Key to Supply Chain Sustainability

There is no doubt that logistics plays an integral role in the supply chain process and its success but often, the overall effectiveness of the logistics process directly impacts reliability, profitability, and the sustainable future of your business.

Typically, companies invest in a strong supply chain infrastructure which includes strategic sourcing, commodity management, right-sizing of inventories, rationalizing the supplier base, and the negotiation of material costs. These things are standard industry best practices and mitigate risk to the company while targeting corporate goals but the logistics piece is often an un-negotiated afterthought where crucial savings can be lost.

1. Establishing Performance Expectations

It is important to establish metrics and key performance indicators that will drive effective logistics performance. Suppliers and 3PL service providers should be aware of what is expected from a contractual aspect but also provide value-added services that increase efficiencies and cost savings in a demanding, competitive environment. These metrics can change and evolve over time but should include areas such as total cost management that can be measured from historical performance or established industry indices, timeliness of orders and adherence to established lead times, and contingency plans around critical path deliverables.

Setting these expectations becomes particularly necessary when measuring poor performers but also allows for a comparative measure for your successful suppliers as well and a providing a starting point for continuous improvement discussions that should exist with any strategic supplier.

2. Accountability and Total Cost of Ownership

Once the logistics expectations are established it is important for each party to be accountable for their respective responsibilities. Failure to do so will quickly dilute the value of the metrics. From the time materials are procured to the time they’re filling their end-use roles, whether in a manufacturing or distribution setting, costs are being measured. Consolidation of orders into loads and deliveries immediately drive logistics costs down and provide indirect cost savings. Metrics such as quality and lead-times can also provide indirect savings but can also easily drive costs up if not managed properly. For example, if loads are consolidated to save fuel and transportation costs, the ability to safely transport the larger quantity of materials may impact the quality of product delivered and in-turn drive up costs. Also, if the supply chain group is measuring availability with demand planning and forecasting, the lead-time of an item drives on-hand inventories, re-order points and associated costs. When materials ship late, for instance, there are the assumed risks to schedules and workarounds required to accommodate. However, when items ship early or ahead of a specified delivery schedule, this could still be deemed as poor performance. Considering that procurement, material planners, and even integrated MRP systems are driven by actual performance to determine future forecasts, any variance of the expected performance can potentially have long-term impacts in handling costs, space utilization, material planning, and overall additional indirect costs that all tie to the logistics performance of having the correct material, in the correct location, at the correct time.

3. Logistics and Sustainability

The world we live in demands that we perform better tomorrow than we did today. Green initiatives that were once merely good ideas are now being mandated. Fuel consumption and emissions regulations are steadily improving the downstream footprint that transportation and logistics have on the environment but most come with inherent, unavoidable, incurred costs. When looking at project deliverables, timelines, budgetary constraints, production planning and material costs, logistics is typically low priority relative to most other concerns that supply chain faces. However, if logistics fails to coordinate and manage the suppliers and resources properly, the profits wasted to accommodate failure can become great.

Contributor: Chris Dickson

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About Allyn International

Allyn International is dedicated to providing high quality, customer centric services and solutions for the global marketplace. Allyn's core products include transportation management, logistics sourcing, freight forwarding, supply chain consulting, tax management and global trade compliance. Allyn clients range from small local businesses to Fortune 500 firms. Allyn conducts business in more than 20 languages and has extensive experience in both developed and emerging markets. Highly trained experts are positioned throughout North America, Europe, and Asia. Allyn’s regional headquarters are strategically located in Fort Myers, Florida, U.S.A., Shanghai, P.R. China and Prague, Czech Republic. For more information, visit www.allynintl.com.