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Del Williams

Supply Chain

Are You Ready For a Disruption In Your Supply Chain?

No bricks without straw

Published: Monday, January 23, 2006 - 23:00

After Hurricanes Katrina and Rita, vulnerability to a growing number of potential disasters and disruptions has U.S. manufacturing executives turning to sophisticated third party logistics (3PL) providers to safeguard their brands at the end of the supply chain. "Major quake in California. Avian flu in Chicago. Dirty bomb in New York. THE NEXT BIG ONE," reads the cover of a recent BusinessWeekmagazine. With Hurricane Katrina costing an estimated $200 billion and displacing up to a million residents throughout New Orleans and the rest of the Gulf Coast, followed by Hurricane Rita, the business disruption caused by recent natural disasters is immense. So is the disruption caused by acts of terror such as Sept. 11, which caused immediate nationwide airport lockdown, followed by stricter security measures for passengers and shipping.

While the likelihood of any single disaster wiping out an organization’s entire manufacturing capacity is still slim, the probability of disasters seriously disrupting its supply chain and damaging its brand is disturbingly evident today. And let’s not forget the disruptions caused by labor strikes, blackouts, the absence of key employees, or other sometimes unavoidable incidents.

With the costly consequences of disregarding the force of disasters (labeling a hurricane category 3 when a category 5 is warranted, as in New Orleans), U.S. manufacturing executives are increasingly aware that their supply chain logistics and their brands must be safeguarded against whatever surprise may come. For the sake of their brands, they’re turning to sophisticated third party logistics providers to ensure the prompt delivery of finished goods to customers at the end of the supply chain, where the cost of building/upgrading in-house warehouse management systems is excessive and logistics expertise is needed.

"Executives typically focus on strengths and opportunities while glossing over weaknesses and threats in analyzing ventures," says Kathy Krueger, COO of Kenakore Solutions, a 3PL provider that devises supply chain management solutions for manufacturers. "But recent disasters vividly show how such threats can disrupt the supply chain, causing missed deadlines, stock outs, botched delivery, or other brand-damaging mistakes that spur customers to go elsewhere. That’s why shock-proofing the supply chain and optimizing inventory to protect your brand in the marketplace is so important today."

Sophisticated 3PLs can do much to shock-proof the supply chain to prevent revenue disruption, unexpected expenses and brand damage. They go far beyond typical in-house production planning and do far more than just the routine functions of a standard third party logistics provider—offload, store and ship product. Instead, they partner with the company to protect the performance of its brand, ensuring that customers receive what they ordered, when and how they need it.

To safeguard customer commitment and optimize inventory levels, 3PLs coordinate supply line variations from global, domestic and regional sources to ensure on-time production and shipment. They do this transparently, so the company’s brand receives all the attention. To achieve this, they fully integrate with customers at all steps of the supply chain: shipment, invoicing, inventory management and reconciliation.

"When a company orders from us in today’s competitive, just-in-time environment, it’s critical that they get what they need on time, the first time—not late or in multiple shipments due to unexpected disruptions or problematic logistics," says Terry Holcomb, general manager of Betts Spring’s vehicle component manufacturing division. Betts Spring, a manufacturer of vehicle suspension components, truck parts and accessories, has a 138-year history and is based in San Leandro, California.

"There’s no room for stock-outs or delays, and customers must not get the mistaken impression they’re dealing with a disinterested third party operator," adds Holcomb. "With Kenakore we’ve achieved a 98 percent first-time order fill rate in one day even though we’re based on the West Coast."

Sophisticated 3PLs can achieve high-order fill rates while insulating a company from supply chain distress through optimized logistics and inventory analysis, which also maximize inventory turns and return on investment (ROI). Such providers do all this and more, so the customer doesn’t have to turn its own ongoing capital investments in logistics, which can run an initial half-million dollars or more.

Dana Corp., a partner to automotive, commercial and off-highway vehicle customers with employees in 28 countries took in $9.1 billion in purchases in 2004, and understands the importance of optimizing the supply chain to better service its customers.

"To succeed in the future, companies will have to master their supply chains," said Vicky Black, vice president of Dana Corp.’s service parts division. "It’s not just a matter of being efficient, but of satisfying the customer at the two main points of contact—at the point of sale and at the point of delivery. Because so many products are becoming commodities with global competition, product availability and on-time, error-free deliveries are becoming essential differentiating factors in making the sale."

Recently, Dana Corp. relied on third party logistics for warehouse management, product consolidation, kitting and packaging. In analyzing order patterns and product inflow/outflow, the logistics provider was able to identify Dana Corp.’s fastest selling items at a distribution center.

"While we had good product availability, we wanted better," explains Black. "With all the resources that go into R&D, production and marketing, we certainly didn’t want to miss the last link of the sales chain. In a competitive marketplace, that could be the difference between making the sale or giving it to a competitor."

"Acting on inventory analysis, we improved the product availability of our fastest selling products by 30 percent," continues Black. "Further analysis of our order and product inflow/outflow patterns also helped us automate order entry, allowing us to cut the lead time on thousands of products."

In a business landscape left uncomfortably aware of its vulnerability after Hurricanes Katrina and Rita, not to mention Sept. 11 and its aftermath, U.S. manufacturing executives can rest easier knowing that in safeguarding their supply chains with 3PL partners, they can also help maximize inventory turns, ROI and, ultimately, brand satisfaction.

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About The Author

Del Williams’s picture

Del Williams

Del Williams is a technical writer based in Torrance, California. He writes about business, technology, health and educational issues, and has an M.A. in English from C.S.U. Dominguez Hills.