Lean Logistics For Importers

    May 12, 2005

Lean supply chain management is a challenge for manufacturers, wholesalers, distributors and retailers. Being lean means removing waste from operations.

Time is the biggest result of waste and drives additional, unnecessary costs and inventory. Managing purchase orders, suppliers and logistics service providers who are thousands of miles away in major different time zones; speaking different languages; with long lead times and transit times; with time required for customs clearance, port delays, homeland security and logistics infrastructure problems; the many different companies that are involved in the an offshore supply chain and financial supply chain involvement put new meaning to supply chain management.

Lean is not just issuing purchase orders to offshore suppliers and telling them quantities, styles, colors, ship dates and what freight forwarder or steamship line to contact to make the shipment. That approach is a series of transactions with little management and control. Instead it is a handoff of tasks to different supply chain participants with no performance metrics. It creates a supply chain that is in expedite mode or does not know what is coming into them and when. That is not lean logistics, and that is not supply chain management.

Lean Benefits. The benefits of lean for importers are significant with managing the flow of products and information:

1) Compressed cycle times

2) Reduced logistics costs

3) Decreased inventory levels

4) Supply chain visibility

5) Improved supplier and logistics performance

Time compression creates opportunities to reduce inventory levels and logistics costs. However firms that do offshore sourcing are, by definition, adding time and, in turn, costs and inventory. Import cycle time also affects the utility, value and placement of inventory. And these affect customer service, sales revenues, inventory-to-cash cycle time and profits.

Lower logistics costs come from the predictability of an operation that does not have waste. Predictability means greater usage of planned modes and planned shipping schedules. It means less expedited shipments at higher cost.

Inventory improvements come from less need for safety stock and faster movement through the supply chain to the store or to the customer’s door. Right inventory, at the right place and at the right time are the norm.

Supply chain visibility means importers manage purchase orders, supplier performance and logistics service. It cannot be done well with emails and faxes. They do this with online technology to provide needed integration. The technology would have exception and event management capabilities so that scheduled events occur or that remedial actions take place quickly. All this removes blind spots in the supply chain that create waste.

Lean Determination. To be lean, companies should first assess their present operation. They must know how effective their practices are. The import supply chain must be analyzed. Firms should define what is expected and then how well the present operation functions.

Companies should analyze their offshore supply chain process. This means making sure that the operation uses a process, both internal and external. Firms can confuse transactions with being a process. The import supply chain is horizontal and crosses many internal department and many external sourcing and logistics firms. Companies that fail to understand the process struggle with achieving lean logistics. Instead of being lean, they force their inefficient practices on their external suppliers and logistics firms. This can compound the inability to be lean.
Common indicators of a non-lean operation include:

  • Poor information flow. Company does not know when a container will arrive and what it will contain. Containers show up at the warehouse with very little notice.
  • Poor product flow. Firm struggles with having inventory flow. The lead time has too much variability. The result is ebbs of inventory bunching and gaps without any inventory.
  • Two performance metrics should be used to assess the operation. One is the perfect order, namely that each purchase order is received complete, accurate and on time. This is clear as to what it means.
    The other is the total purchase order to delivery cycle time. There are three parts to the offshore supply chain-the internal purchase order preparation, supplier performance and logistics performance. The measure should include actions that trigger the purchase order and determine the need. Many firms waste days, even weeks, with the purchase order activity. And that lost time has an impact then on the suppliers’ abilities and logistics service providers’ capabilities to provide the perfect order.

    Another time factor in the purchase order-delivery cycle may arise when orders are placed with U.S. firms who use offshore suppliers, contract manufacturing and factories. Each additional link in this information and product exchange can add inefficiency to the cycle time and to the required lean result. Importers must work with these suppliers to make sure that the lean initiative does not falter.
    Lean Techniques. There is much to become lean to assess and change practices and operations. Some points for importers include:

    Use technology to manage supplier performance and to integrate the movement of information among and between all parties.

    Design a process that is lean and includes all parties and that differentiates among different commodities and products and among different customers.

    Collaborate with key suppliers and logistics providers.

    Link demand and demand planning with replenishment and buying.

    Reduce the number of suppliers and logistics service providers to streamline the supply chain, without sacrificing results.

    Focus on supplier performance; control the supply chain at the international source. The offshore supply chain begins with the purchase order; transportation is a derivative of the purchase order and of supplier performance.

    Understand transport differences and options such as ocean carriers offering different transit times, different sailing schedules, different destination ports and different canals to the East Coast (Panama Canal versus Suez Canal).

    Align your financial supply chain with your trade supply chain. These two chains involve different sets of players with differing objectives and practices.

    Use a 4PL or 3PL to manage your offshore supply chain. Work with a supply chain service provider that understands the total supply chain complexity and operation. His interest should be your supply chain, including your suppliers and purchase orders, not just your freight. The firm should use process, technology and people to do this. The people should be located in the same country and locality as your suppliers.

    CONCLUSION. Firms must be committed to lean. Being lean may require a logistics engineering and business process design for importers; it may require using outside supply chain firms. Lean is not a one-time change; it requires ongoing improvements to take out time from the import supply chain and to make it efficient.

    LTD provides logistics consulting for strategic and tactical needs. The scope of capabilities is broad–supply chain management, outsourcing, transportation, warehousing, inventory management, and more for both domestic and international needs. Clients include retailers, wholesalers/distributors, manufacturers, logistics service providers and 3PLs.