Transportation and the Efficient Supply Chain
Posted on 22nd February 2018 at 15:22
Transportation and the Efficient Supply Chain
When you are buying goods, irrespective of if they are raw materials for your manufacturing process or MRO items to keep things working, you need to consider the transportation of them to their destination. Transportation is never free. You might not be charged for it, but somewhere you will be paying for it. It is an essential element in the supply chain and getting it wrong can cause all sorts of problems (to the extreme of shutting down 80% of restaurants of a particular fast food chain).
Not all goods are easy to ship – box them up, put them on a truck and they are gone. Fragile items need extra packaging, frozen items need to remain frozen, hazardous items need specific driver requirements. Shipping can be expensive. And so can getting it wrong.
A number of key learnings that have been identified by Supply Management around the appointment of DHL by KFC (Five lessons from the KFC chicken crisis, 22/02/18), but this can be rolled out not only to transportation but also to any supplier within your supply chain.
1. Do due diligence, covering not only financials but also what other companies the supplier supports and what capacity they have. The basic procurement cycle looks at Ray Carter’s 10C for evaluating potential supplier and in there is capacity, capability and cost. Cost should not be the main driver – it’s always good to save money but it isn’t always the cheapest supplier that should win the contract.
2. Have a trial period by putting a small element of the contract with your new supplier to test the water. This might be a small part of your packaging portfolio to test quality and ability to supply before putting all your boxes and packing with them. It allows you to pull back should anything go wrong without critically impacting your business.
3. Weigh up the risks. Considering moving suppliers and shipping companies should include the completion of a risk analysis. What would be the impact to your business if it goes wrong? Is it worth it? What are the savings being made and how would a loss of sales impact these savings? For KFC, any savings have been blown out the water by the losses incurred.
4. Contingency planning, not just for your business but also by the new supplier should there be issues. Do you have a back up supplier or are you moving yourself into a single source situation unnecessarily? If your new supplier can’t cope with all the new business, do they have a backup?
5. Get the contract right. All contracts should contain agreed remedies for failure, but have you considered what could go wrong? Do you have enough protection and have you unwittingly signed away any supplier liability?
Pro Outsourcing have a proven track record of helping our clients to not only conduct global sourcing projects but to also perform contract reviews on their tail-end spend and improve supplier performance through focused supplier relationship management. We can help you avoid getting it wrong.
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