by
Fred Kulach, VP
Business Development, Progistix-Solutions Inc.
as
printed in The Globe & Mail
April 19, 2004
Increasingly, companies are outsourcing large portions of their business as they differentiate between core, strategic and non-strategic business activities. The number one reason: cost reduction – a highly visible part of any company’s income statement. In the debate between core and non-core activities, however, progressive companies look to outsourcing not only to reduce costs, but also to provide competitive market advantage and service differentiation. When it comes to making decisions that can turn supply chain performance into cash, more companies could benefit from strategies that align organizational and divisional goals.
Alignment is key. A recent study by Cap Gemini Ernst and Young found that over 75 per cent of chief executives and chief financial officers cite cost reduction as the primary supply chain directive. Delivery becomes the responsibility of the organization’s supply chain professionals. But while senior executives view logistics as a strategic component of their business, compared to their supply chain counterparts responsible for operations, they are nearly two times more likely to view logistics as a cost centre, and only half as likely to view logistics as a service centre. To resolve this issue, industry- leading companies make organizational alignment a priority and set goals accordingly.
Beyond traditional outsourcing of information technology (IT) or manufacturing functions, progressive companies understand the direct connection between highperforming outsourced supply chains, revenue growth and better customer service. These companies link supply chain priorities directly to corporate strategy because it is here that organizational alignment offers the greatest benefits.
Before any company can begin to maximize its supply chain performance, however, it is critical to establish current performance metrics. These metrics, compared with industry benchmarks or best-inclass indicators in key supply chain areas such as perfect order, inventory accuracy, fill rate, delivery performance and others, will help determine which aspects of the company’s supply chain may warrant investment and focus.
The comparison between supply chain metrics and best-in-class objectives, however, should also help the company set “the right” performance goals. For example, if a company doesn’t accurately measure “inventory accuracy” today, is “zero-shrink” an attainable short-term goal? Will rapid “order-to-delivery” cycles increase sales if clients will not pay the incremental costs associated with faster delivery? Is “perfect inventory visibility” worth the IT investment and the additional business process complexity required to achieve it? Good organizational alignment integrates customer and operational strategies and creates a common framework for executives to manage the business.
When setting out to maximize supply chain performance, a key choice arises: should the company go it alone or work with a logistics services partner? There are strong reasons to take the latter path, but caution should also be exercised.
Leading logistics services providers leverage investments in people, process and technology to attain benchmark performance levels. Driven by the service demands of Fortune 500 clients, service providers such as Progistix invest heavily in world-class technology such as SAP Warehouse Management, which in turn is made available to new clients. Tight service level agreements motivate the logistics services provider to build exceptional business process design and execution capabilities. These same service level agreements motivate the outsourcing firm to adopt continuous improvement as an organizational imperative. Constant measurement across multiple performance dimensions creates a clarity of purpose and precision thinking for the outsourcing firm that few in-sourced operations can ever achieve.
Before procuring logistics software or services, however, heed this caveat: the marketplace is filled with vague promises of inventory reductions, faster “order-to-cash” conversion rates and improved customer service. The best firms, however, will help you build your business case and identify the real improvements and cash benefits that a high-performing supply chain will generate. The proof will be found in the service provider’s supply chain design and execution capabilities. See what they measure, and how well and often they measure.
Beyond cost improvement, precision thinking – and action – will turn the supply chain into cash.
Progistix is one of Canada’s largest third-party logistics services companies and specializes in one-stop logistics solutions for companies in the technology, telecommunications and retail industries.
