Video

Using Product Flow-Path Analysis to Find Hidden Money in the Supply Chain

Video Transcription

Dan:
Hi. It’s Dan Gilmore, Supply Chain Digest and the Supply Chain Television Channel. Very pleased to be here for a very special edition of our Supply Chain Thought Leaders Broadcast, a special three-part series on achieving found money in your supply chain. That sure sounds pretty good, doesn’t it? We’re going to have a great discussion over the next few weeks with Toby Brzoznowski. He’s an executive vice president at LLamasoft, a leading supply chain design and planning software firm. Toby thanks for being here with me today.

Toby:
Thanks, Dan.

Dan:
I think this is a great concept you guys came up with – found money. You’re going to go through it a little bit here, that experience, and you’re going to relate it to supply chain. What’s the catalyst for this as a theme?

Toby:
We’ve been working for companies for years on modeling, designing their supply chain, a lot of times focused on long-term, big picture, where can we get these big wins. How do you, over the next five years, ten years, make some capital expenditures that are going to lead to big ROIs?

What we are finding is, that as people were doing more and more modeling, they were finding a lot of quick wins. They were finding things along the way that they weren’t really thinking of. It was just offshoots of their projects. As we started to look at these things, a lot of times, those little quick wins that they were finding were actually giving them bigger benefits than what they were shooting for with these long projects. As we looked at it, that was found money. It was things that they were just finding along the way of doing their daily jobs. We started to categorize those in a few different areas. That’s really where we’re coming to talk about today. What are we seeing as some of the trends if you were to look at some of these quick wins, this finding money in the supply chain, where can you find it?

Dan:
The analogies are like reaching in your pocket and finding a bill there you didn’t realize you had.

Toby:
That’s it. We also look to three attributes for found money. Like you said, you put a coat on that you haven’t worn since your cousin’s wedding and you reach in and there’s a 20-dollar bill. Number one, it’s fast. It’s just there immediately. The second is, it’s easy. You didn’t have to work very hard to get it. The third is, it’s unexpected. We saw the same three attributes in these projects. We were looking at things where it’s not going to take you three years to implement the solution. It’s not going to cost you a fortune to do it. It’s something that you can implement quickly and get some savings. It’s easy just for that reason. I don’t have to make major shifts and changes to my business process to make these extra dollars. The unexpected part is a lot of times, frankly, it’s counter-intuitive. You’re finding things that didn’t seem to make sense on paper or it’s not something you would have thought of, but the modeling technology shows you that you make this little adjustment and there it is.

Dan:
The other angle to that is a lot of times in these kind of cases, there’s something right in front of a company, but they just can’t see it until they do the kind of exercise you’re talking about. All of a sudden, there it is. It’s visible. This is going to be a lot of fun. We’re going to do three different topics over three weeks. We’re going to start with product flow-path optimization. That term has been out there quite a bit. I’m not sure a lot of companies or individuals really understand it. Before we get into some case studies of how some companies have found money with product flow-path optimization, give us a little overview of what it’s all about.

Toby:
It’s somewhat self-explanatory, but you’re right, it gets a lot of different meanings depending on who you talk to. The idea of looking from your source all the way through your supply chain out to your customer, what path does that product take? There are costs at every step along the way. There are lead times. There are capacities that you have to deal with. That flow path basically has a lot of different attributes that you want to take a look at and when you start to add up all the different ways in which a product could potentially flow, whether it be different modes, different transportation lanes, different manufacturing processes, different ports of entry, all those things. You start to blow those out and there’s a whole lot of options that you have available.

Dan:
I’ve seen companies, without overly complicating things here, people will get into things like margin analysis and things like that too, because obviously, if there’s a big chance of markdowns, you might have to have a faster flow path than with something that has less of that. It needs a tool really to figure this out in an optimal way. I think you got a couple of examples of how some companies have found some money with this technique.

Toby:
Absolutely. If you think about product flow path, there’s a lot of different ways to measure it. You can measure the total cost to serve a product to a customer or a landed cost or a margin to serve. Those are some of the things that we looked at. A few examples of this: one, is inbound consolidation. We’ve seen this over and over again, whether it’s retail or manufacturing or consumer goods, just about every industry. You have a situation where you’re buying products, you’re sourcing products from multiple locations, multiple vendors. You might have, for instance, multiple manufacturing facilities. Every time that particular manufacturing facility gets low on a specific item, it needs to replenish its inventory, it goes out and makes a purchase and it flows that product into its facility.

Now you think about, I have five, six, seven of these within a country or within a region. What if you were to do something different? What if you were to take one of those facilities and use that as a cross dock or an inbound consolidation center? Start to buy in bulk for all of the other locations. This is why it can be counter-intuitive. You’re adding additional touches. You’re adding additional transportation lanes and costs, but maybe you have things like volume purchase agreements or bracket pricing set up with your suppliers, or you may be using less-than-truckload flows to get those products to your facilities.

If I were take advantage of full truckloads by consolidating these thing together, or if I were to take advantage of my volume purchasing by getting it all in one location every time I order, the tradeoffs are there. What you can do is look at each individual product or each individual supplier and start to gain those things and see where is the tradeoff such that the balance tips towards using consolidation versus the alternative which is going direct. You might find that 20, 30 percent of your products or 20, 30 percent of your suppliers, it does make sense to make that shift.

Dan:
I think there are so many companies that do use a one-size-fits-all approach to inbound or whatever the topic is, or they just at the very highest level, but to get those nuances like you’re talking about, modeling is sure what needs to be done.

Toby:
Right. With some of these cases where we’ve seen retail suppliers just taking a look at what are the top 10 percent of the SKUs that I have flowing into my market and into my stores, and start to look at all of the different distribution center locations and saying, “Let’s, of those top suppliers, let’s take a look and let’s run this analysis.” We’re finding over and over again where just by making those adjustments, adding that additional leg, adding that additional buying power that you might have, it smooths out inventory sometimes in the other locations. It adds those full truckloads and you’re seeing millions of dollars in cost savings.

Dan:
The other thing I’ll just mention real quick before we go to example two is seasonality can have a play here, because sometimes the flow path can vary by season. A lot of companies don’t take enough effort to really look down at that level. Very good. How about another example?

Toby:
Another example of this that we’ve seen more and more frequently is the use of different ports that you have available to you and balancing those things. Over time what happens is I’m sourcing from certain locations. I’m sourcing from Asia Pacific for a good portion of my products. This one example, a retailer that had a good mix of e-commerce and stores, had fulfillment centers throughout the country, but they were using two ports. They were using primarily the West Coast, Long Beach area. They were also using the New Jersey area as a secondary port, but most of their flow over time had come in through Long Beach.

They started to look at: Where is my demand? How are things getting out to market? As I start to add e-commerce and some of the unique characteristics that I have there, what’s the right balance of products? It’s taking the same situation of looking at how each product flows through the network, doing that on an individual SKU basis. This is better to do at a SKU-level versus at a aggregated supplier or an aggregated customer, whatever you want to call it, because you can start to find those unique attributes of certain products that you can combine together to get those volumes. What they found in this case was over 20 million dollars of annual savings just by shifting the percentage of product that was flowing through one port versus another.

Dan:
Wow. I’ve seen several presentations of companies that are doing this and I think you’re exactly right. That SKU-level focus is very important. That’s what it takes a tool to do, right? If you just do it in big blocks, maybe you can brute force it with some spreadsheets or whatever, one time, but this approach you can get down to the nitty-gritty of detail and you can do it on a continuous basis. Seasonality, demand, product life cycles, all these thing change. Product life cycles is a big one. The optimal flow path for a product today may not be the optimal flow path for a product in two years because the demand has fallen or whatever. These are some great examples. I’m with you all the way. What’s my 90-day-plan? How do I get going here to make this happen?

Toby:
That’s a great question. There’s a couple of ways in which we are seeing this work. Obviously, there are certain companies who already have established supply chain design centers of excellence or supply chain design capabilities. They have tools. They have people who are dedicated, and those people are focused on very specific projects. What is really the first step, for those situations, to getting them to stop focusing only on long-term capital expenditures, five-year or ten-year plans, and starting to look at some of the more tactical situations, and starting to think about and brainstorm. What are some things we can do now with some minor changes that can have an effect?

For those companies that don’t have their own capabilities, the great thing about technology like this and projects like this is that they can be done as projects to start with. I can almost use this in many cases to justify the need to have staff looking at it. We’ll see a lot of times where we start engaging with customers, they don’t have technology, they don’t have staff, but they know they haven’t looked at their supply chain in a couple of years. They haven’t looked at it in this unique way, and you can scope out a project that focuses on one or two of those areas and over the course of 60, 90 days, gather the information about where are those products flowing from, what are the costs that flow through the network. In a pretty short period of time, you can come up with some recommendations that more than often justify the investment in the technology and the people.

Dan:
The first example where you said the idea came to you about this found money, it was a big network design project, but they found some of these more niche-ier things, if you will, that delivered some big savings, or you’re saying, rather than starting with a big project, you can start with in a focused area like product flow-path optimization. As that succeeds, build out your model and tackle other things.

Toby:
Yeah. It’s a great way to get started. That’s the cool thing that we’ve seen as a big trend. As more and more companies are starting to say, “This needs to be a core capability for us. We need to compete based on supply chain operations,” but to justify the investment in the staff, in the technology, finding these quick wins as the starting point and then eventually using those models to do the longer-term, big win, major investment type of things. That comes later.

Dan:
I think you threw out the figure of 20 million for the port project, so even though these are smaller projects, it’s not like there’s not a good found money to be had.

Toby:
Sometimes they produce better results than these big idea things.

Dan:
Toby, you know I’m a big supporter of this kind of approach here and continuous network design. Great discussion here today. I’m looking very much forward to parts two and three. Thanks for joining me today.

Toby:
Thanks, Dan.

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