BY Jovy J. Jader
Supply chain collaboration: It's not a choice
02/05/13
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January 04, 2011
Eliminate, Simplify, Integrate
BY Jovy J. Jader
The 99% Service Ideal
Being one among the multitude of shoppers this past holiday season, I couldn’t help but be amazed at how quickly frantic shoppers snapped up supermarket groceries and how frenzied product merchandisers tried to keep store shelves filled.
At the fruit cocktail section of the supermarket, it was easy to tell which brands would likely come out on top in terms of volume sales last December.
These were the ones that were constantly visible and available. While the competition’s lower price tags gave them an edge among penny-pinching consumers, the fact that their products were out of stock had offset this leverage.
The yuletide season is always a test of operating capability for many firms. Whether it is in transportation, banking, fast-moving consumer goods, telecommunications, or in food service, industries are bound to experience their share of customer service failure—a situation that arises when demand for products and services exceed forecasted expectations and operating capacities.
And it isn't as simple as a factory unable to produce enough or a passenger shipping line not having sufficient vessels. It can be that at one moment there aren’t enough trucks to deliver the goods or there aren’t enough porters to handle the influx of cargo.
Service failure occurs when a weak link in the operations sequence or supply chain just does not correspond to the demand, and this is a recurring nightmare for operations managers. It manifests itself in long queues, delivery delays, order cancellations, and out-of-stock incidences, all of which result in customer dissatisfaction, which in turn brings about lost sales opportunities.
This headache is compounded when it is discovered that what the company has in excess are items that cannot ease the service failure problem. It is at this point that operations managers get drubbed by their executive superiors and their career paths become potentially compromised.
Operations managers push for a single ideal situation: to ensure a 99% service level to the firm’s customers. This virtually means serving client orders perfectly, if not almost. They address three areas to achieve this scenario:
Demand Capture. To know more about demand, firms must place themselves where it is taking place. At the very least, they should have processes that immediately capture and communicate customer demand. For instance, multinationals deploy point-of-sale (POS) systems to track consumption in real-time, and vendors manage inventories at their customers’ warehouses for them to have up-to-date data on usage and trends. These processes, however, must be suited to a supply chain’s complexity. For instance, POS systems may be applicable for supermarkets, but would they work for sari-sari stores?
Response Capability. After the firm captures demand, it must communicate it to concerned functions in the organization so the latter can respond accordingly. POS and feedback systems can feed information about the bestselling items and which stores stock these in large quantities in a given period. For instance, bakeries in the provinces may show high demand for pan de sal while those in the cities may register considerable demand for cakes and pastries. Operations managers can tailor their production and transport systems based on these data feeds. Vendors of shortening and margarine (key ingredients for bakeries) can preset their schedules to cater to provincial shipments versus local city deliveries, depending on the respective volume demand.
Standby Capacity and Inventory. Ready standby capacity is an ace up the operations managers' sleeve. Cooked ham suppliers often enlist additional truckers to deliver against expected surges in orders. Onion farmers and middlemen reserve cold storage space a year in advance to ensure that they will have the capacity to build inventories as harvests arrive before the December buying spree. Operations managers preferably want large inventories but as financial targets for lower working capital become more aggressive, they also have to balance these with the firm’s production plans, and back it with augmented logistics capacity such as in leasing additional warehouse space, outsourcing production, and reserving extra transport capacity.
Achieving the ideal 99% customer service level may require investment in systems, infrastructure, and processes but if planned well, it may reap significant benefits. If managers can successfully capture demand, respond capably, and plan for extra capacity, the holiday season may be a time not for stress but for business success.
Mr. Jovy Jader is a consultant and regional speaker on Supply Chain Management. He has directed and implemented Supply Chain Management projects both local and international which have resulted to company-wide improvements in inventory, total cost, response time, quality, and on-time delivery. Mr. Jader was formerly with Procter & Gamble Philippines and Coopers & Lybrand/PricewaterhouseCoopers. Should you have questions or comments e-mail to jovy_esi@yahoo.com.
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