Expectations from Supply Chain personnel have never been higher, and the reality of global supply chains has never been direr in the past.
All the major fiascos such as the Suez canal bottleneck and pandemic effects have been widely and deeply covered by the TV stations and popular finance press.
Minor, routine supply chain fiascos within most companies do not attract as much attention as they used to do in the past - for the simple reason that the attention is focused on the major disasters.
Most companies are rolling with the punches - trying to muddle through with whatever supply chain skillsets they have at their disposal. That is an understandable and natural response to the crisis.
The purpose of this post is not to get you to start major supply chain revamps or multi-million dollars transformation programs. If you had an inclination to do so, you would have already done that.
In most cases, you would also have a list of consultants who could potentially help you with such a transformation program.
While, we do our best to get on to such lists for good companies, in this series of posts I am going to only talk about the projects you can currently do with the supply chain teams you already have working in your company.
There are a few other caveats too:
- Do not do what will be the first instinct for many people - call in your logistics vendors and start trying to get better shipping rates from them. This is certainly not the right time to do that. On the contrary look everywhere but towards them to get your savings.
- There will be a dozen or more posts in this series - each with one solid useful idea which worked in the past for a client of ours who called us in a dire situation when their three consulting lifelines have already failed.
- These posts are in no particular order. Specifically, I am not trying to cover the most important or most relevant or high impact ideas first. That is deliberate for a reason, which I do not want to share here.
- All these ideas come from our case study library of over 200 slides from the previous projects done over the past 20 years.
- Not every idea will work for everyone. You will have to assess whether a particular idea is suitable for your company and its current situation or not. If the idea is not for you, just keep moving to the next post in the series till you come to an idea that you think will work for your company.
- Each of the ideas encountered unexpected resistance and headwinds while being implemented. Eventually, each was proven a winner, so the story I tell in each case is largely based on facts. I only hide identifying information and details to maintain the confidence of our clients.
- Many of the ideas were tried by the clients and abandoned because people did not probe past the first roadblock to seeing whether the road ahead was clear or totally blocked. You will come to numerous points during the course of implementation of the ideas where you will feel like abandoning them. That is time to take a helicopter view and review the lay of the land to make sure you are not abandoning a good idea for a minor and temporary setback. If in doubt, a quick call to us will help clarify the perspective in many cases.
- There are things you would not do under normal circumstances, but now the circumstances are no longer normal. This means keep your mind open to doing the unusual in these trying circumstances.
- If you work in the supply chain arena and are used to working in one particular way, keep your mind open to the fact the multiple generations of supply chains exist - each with its own set of innovations. If you come from outside the supply chain fold, never abandon your common sense to professional advice of any single supply chain professional.
Let me start with the story that illustrates the first idea.
Our clients shipped massive amounts of tonnages between two locations reasonably far from each other. Let us just say that the factory was located very far from the major consumption location in this particular case.
The situation was made even more complicated by the fact that the major competitor had their factory right in the middle of the consumption location. This means that our clients had a much smaller market share (About 35%-45%, compared to the remainder owned by the major local competitor), and that was also only because of the dual sourcing policies of most of the customers.
You would believe that in a cozy duopoly, both competitors would make a decent profit. But, at least in our client's case, this was not true. On average, over a complete economic cycle, they were losing money in this market, and a strategic market withdrawal was being considered at the board level.
One last-ditch effort was mooted, and we were asked to have a look at the supply chain costs which were nearly one-sixth of the total COGS (cost of goods sold) in the region.
I would like to emphasise that everyone in the company was already very conscious that their company was at a huge strategic disadvantage due to the remote location of their production plants.
As a result, the supply chain into the region was constantly under review and frequently closely examined. There were nearly a dozen or so supply chain cost reduction projects already underway, though for want of impetus and fresh ideas most of them has already stalled long ago.
Yet, many of them were sound ideas in need of momentum and fresh input to bring them to their right input.
One such idea was simply named 'mode change to rail.'
To examine this idea in more detail I had to take a two-week rail and road trip from production to the consumption location and examine a multitude of railway sidings, transhipment locations and equipment through a fairly hostile western looking territory.
All that hard work was very productive when it turned a largely marginal business into a healthy margin of over 20%.
So, pay attention to the rest of this story, even if you have heard parts of this story before - with some care, you may be able to replicate the results if the conditions are ripe within your business.
Here is an infographic with a very abridged version of the same story - in case you are really short of time click on the picture below and you will see a full-page infographic telling the entire story.
But, I will encourage you to read the full story because there are a lot of nuances relevant to the current situation induced by the supply chain panic due to the pandemic, and the Suez canal fiasco, and whatever comes next to disrupt the global supply chains.
It is important to note here that when we talk about the savings from mode change we are only talking about the first savings bar in the bottom right graph.
During the course of two weeks, while looking for the reasons why mode change project had stalled earlier, we found four more savings ideas, and even an infrastructure investment idea that had a payback of less than six months.
Combined, these projects and investments turned around the supply chain situation from a panic into a healthy sub-business line pumping profits into the coffers of the business week after week.
So, how did we do that?
By investigating the root causes of the reasons that stalled the original mode change project and finding ways to remove these root causes.
In retrospect, on thinking the whole thing through again - there was just one root cause at the bottom of this inability to shift the transportation mode from 20% rail to 80% rail as mandated by the HQ. In reality, all other causes emanated from this single root cause.
This root cause was the perception that the overall costs for trucking was almost comparable to the overall cost of using the rail and trans-shipping the goods.
On face for it - a simple analysis proved this perception was correct. But, this did not take into account the fact that rail transshipment was set up in a very ad-hoc manner to get the supply chain going nearly a decade ago, and had continued in the same manner ever since.
To make changes to rail transshipment arrangements would require investments in the transshipment infrastructure, and, there was an assumption in the business that due to cash crunch this investment would not be forthcoming.
Our two weeks trip in the field unveiled opportunities to use the abandoned rail lines, sidings and other infrastructure that was available at scrap value and could be used for several decades once commissioned properly.
But it was an involved task to understand the possibilities and put together three different sets of equally feasible options, each with different level of investments and paybacks.
In each case the payback was less than one year, and almost 100% guaranteed, if the mode was changed to rail. After the payback the cost differential between trucking and rail was quite significant and that proved to be a game changer in moving the needle on perceptions within the business.
Suddenly, everyone in the business jumped on the rail bandwagon (literally speaking), and made the project a huge success.
There are some other minor details such as the fact that the investment for infrastructure came from the joint venture partner because of a related contractual issue (and as a result, our client found a totally riskless way of changing a loss making business into a perpetual money spinner).
Can you do the same in your business? The specifics of the case will surely differ. But, opportunities for savings are all around you.
Even in the case described above the potential for savings are far so numerous, that I have just described only the first bar in the chart.
Each of the other bars has its own story and covering all of them will likely make this blogpost into a book.
I might use another blogpost to cover some of them in future - but I have more than 100 such charts from past projects to describe similar opportunities, so I will have to be picky.