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Redesigning Fulfillment: A New Strategy for New Challenges

It is a brave new world in supply chain management (SCM). Traditional definitions and processes are now viewed in a new light. For example, storage and delivery networks—historically (and often times erroneously) viewed as cost centers—are now viewed as strategic assets to fuel differentiation and drive growth. Manufacturing plants are increasingly being reshored. That means, in the global flow of goods, the point of production is moving closer to the point of consumption both geographically and logically. Consumers continue to embrace multi-channel shopping and buying. All of these changes bring positive opportunities for any operations or supply chain manager.

Of course, with new opportunities come new challenges. In order to fully capitalize on these opportunities, supply chain managers must explore new strategies, increasingly powered by automation and mechanization. Success will require first utilizing the imagination required to re-engineer operations; and then moving forward with the confidence to realize that vision by utilizing the full set of technologies and tools now available.

New environment, demands and opportunities

We witnessed change incrementally for some time now, with technology evolving to meet new needs. Recently, however, this technology evolution became more rapid. The ability to know with precision the location, identity and condition of assets and materials in the supply chain in real time creates new opportunities for speedy, agile and efficient operations. This new capability has been called pervasive or extreme real time. And when properly leveraged, it can be transformative in any significant supply chain operation.

In this new environment, everything operates in real time. Data flows upstream and downstream from the storefront to the warehouse and back into the supply chain. Accuracy is at a premium—protecting both business profitability and the end-user experience. Replenishing the store can now happen as frequently as necessary with the right line items in whatever quantities are actually required.

Manufacturing facilities can better track assets and forecast deliveries with greater accuracy. The warehouse and distribution system can now be as simple or sophisticated as required; and can be adjusted with greater ability to respond to market demands or segmented and customized for a particular set of goods. Fulfillment is no longer a perfunctory task—it is the core of business strategy.

For example, in retail environments, consumers have more power than before to find the right product at the right price. As such, retailers must strive to create a more personalized experience for each shopper—ensuring availability of the right product at the right time and increasingly also in the right place. Thus, fulfillment and delivery are just as important as price considerations for these consumers.

Inventory in the storefront, wholesaler facility or manufacturing plant needs to be supported by a strong, organized warehouse and supply chain with data tying everything together. Maintaining accurate inventory in the store was considered difficult, expensive to sustain and was often comprehensively reconciled only quarterly. Location-level inventory accuracy in the warehouse, however, has long been seen as foundational to effective and efficient operations. These two environments continue to consolidate as procurement and fulfillment paths cross between them—and the line separating their traditional roles in the supply chain blurs.

Four steps to a new fulfillment strategy

The challenge might seem large but the potential payoff is worth it. Strategic advisors with a strong legacy of working within and providing solutions for warehouses and distribution centers can help smooth the path. The process of optimizing operations to meet these changing market demands can be accomplished in four fundamental steps.

Define the Vision—What does an ideal storage and distribution network look like for your business? Different industries have unique pressure points. What works for an apparel retailer might not work for a specialty food grocer. What works in one region for a national wholesale distributor might need to be tweaked for a different region. Keep in mind that you’re not quite working with a blank slate since you have an established business. But, given the new realities of the market, what do you need to do to compete? Dare to be bold in this step. Think about the biggest constraints holding you back from achieving your vision and seek out market leaders who can help you overcome them—including technology. So many technologies have matured in just the last couple years that you might be surprised at what is possible.

Implement Your Vision—What has to happen to actually implement your vision? This operational step also enables new decisions about where to put goods in the supply and distribution chain. Balancing facility, inventory and transportation costs is a daunting but necessary challenge in this new business environment. For example, smaller, more frequent store replenishment shipments can drive distribution center design requirements. Alternatively, more aggressive supplier collaboration combined with effective real-time systems can make cross dock operations a more effective alternative than in the past.

Inbound goods can be tracked with precision and pre-allocated for stores or customers. Inventory can be assessed more frequently and at a more granular level. Product/part replenishment can now be done more often or less often depending on your operational needs. Perhaps the whole supply chain can be consolidated closer to the point of consumption. This operational step drives new practices and policies that can be powered by technology.

Invest with Technology In Mind—The goal of an investment in technology is to get every person and item in your fulfillment process engaged in the same data-driven system. People continue to be critical assets in this new system. From the sales associate to the warehouse picker and onward back into the upstream supply chain—everyone should be working with, reading from and feeding into the same data set. While data mining might be part of your operation, this is not first and foremost a “big data” system. Big data, together with worker mobility, increases the smooth flow of information for people to take action at the point of work. In addition, mobility feeds big data sets regularly with more accurate, timely and validated information.

These real-time needs drive new types of technology choices. For instance, RFID—around for several years—tended to operate at the pallet level in the warehouse or for returnable transport items (RTIs) in manufacturing facilities. RFID scanners were geared toward scanning pallets, often as they passed a fixed reader. And now, RFID matured to the point where item-level tagging is possible and drives a granular view of the business operating in real-time, whether in the storefront or in the warehouse.

But item-level RFID isn’t for every application. Many businesses will see huge gains in productivity and efficiency by leveraging GS1 barcodes and advanced shipping notices (ASNs) at the inbound and outbound material handling points of their warehouses and distribution centers—which will require a different type of investment in technology. As more data becomes available in real time and is accessed on a broader set of mobile devices, wireless network infrastructure must be reviewed to ensure it has the capabilities and performance characteristics required to meet stringent business needs.

Collaborate the Right Way—Improving collaboration with suppliers and customers is more important than ever. It might seem to some that the collaboration step should come much earlier as it holds great potential for major reductions in friction throughout the supply and demand chain. However, I would caution against that approach for two basic reasons. First, by incorporating partners too early, you will raise the complexity of what you are doing exponentially and delay any implementation. Second, optimizing your own operation first gives you a credible and informed starting point in tackling the upstream challenges and downstream demands of your trading partners.

Should you defer making your own improvements until these collaboration efforts yield fruit? No. While in some cases( like the cross-dock example) co-development and co-planning with suppliers and customers is absolutely critical, it’s typically prudent to first focus on getting a good foundation in place with enhanced internal operational capabilities before launching into a comprehensive review with your primary trading partners.

Changing your internal processes and modernizing your business systems will illuminate current areas of greatest friction; and may create new opportunities for collaboration with your partners. Given your new ability to act on real-time information, you might want lot sizes to change to adjust your delivery schedules; or you might want to explore comingled transport arrangements. Once you have your own operation optimized, any efficiency you gain upstream or downstream provides you even more leverage than it would otherwise.

Will you evolve your supply chain?

The end-to-end supply chain can now become a single streamlined operation—unified by data across your operations and your customers and suppliers as well. Business models continue to evolve and change in response to new market dynamics and consumer-driven demands. These changes present the dawn of a new era for the operations or supply chain manager. Imagination and confidence to act on the possibilities that new technologies present are the key differentiators between those who will capitalize, and those who will not.

Mark Wheeler is Director, Supply Chain Solutions for Motorola Solutions Inc., Schaumburg, Ill.

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