For many years, I have been leading customer seminars where we play The Beer Game, a seminal experience used in supply chain education worldwide for at least 40 years. The Beer Game is a simulation or learning experience around systems and “Systems Thinking,” as laid out in Peter Senge’s classic book, The Fifth Discipline. I will not go into the details here but go get the book and read it. Systems Thinking is critical to getting away from organizational silos and understanding how to make your entire system function towards the ultimate goal of your company.
I bring it up in this context because one of the constant questions I am asked by our customers is how to save money in their supply chain. To be honest, what I am typically confronted with is, “I came up with this solution that will make my specific silo look good. Can you implement it within my proscribed assumptions?” Translation: “I want you to do X, and please do not charge me for it.” This is the opposite of Systems Thinking.
Real savings come from a genuine understanding of the entire supply chain and its goals. It does not happen within the logistics silo, the planning silo, or by simply buying better. Real savings happen when you coordinate with all groups, internal and external, and focus on the right goal for the system, or the supply chain in this case.
When customers ask us to engage in these multi-pronged pursuits, companies save real money. I notice they start working together holistically instead of in segments. They stop treating suppliers like commodities and instead understand they are partners in the system. The C-suite is involved in the entire process and do not delegate their supply chain to individual silo owners. Incentives are created to support the goals of the system rather than leaving it to individual parts to achieve savings, at the cost to the entire process.
There are simple things that a logistics partner can do that have a meaningful impact. I will outline four that I believe resonate across industries and have a lasting impact.
Supply Chain Design: First, everything starts with a solid plan. Holding a supply chain design event can seem like a big investment, but it will pay even bigger dividends when done right. The process starts with establishing a baseline and then designing towards an optimum end-state while pulling out the assumed constraints. If you bring the appropriate subject matter experts together with proper facilitation, you end up with a blueprint for change that is well-balanced, specific, and achievable. Many companies will spend millions of dollars on optimization software and still fail to bring together the most important members of the supply chain to design an optimum outcome. A quality design will beat on-the-fly optimization almost every time.
Order Management: The second way to save money in the supply chain is to share and connect data, and this means incorporating your order data into your transportation process. At Expeditors, we call this Order Management.
Your company speaks in terms of parts, orders, and inventory. Each one of your third-party logistics providers speak in containers, airway bills, and kilograms. Connect the dots, and you will find that this gift keeps on giving. When the order data connects to the transportation data, you can predict upstream issues by missed events, manage supplier/vendor performance, measure carrier performance against true expectations, and, most importantly, create predictable end-delivery. The latter allows for minimization of safety stock, commitment to customers and sales, and control of cash flow. Your plan is in your orders, so it is essential to connect those plans to all partners in the simplest way possible.
Digital Twin: The third way to save money links directly back to the first two – get a digital replica of your supply chain, often referred to as a digital twin. At Expeditors, we call this service the Living Model, and it has proven to be very powerful. When you create a Living Model, you have the ability to continually experiment with different scenarios using real data. You can validate/prove that planned savings turn into actual savings, even with changing dynamics. You can test different options electronically and determine if you are likely to achieve the expected goals and surface potential unplanned repercussions of the change. You can feed your design theories into a model to prove them out, and then backfill with order management data to confirm savings on implementation. Supply chain design, order management, and a digital twin work very well together, and the most efficient and effective supply chains always lean on these three parts.
Delivery Management: I want to round out this list by addressing the final mile with delivery management. You can put in the effort to design a great supply chain, connect the data for visibility and control, direct that data into your digital twin for validation, but still miss on getting the products delivered as expected. This is often due to ever-changing market conditions, such as storms, strikes, carrier capacity, receiving capacity, road conditions, port congestion, and so on. Having a partner who can watch over the final mile and actively manage exceptions is critical. Control towers can provide a nice snapshot, but delivery management is most effective when it incorporates people, process, technology, and the proper incentives to get cargo delivered on time with minimal to no storage costs (at least the external ones), and clear execution metrics for providers. Companies can hire their own legion of people to manage this or decide to entrust to a company that already does this as a core competency.
During my time in this industry, I have talked to hundreds of companies about these cost-saving concepts. I have seen varied attempts, uncovered best practices, and witnessed horrible failures. In the end, I encourage you to find a partner you trust with practical solutions and experience. Focus on design, data connection, data modeling, and delivery execution.
