Managing Complexity While Reducing Costs

Food manufacturers and distributors are coping with the proliferation of SKUs, lack of supply chain visibility and increasing customer demands with technology.


This has also allowed us to develop a buying department where buyers focus on point of origin. So each only has to be familiar with 100 different vendors within a certain market, but they all feed into 10 different DCs. That led us to the supply center concept we started in 2007, and we’re not quite there yet, but we’re evolving into a situation where we’re developing supply centers for slow moving items, close to their vendor base, with weekly replenishments to our DCs that are not tied to any minimum order quantity. This way we can reduce spoils while improving customer service.

These types of operations would be extremely complex to do manually, but our buying systems enable us to manage our supply center as if it were a vendor feeding our DCs.

In what areas has progress on supply chain optimization moved more slowly than you’d have anticipated?

Nardone: If you look back at Efficient Consumer Response and its promises to create all this extra value, the results haven’t come as fast as anybody expected for a number of reasons. One was all the merger and acquisition activity, which got everyone focused internally instead of externally with trading partners. That was a distraction. Then there’s been the huge increase in business complexity, including SKU and trade channel proliferation, globalization and outsourcing.

Initiatives like collaborative planning, forecasting and replenishment (CPFR) have not delivered as expected, their gains reduced somewhat by these business issues. You also still see some reluctance to collaborate among a lot of companies.

In at least some quarters, though, this barrier is starting to break down. In the last three to four years I’ve seen some big improvements in collaboration, not with everybody, but at least with key accounts. You can’t be everything to everyone, but you do see companies starting to form alliances in different trade channels, focusing on partnerships and putting in the resources to field customer-focused teams, so the trust issue around collaborative activities has, in recent years, vastly improved.

Even within companies, some are still struggling against the silo effect. Aligning all an organization’s activities around the same objectives is still a huge challenge for many enterprises. Here, one useful tool that’s starting to gain traction is sales and operations planning and execution software. If you use this sort of technology to drive a really sophisticated sales and operations planning process, it becomes a powerful integrating factor enabling businesses to get all their activities aligned.

Given the fact that so many improvements in logistics and order management are highly dependent on data accuracy, I also would have thought efforts to improve data synchronization between trading partners would have moved faster by now. Some people have gotten on board, but progress has been a little slow.

Sieberg: Where we’ve so far fallen short in the food industry is the lack of standardization, not just in data, but in business processes and operations. For example, pallet exchange is still a common practice, using lumping service is a common practice. Part of the problem is that everyone still looks at processes mainly from within their own silos, rather than looking at how to optimize efficiency overall. In contrast, railroads may not be the most efficient organizations in every regard, but certainly they have standardized a lot of processes so that containers can move from one network to another without any involvement by customers.

What do the next 10 years hold as far as new technology and systems to support supply chain optimization? What items should be on every supply chain manager’s agenda?

Nardone: The next big thing is sales and operations planning. You absolutely need to have a suite of planning systems that marries demand and supply. If you think about how many SKUs both manufacturers and retailers need to mange today, you see there’s no way to do it without significant computing power and tools that can improve both forecasting and operational execution.

As a general category, any technology or software that improves end-to-end visibility in the supply chain or provides decision support tools around that expanded view will provide big gains. The holy grail is connectivity between the shelf and the supplier. Anything that works in that space to create connectivity and give people tools to see what’s going on that’s important, is key. With how complex supply chains are today, there’s no way humans can look at everything, so you need tools to identify exceptions and help manage your response.

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