enVista - enVision Newsletter, February 2009

QUESTION: What do pyramids, Albert Einstein, and
the stock market have in common?

ANSWER: Each offer insight as to how companies
should approach their supply chains during these tough
economic times.

Complex supply chain problems cannot be solved with a forward logistics approach that starts at the port of entry or a forward distribution center. In order to run most efficiently, supply chains need to be synchronized from source to consumption, with a focus on optimizing demand and supply and minimizing process variability.

But who is actually doing this? The answer is very few organizations. Case in point, I just received a list of (50+) retailers who are shutting all of their stores or a majority of their stores. I realize that 2008 comp sales are down compared to 2007, but does a negative 10% in comp sales (assuming the same margin) warrant filing chapter 11 or shutting down 50% of a retailer’s stores? If a negative 10% has that type of impact on a company’s bottom line then there must also be tremendous waste from source to consumption. This waste signals an important opportunity to invest in supply chain synchronization by deploying processes and technology that proactively manage variability. Let’s examine how all companies can make changes today to impact profits and losses, and their long-term competitive advantage.

Stop!!! Don’t implement that warehouse management system (WMS), yet. Many companies implement warehouse management systems before the warehouse has been optimally designed. A warehouse management system will not be optimized in a poorly planned warehouse. Is product in the warehouse being moved and stored in the most efficient manner? Is space being maximized? Is warehouse labor being efficiently utilized?

This year hundreds of companies will determine that a WMS is a requirement to help take their warehouse and company to the next level. An optimized WMS will play a key role in allowing a company to better manage their warehouse operations. However, a WMS should not be selected and implemented before the warehouse has been optimally designed. The design plan for a warehouse can be accomplished in five (5) steps. Design planning should be closely followed by detailed planning, and finally implementation planning and execution. The eleven (11) steps that must be completed before a WMS is selected and implemented are listed as follows:

Step 1: Establish A Project Team / Plan Objectives and Priorities
A cross-functional project team should be created. This team will consist of warehouse, information systems and accounting personnel. The team may consider bringing in an outside consulting resource if determined to be a need. The team should be limited to around five (5) members. They will interact to establish the objectives and priorities for the development of the warehouse design plan. The team will quantify these objectives and priorities for use as a guide in warehouse alternative generation and apply as the criteria for the qualitative analysis. The team will obtain a consensus on the objectives, priorities, and evaluation criteria.

The Carrier Experience:
It should come as no surprise that parcel carrier volumes are down. With retail sales down from 5% to 20% year over year, and with new manufacturing orders at their lowest levels since 1980 it is clear that there are fewer packages in the parcel channel. Just like retailers and manufacturers, parcel carriers depend on volume for their revenues. As a result, parcel carriers are feeling the economic squeeze as much as, or more than, anyone else. With DHL leaving the domestic US market, UPS and FedEx can expect some volume spillover, but these volumes are unlikely to offset the overall decline.

What does this mean to you, the shipper? Plenty! As I’ve mentioned many times before, carriers are like any other business entity. Their behavior is driven by their environment and the actions available to them. This means that, to a point, their overall strategies are predictable. Let’s look at some of the areas where declining package volumes may have an impact:

Pricing Negotiations:
The 2008 Parcel Annual Best Practices Survey suggests that carriers have been more aggressive in negotiating contracts over the past year, scoring 6.3 on Parcel Magazine’s scale in 2008 vs. 4.5 in 2007. This impression matches our projections and our experience over the past twelve months. However, the playing field has changed. Once the grab for the DHL business has passed (likely by the end of 1Q09), the overall competitiveness of the market will decline. Combine this with the yield pressures coming from the declining economy and carriers are likely to become more conservative in negotiating discounts. This does not mean that savings opportunities will disappear. It does mean that you need to approach a negotiation in a well-planned, logical way. It also means that detailed qualitative analysis should be applied to proffered programs to determine the bottom line impacts and to ensure that the proposals aren’t just “smoke and mirrors”.

Bradshaw International’s Good Cook kitchenware products are distributed to over 30,000 U.S. retail stores, including Wal-Mart. Originally, Wal-Mart required full case and full pallet shipments to its regional distribution centers but later implemented the Direct Store Delivery Consolidation (DSDC) program. In order to accommodate this program, Bradshaw had to change its distribution system. enVista was retained to help design and integrate the DSDC program. enVista’s expertise in material flow, facility layout and warehouse management enabled Bradshaw to move to the DSDC program successfully and with virtually no disruption to the customer.