A FIVE-PART BLOG SERIES
Written by Phil Fisher, PLG Senior Consultant.
This five-part blog series will help company management for buyers, sellers, transportation providers (truck, rail, pipeline, barge, ocean), and terminals/warehouses who handle any bulk commodity understand best practices in supply chain optimization (SCO). We have outlined practical tips on how organizations can better uncover issues around reliability, management focus, inventory costs, demurrage costs, and other supply disruptions from the different transportation modes. Phil Fisher’s in-depth review guide should provide companies with a better understanding of their supply chain, its strengths and challenges, and steps to achieving SCO optimization.
The blog series will include:
Part 1 Introduction
Who should consider Supply Chain Optimization (SCO) and Why?
Any company who is a buyer, seller, transportation provider and/or are terminals/warehouses that handle any bulk commodity should consider SCO, if the following scenarios or discussions are occurring within your organization:
- Concerns about reliability as shown by deteriorating relationships with suppliers and customers
- Perceived fragmented focus on managing all supply chain issues
- Inventory too high (cost) or too low (delays)
- Costs of demurrage and other supply disruptions from truck, rail, barge, pipeline, terminal/warehouse, or ocean vessel that result in re-routing costs, lost sales, or reduced reliability
Then your organization is already thinking in this direction.
For larger scale, multiple supply points and destinations,
a ‘network analysis’ may uncover a lower total cost network between the various supply points, destinations and transportation modes.
Supply Chain Optimization (SCO) vs Block Chain Optimization (BCO) Definitions
- BCO is the instantaneous sharing of all the information elements (dates, times, quantities, actions, outages, delays and their respective causes) to/from all the participants in the supply chain for better management and coordination.
- SCO is not focused primarily on data, but instead on optimizing all the physical, scheduling, contracting, activities and equipment within the supply chain.
However, best practices SCO needs BCO where all elements of the supply chain are involved in information sharing.
Top 4 High-level Questions that Lead to SCO
- Management Organization – Is it fragmented or single-management of supply chain across functions?
- Information Flow – How do the various elements of the supply chain communicate relevant and current information to each other? What are the various formats of such information exchange among the supply chain? Do all elements have what they need when they need it?
- Reliability – How do customers and suppliers view your reliability?
- The Future – What are new market opportunities, expansion plans, different products or grades that the supply chain will need to handle?
Regardless of commodity or transportation mode, organizations can answer these questions through interviews and organizational chart review.
Top Operational Challenges in a Supply Chain
- Capacity Fitness – Are capacities and utilization rates of all elements aligned?
- Practice vs. Contract Terms – Where does actual practice (scheduling, meeting contract min or max, tonnage ratability) differ from transportation contract terms, and why?
- Equipment – What are the age, condition, and technology and is there a capex budget for replacement or upgrades? Is there a history of breakdowns classified by cause such as operator error or equipment failure?
- Demurrage – Is there high demurrage cost at any point in the supply chain and what are the causes?
- Source (seller/producer/supplier) Disruptions – Are there lost production events, and if so what are the causes? Lost production can deal a serious blow to both transportation and buyer contract minimums, as well as deterioration of buyer relationships.
- Transportation Mode Disruptions – Have there been disruptions resulting in extra costs or deterioration of reliability? These can include barges suffering from high or low river levels or lock outages; rail suffering track outages, derailments, crew scheduling, and limited track capacity; pipeline shutdowns for repairs, leaks or ruptures, product or grade contamination; ocean vessels suffering various equipment, crew and storm delays.
- Destination (buyer, distributor) Disruptions – Have there been situations where destination inventory being full or destination unloading equipment outages delaying the unloading causing demurrage and/or disrupting future delivery schedules?
- Inventory Costs/Effects – Have inventory guidelines or targets been established at the various storage points? Inventory can be a helpful tool to protect against product shortages, or can be abused by storing more than justified. It depends how inventory is valued versus the risks.
- Terms – Are the contracting terms among all the players (expiration, renewal, min/max limits) aligned?
Understanding your organization’s unique challenges requires digging into your various transportation contracts, operational history and maintenance records to find inventory levels, rates, costs, causes, and contract terms.
How to Start an SCO Study and the Potential Outcomes
Every situation is different, but a company desiring to improve their supply chain to be fully optimized typically starts out with a Scope of Work (SOW) that clearly identifies which of the above typical questions and operational challenges will be addressed and the deliverables required. The outcomes of a study may include:
- Strengths and weaknesses of current supply chain
- Recommended changes to contracts, operational practices, operational budgets, maintenance, record keeping, management structure, information flow for improved reliability based on risk assessment
- Capital budget and schedule for replacing/upgrading relevant equipment in supply. Some may be clear payouts, while others will help avoid serious downtime of the supply chain due to outage of a major piece of equipment
- “Best Practices” that are workable, economic or strategic
- No change to selected identified challenges because the current practice (albeit higher cost) is highly reliable or better for the customer/supplier relationship
These outcomes will provide company management with an in-depth review of their supply chain, its strengths and challenges, and a roadmap for achieving SCO.
Need Help Getting Your SCO Study Started – In-House or Hire a Consultant?
The advantages of using PLG as a consultant:
- PLG Consulting starts with your business objectives to ensure the project outcome delivers results.
- Our team has decades of unique and specific expertise, including experienced professionals who have led the supply chain organizations of other major shippers. In other words, we have ‘walked the walk’ of senior executives looking to improve supply chain performance and lower costs, and specifically within the unique arena of dry and liquid bulk commodities.
- PLG dedicates resources to provide analysis and solutions that are practical and actionable. And, we can help you implement it.
Read our SCO Case Study:
Water Infrastructure Product Manufacturer saves $4.7 Million after Optimization
Coming Soon: Part 2 of Achieving Supply Chain Optimization for Dry or Liquid Bulk Commodities
Example A: SCO for a Simple Supply Chain with Trucking & an Export Terminal
In our next blog series, we will share a simple supply chain example from the Producer/Supplier perspective with one source location, one destination location and one transportation mode. Stay tuned!