New ideas for streamlining the supply chain game: supply chain management is something companies are becoming increasingly focused on, as the task of juggling profits and customer satisfaction becomes more complex - Frieght Forwarding

Business Asia, March, 2003 by Tamsyn Smith

It is a fact of business life that a company must always strive to produce strong profits. It is also a fact that customers are becoming increasingly demanding in their service level expectations.

In order to keep those two points in balance, a company must focus a large amount of attention on whether one's supply chain is being managed to optimum benefit.

One option is to look at where a company's main distribution centre is based, and whether it is in the most cost effective location.

Ian Christie, trade development commercial manager for Brisbane Airport Corporation (BAC) Australia, is working hard to attract new businesses to locate themselves at a precinct that incorporates airlines, freight forwarders, and warehousing distribution within BAC's grounds.

He says the process of getting goods from the airport to the customer can be sped up considerably by being close to the action, the minute the goods enter the country. This automatically translates to cost savings.

"We go to businesses in Australia and ask them to look at their supply chain to see if it could be improved," Christie says.

The result of having the first three points of contact in one location is a much more streamlined and congestion-free process that is conducive for a speedy supply chain, which Christie says makes sense for companies who want to save money.

"The whole supply chain is common sense really," he says.

Clearly, moving one's base would mean a significant amount of capital expenditure, and Christie says the companies they are talking to are those who have already shown interest in moving.

Cycle time

Another less drastic option is to employ a transportation and logistics company to take the responsibility of providing the most suitable solutions.

Dennice A Wilson, vice president of supply chain solutions for FedEx Express in Asia Pacific, says the two major reasons for embracing a "supply chain solution" for most companies is to achieve a reduction in cycle time and a reduction in costs across the chain.

She says that the supply chain management costs of best-in-class companies (top 20 per cent performers) as a percentage of revenue ranges from three to five per cent, versus median companies' eight to 11 per cent.

In the chemical and pharmaceutical industry alone, which has annual revenues of US$641 billion ($1 trillion), the potential savings through best in class would be approximately US$46 billion.

It is no wonder that supply chain management has become big business.

In fact, over the 1980-1999 timeframe, advances in logistics and transportation resulted in an estimated reduction of approximately US$4.6 trillion in total business inventories. The cost savings associated with these reductions are estimated to total US$1.3 trillion.

FedEx is an example of an internationally recognised company that has a dedicated service providing total supply chain solutions to multinational companies, helping them to maximise overall efficiencies.

Juggling inventory

At the heart of the supply chain is juggling inventory.

Inventory costs reportedly make up about 30 to 40 per cent of total costs of finished products. Over the past 10 years, the cost of inventory has become an increasingly larger challenge for companies to manage. Wilson says that FedEx has been a key driver in the industry move from a supply/push approach--make a product and try to sell it--to a demand/pull approach, which focuses on what a customer needs and when they want it.

"We are able to facilitate and support a company's ability to build products only when they are actually ordered by customers," Wilson says, adding that as a result, the need to hold inventory to match each order is greatly minimised.

This in turn makes the supply chain significantly more efficient, as well as decreasing costs.

For example, many companies use the "postponement" strategy for their supply chain models.

To support this basic concept, FedEx can bring together product parts from different sources, based on actual demand, prior to the delivery process.

When an order is received in one country, the basic products are delivered to that country from a central location.

The system ensures that the final configuration is determined when an order is received, based on the local in-country requirements of the end customer.

Wilson says the entire process is seamless.

"As a result, we reduce the need for companies to forecast or guess sales volumes in each country, and at the same time, reduce companies' inventories and ensure `just in time' delivery to their customers," she says.

RELATED ARTICLE: DHL set to expand in Asian region.

Deutsche Post AG, Europe's largest postal service, plans to invest hundreds of millions of dollars in Asia this year, and has held talks with Singapore Telecommunications Ltd's postal unit.

The company will make the investments through its units DHL Worldwide Express and Swiss freight forwarder Danzas Group, according to Deutsche Post's chief executive officer Klaus Zumwinkel.

"In Asia, we're growing double-digit in revenue, so we need more people and investments," Zumwinkel says. "We want to increase our market share in the next three years."