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Why an audit of the supply chain starts with people

One way to control supply chain costs is to regularly audit your logistics operations, but doing so, and doing so correctly, are two different things. (Photo: Jim Allen/FreightWaves)

Inefficiencies abound within supply chains, and if they didn’t, the current tech revolution in the industry wouldn’t exist. It does, in large part, because shippers are continually looking to streamline operations and control expenditures.

Lisa Harrington, president of the Harrington Group, has been quoted as saying more than one-third of businesses operate more than 10 supply chains and nearly 70% are looking at ways to standardize those supply chains to reduce costs and streamline operations.

Truly understanding inefficiency, though, requires an inward look first, and not just a financial leap to obtain the latest and greatest technology. That approach, without proper insight, is the equivalent of throwing bad money after bad money.

Penske Logistics and the Council for Supply Chain Management Professionals’ annual State of Logistics Report, released in June, said that U.S. logistics cost businesses $1.64 trillion in 2018, an 11.4% increase over 2017. Those numbers can be reduced significantly, but only if shippers know how to find and root out their inefficiencies.

“Number one is always going to benchmarking yourself,” explained Jason Miller, associate professor of logistics in the Department of Supply Chain Management at the Eli Broad College of Business at Michigan State University. Miller suggested using public or private data to benchmark to see if the changes being seen are consistent with the changes of peers. A great example of this is the shipping rates being paid, he said.

“Second is to use data analytics within the company to try and identify where there is duplication of effort, where there is excess inventory,” Miller added. “Companies are realizing they have so much data, but the challenge is how do they use it. Are they tracking contract freight rejection rates? Are they tracking it by carrier? By lane? Are they tracking freight escalation rates?”

The cost of inefficiency

Costs due to waste and inefficiency can include increased transportation costs due to unnecessary or delayed movements of goods, excess inventory, too much personnel, over-production of product, defective products due to too-tight production timelines, and underutilized personnel.

Benchmarking Success, a global benchmarking firm based in Australia, suggests companies use external benchmarks to measure their supply chain performance.

“While it is possible to have an intuitive sense of your supply chain’s strengths and weaknesses, it’s also possible for that sense to be wrong, and frankly, without some form of objective measurement, there is no way to be sure,” the firm wrote. “By benchmarking your supply chain performance against industry peers and even supply chains in other industries that operate similarly to yours, you will gain an objective view of how your procurement, inbound logistics, warehousing, distribution network, and outbound logistics functions are performing, as compared to regional or global averages in your industry.”

In a 2011 McKinsey survey of global executives, the consultancy identified the following supply chain challenges in their organizations:

Customer Service: Not getting the right product in the right quantity at the right price to the consumer.

Cost control: Managing increasing costs, including freight spend, healthcare costs, regulatory changes and commodity prices, all of which place downward pressure on logistics.

Future Planning: Building a flexible supply chain to address growth opportunities.

Partnerships: Finding the right partners/suppliers.

Developing talent: Finding the next generation of supply chain leaders.

All of these are prone to inefficiency, but identifying problems needs to start with a self-evaluation. Miller pointed out that this can often be done with available data. Data collection, though, is another problem that many shippers struggle with.

Making use of the data

“I’ve worked with more than one [shipper] where either they don’t have the processes in place to collect the data they need, or they don’t have the analytics in place to analyze the data,” Miller said. “The problem is that the investment is a known cost versus an unknown benefit, and the companies don’t want to make that investment. There is going to be an upfront cost… but it may be difficult to quantify the benefit ahead of time.”

While each problem is unique to each shipper, and will require unique solutions, the process to get the ball rolling to solve that problem is generally the same.

“You have to get top management support. You have to get a mandate from the CEO or top management to make these changes,” Miller said. “The vast majority of consulting projects that I’ve worked on, if you go out and ask the folks in the trenches what the inefficiencies are, they can tell you or get pretty close, but they have to be willing to tell you that.”

Auditing the supply chain begins with the question of whether the shipper has the resources needed to do it internally or not. These may include data scientists and other experts in data collection and analysis as well as freight transportation experts, sales professionals (the supply chain has direct impact on the end customer) and even carrier partners.

Utilizing outside expertise

Outsourcing the audit process, and perhaps even management of the entire supply chain, can drive value for businesses and allow them to collect and analyze the data needed to ensure the supply chain runs as efficiently as possible. In fact, according to Supply Chain Quarterly, 85% of businesses outsource at least some part of their supply chain.

“We have seen an increase in the number of businesses that are looking to outsource their transportation and logistics operations,” commented Ross Spanier, senior vice president, sales and solutions, for GlobalTranz. “It is critical for shippers to seek a partner that combines a consultative, solutions-oriented approach and the operational and implementation acumen necessary to turn the plan into reality.”

Once a decision is made on how to proceed, it comes down to identifying the problems and quantifying the benefits. Change can be difficult, though, and as Miller explained, is why removing inefficiencies is really a change management process.

“Given how people love talking about analytics right now, my view is a lot of people see analytics and [let the analytics guide them],” he said, and “while analytics are a part of it, this is ultimately change management and changing people, so people are the [most important] part.”

His suggestions for moving forward include starting small and getting some “quick wins,” and providing management with the anticipated benefits, even if it is just a range.

Rooting out inefficiencies within the supply chain, then, requires a personal touch. All inefficiencies, aare not created equal, but proper reflection on the operation will identify areas that can be improved, and with the help of outside experts, the process may not require the significant upfront expenditure previously deemed necessary to achieve results. 

Brian Straight

Brian Straight leads FreightWaves' Modern Shipper brand as Managing Editor. A journalism graduate of the University of Rhode Island, he has covered everything from a presidential election, to professional sports and Little League baseball, and for more than 10 years has covered trucking and logistics. Before joining FreightWaves, he was previously responsible for the editorial quality and production of Fleet Owner magazine and Brian lives in Connecticut with his wife and two kids and spends his time coaching his son’s baseball team, golfing with his daughter, and pursuing his never-ending quest to become a professional bowler. You can reach him at [email protected]