A Practical Methodology For Restructuring Supply Chains

A Practical Methodology for Restructuring Supply Chains
T. Ron Gable CEO - Scientific Logistics 75 Fifth Street, NW Suite 363 Atlanta, GA 30308 USA (ron.gable@scientific-logistics.com) H. Donald Ratliff Executive Director – Supply Chain and Logistics Institute UPS Chair and Regents’ Professor School of Industrial & Systems Engineering Georgia Institute of Technology Atlanta, GA 30332 USA(don.ratliff@isye.gatech.edu) BACKGROUND Over the years we have been asked to support a variety of projects aimed at evaluating and restructuring supply chains. Virtually all of these requests are triggered by either an acquisition or a corporate cost reduction initiative focused on identifying and rooting out redundant costs spread across multiple divisions. The core trade offs are typically associatedwith the degree to which a company should consolidate supply chains that serve multiple business units or territories and the processes for eliminating variability and waste for each level of consolidation. While it is intuitive that the overall cost of operating consolidated supply chains is less, it does not necessarily follow that the best strategy for a multi-division company is a singlesupply chain that supports all divisions. Customer service requirements, competitive practices, sales policies, geography, freight profiles, technology requirements and many other considerations must be weighed to determine the most appropriate supply chain strategy. The following concepts for how to best tackle projects of this nature is the result of having supported this type of project dozens oftimes across multiple industry segments. The methodology we share in this document is intended to serve as an initial framework for companies contemplating such projects. OBJECTIVES While every organization is a bit different, the fundamental questions driving management’s thinking in projects of this type are typically: • • What is the magnitude of any potential cost savings? What is the likelyimpact on customer service?

1

• •

What are the requirements for executing the new strategy? What are the associated business risks?

Logically, if the opportunity is significant and has minimal/acceptable risks, then an actionable plan can be developed and launched to achieve the savings. On the other hand, if the opportunity is relatively insignificant and/or the business risks are high,then no action will likely be taken. Therefore, there is a need for a proven methodology that efficiently addresses these overarching questions. METHODOLOGY Three key ingredients are necessary to execute this methodology successfully – knowledgeable people, accurate data and analytical tools. Those ingredients are intertwined throughout the 10 step methodology below. Step 1: Identify and selectproject team participants. Careful consideration should be given to the composition of team participants. The overall project leader should be someone in the organization that is well respected as an open-minded practical thinker that has a reputation for getting things done. Ideally, he/she has a solid overall understanding of the physical nature of the companies supply chains as well as thebusiness process linkage to sales, finance and IT. The balance of the team should be selected based on functional expertise and ultimate “ownership” of project results. Each organization culture is a little different, but usually transportation, distribution center operations, IT, customer service, sales and finance are represented in some fashion on the team. Other crucial skill sets includeexperienced logisticians that are proficient using state-of-the art technology, particularly optimization and simulation programs. Step 2: Document service requirements. The “ying and yang” of any discussion about supply chain cost is a discussion about supply chain service. After all, the only reason any supply chain exists is to support a business plan. The business plan should identify market segments...