Friday, January 14, 2011

Collaboration – The Next (Supply Chain) Frontier?

Nine service parts organizations gathered recently to collaborate and find ways to leverage one another’s infrastructure to reduce costs and to improve service to dealers. This group met because each of them had expressed interest in collaboration, as well as a willingness to prepare for the collaboration session and an openness to "collective solutions." For some, this isn’t new. OEMs already have many delivery routes where they share the same truck. Historically, combining volumes has been the only way to provide premium delivery services to remote areas, where the number of stops to fill a truck (and the distance between them) makes it cost prohibitive. More recently, OEMs have discovered that the benefits are not limited to outlying areas.
Time out: This collaboration session was one of the many outcomes from recent changes we’ve made to our benchmarking approach. As we pull the 90-minute interactive sessions from the conference “event” and replace them will full-day Focus Day sessions (each dedicated to a single topic) we expect to see huge leaps in industry knowledge and a subsequent increase in the improvement actions taken by participants.
FedEx and UPS are two of the most efficiently operated companies I know. Yet, whenever I see a FedEx truck, a UPS truck, and a Postal van in close proximity of one another, I think, “Now there’s an opportunity to get more efficient.” Think about it – with virtually every street in America being traveled every business day by each companies’ vehicles, stopping intermittently along the way to make deliveries, those last few miles in the package delivery infrastructure are virtually redundant from one company to the next. How much money and fuel could be saved if only one truck went down the street and delivered packages for all 3 companies, and how much sooner would the packages arrive?

This same scenario exists in service parts. Whether they are automotive, heavy truck, agricultural, or construction equipment dealers, virtually every one of them is getting deliveries almost daily. In most cases (particularly for auto dealers), the deliveries are made on dedicated delivery vehicles. This means that the truck is dedicated to the delivery of a particular OEMs’ parts, following a set route and making deliveries at the same time every day. So, much like the FedEx/UPS example, we have the same redundancy between the likes of GM and Nissan dealers.

This reality hasn’t been lost on the managers of these service parts supply chains. In fact, that’s why a number of them called upon us to help them collaborate and find ways to do things more efficiently together, rather than independently. The fact is, even the most efficient supply chain is sub-optimal when considered in the context of other relevant supply chains (think FedEx and UPS).

While each company has its own particular network issues, it should be no surprise that many companies share the same list of challenges. The solutions to these may be found via collaboration. Specific regional collaboration opportunities include:
  • Pacific Northwest
  • Hawaii/Alaska
  • Plains/Dakotas
  • Larger, central/western cities – Denver, Salt Lake City, Kansas City, Albuquerque
  • Western Canada
The issue in these regions is that no single OEM has the volume or density of delivery points to justify either a warehouse or a dedicated delivery route. As a result, order-to-delivery times are often long and unpredictable. Through collaboration, combined volumes are likely to result in the critical mass necessary to achieve high levels of service at a reasonable cost.

Outbound transportation is where the greatest opportunities exist, primarily because of the sheer number of delivery points across the country, not to mention the ability to collaborate without having to tackle any systems-related issues. Nevertheless, there are other, yet untapped, opportunities. Inbound transportation can be very inefficient, even for large volume OEMs. Operating lean supply chains means small lot replenishments. So, even the biggest players are bringing goods into their supply chain via LTL carriers. Not only is LTL relatively slow and costly, but it is unpredictable. This means having to carry buffer stock to compensate for service variability (and the occasional damages, which are inevitable as small loads are transferred between trucks numerous times en route).

Exporting OEMs can find opportunities to work together, as combining outbound volumes may improve the velocity of their shipments. Today, an OEM can ship an export order within 48 hours, only to discover that it sat at the freight forwarder for 3 weeks waiting to fill a container destined for Kazakhstan.

With some OEMs reducing their supply chain footprints and others struggling to expand quickly enough, there are also opportunities to share physical space. Certain regions are particularly ripe for this, such as the upper northwest, where one company has 120,000 square feet of unused space and another is looking for just that much. IT infrastructure can easily be a show-stopper when collaboration involves warehouse operations. The key here is to share space, but not operations – think warehouse within a warehouse.

Bottom Line: At the end of the day, participants left the session with many specific ideas for action (none of which require million-dollar consulting budgets). This was rewarding, considering all the effort everyone put into the preparation.

To harness these opportunities, OEMs must first identify where they exist. Their recent meeting was very effective at getting this started. Based on the discussions, the ease of implementation, and the time required before benefits are achieved, the collaboration opportunity list should be prioritized as follows:
  1. Collaborate on outbound transportation
  2. Collaborate on warehouse space
  3. Collaborate on inbound transportation
Going forward, OEMs need to start their conversations by figuring how a collaboration arrangement may work and what the operating rules will be. Only then, should they try figure out what the potential savings and service improvements might be.

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