the SAP set-up so that we could provide recommendations on system upgrade to facilitate good supply chain planning, control and decision making.  While this was not something our company worked on, and it was not even part of the project brief, it was going to be extremely useful for future SAP upgrades in the company.

 The limits of any machine are only discovered when it is being used at its limits.

(Now that upgrade is a subject for another blog, at some other time). It was clear to all that SAP was set-up mainly for financial reporting purposes, and supply chain management was an afterthought to the transaction recording.

As a result, the system did a marvelous job of providing aggregate data on financial well-being of the organisation. It also facilitated adequate drilling-down of financial transactions. Yet linking those financial details to actual supply chain movements was less than adequate.

In fact, for ocean shipping, nearly 25 hand-over points in the transaction workflow were all aggregated into one single SAP transaction.

Our team diligently recorded all the issues with supply chain transaction processing that we found during our strategic diagnostics of supply chain. Several pages of tables similar to the one below were cross-checked, verified and created.

Data Issues in SCM

Not just that, an annex report with high level requirements for future upgrade of SAP was also created, even though this was not part of our original project brief. Unfortunately, I am disinclined to publicly share even sanitized version of a sample extract out of this report .

Privately, I might be able to share sanitized extracts in case your team is going through a process of making your SAP installation more user friendly to your digitized supply chain.

I chose this case example for several reasons.

Firstly, it has gone through a full cycle of business and information technology outcomes, which are now well known. On business side our supply chain transformation project was a massive success. In fact the global head of supply chain (who later became the CEO) wrote this in the foreword to one of my books:

When I engaged Vivek’s services for supply chain transformation in one of the companies I was heading, we expected the careful and methodical approach that he was famous for. Outsourcing was only one of the components of our supply chain, and at the time we did not think it was even a particularly important one.

I was already convinced that critical business turnaround can only be achieved by taking an end-to-end supply chain approach to this transformation. I was pleased to note that the original target set for 3 years was surpassed by almost 70% in just 18 months – providing graphic evidence of the full power of these ideas in action.

On the information technology side, the supply chain requirements were never fully translated into a usable system resource base.

I will not go into the reasons in this blog. SAP has since invested in Ariba – a procurement management software.

Unfortunately, the confusion between procurement and supply chain management continues to persist. A number of journalists, and even business professionals use the terms interchangeably. On the IT side the supply chain workflow still remains inadequately supported.

A few newer companies are starting to crop up, yet a great majority of them (to some degree) seem to be falling into the same traps that their predecessors fell into above.

In my next blog I will cover this in more detail. Meanwhile, share your experience with SAP, Ariba or other so called supply chain transaction processing software systems.

Not only will you add to the accumulated IP on supply chain system, but also you may earn a copy of the book quoted above.

 

You can find comments on My Experience With Freight Cost Reduction Using Supply Chain Software on LinkedIn.

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Vivek Sood

I write about "The Supply Chain CEOs", "The 5-STAR Business Networks", and, how to "Unchain Your Corporation". In my work, I help create extraordinary corporate results using several 'unique' supply chain methodologies. Contact me for interesting, high impact projects, or, to get access to my IP for creating transformations using these methodologies.

  • Jayda SC manager says:

    If your company has been using international air freight in recent years, have you taken a look at whether or not that’s still the best option?

    Many companies use air freight more for reliability than speed. If yours is one of those companies, it might be an idea to look into the latest “time-definite” ocean shipping services that are gaining popularity. Often these services are just as reliable as air freight and they’ll always be a whole lot less expensive.

    • Vivek Sood says:

      Very good point. In many companies our teams (alongside client teams) have achieved significant savings by just substituting cheaper form of freight while providing supply chain reliability.

      You do need better supply chain planning to be able to do this.

  • Marcus says:

    As freight transportation costs continue to rise year-on-year, manufacturers, wholesalers, retailers, and any other organizations that are part of a supply chain must think smarter about pushing down the cost of moving goods from A to B. I think the 5-star business network may help in cost reduction process? will it?

  • Samuel says:

    Great Experience With Freight Cost Reduction Using Supply Chain Software.
    I read all topic how you managed all aspects. Thanks to sharing the appreciable experience. I learn important points by here.

    • Vivek Sood says:

      Freight costs are by now one of the highest cost categories besides salaries and direct materials procurement. Freight is also a relatively high touch category – it resists application of traditional procurement wisdom. It even resists clever strategic sourcing techniques.

      I challenge anyone on earth to say that they are sure that they paid not a cent more than the contracted freight amount. How can anyone be sure, when freight invoices are so difficult to understand, and almost impossible to reconcile to the actual contract.

  • […] chain system, but also you may earn a copy of the book quoted above. You can find comments on My Experience With Freight Cost Reduction Using Supply Chain Software on […]

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  • Dallas Barnett says:

    Manufacturers, suppliers, retailers, shippers and distributors are the major stakeholders in the supply chain of manufacturing companies, which ends with product delivery to the customer. With an increasing emphasis on technological advancements, as well as the changes in customer expectations, the need for an integrated supply management has become increasingly important.

  • Hamilton says:

    Companies that opt to participate in supply chain management initiatives accept a specific role to enact. The advancement of technology has further led to ready availability of all the products with different offers and discounts. This leads to reduction of costs of products. The growth of information technology has improved productivity because of inventions of new tools and software. That makes productivity much easier and less time consuming.

  • Billy Parson says:

    A supply chain is the network of suppliers, distributors and subcontractors used by a manufacturer to source its raw materials, components and supplies. Logistics companies store, transport and distribute supplies and work-in-progress within the supply chain and distribute finished products to customers or intermediaries. Integrating supply chain and logistics operations improves efficiency and reduces costs, increasing the manufacturer’s competitive advantage.

  • Nancy says:

    Good article Vivek. SAP Supply Chain Management is one of the key modules in SAP ERP and controls Production Planning, business forecasting and demand planning. It helps the organization to manage their supply chain process in a dynamic environment. SAP SCM process helps suppliers, customers, manufacturers, business partners and retailers connect with each other to manage supply chain process effectively and efficiently.

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