Whether the goal is securing a competitive advantage, or maximizing shareholder value, virtually all companies today are seeking ways to reduce logistics costs. Their efforts can take many forms, as these cast studies show.
In two of the examples, a manufacturer, United Sugars, and an organic foods distributor, United Natural Foods Inc., have turned to outsourcing to enable their operations to provide superior service at a contained cost.
The other case study, describing Procter & Gamble's use of real-time forecasting, shows how the global manufacturing giant is decreasing logistics costs by going straight to the source: by minimizing the volume of inventory needed in its supply chain to support sales, through improved forecast accuracy.
P&G's project demonstrates the continuing opportunities available to apply ever more sophisticated information technology to problems like supply chain design and management, thanks to Moore's Law.
"We really couldn't have done 10 years ago what we're doing today. Then it would have been cost-prohibitive, because you would have needed a whole server farm to handle all the calculations required daily," comments Robert Byrne, president, Terra Technology, which developed the real-time forecasting tool now being rolled out by P&G worldwide.
In their utilization of third-party logistics, United Sugars' and UNFI's cases illustrate some of the latest evolution in partnerships between 3PLs and clients. In both examples, very tight integration between the principals and their logistics providers, achieved through a combination of close personal collaboration and supporting IT architectures, is enabling these food companies to reap expanded benefits from outsourcing.
By treating their third-party logistics partners as integral parts of their distribution organizations, both companies are enhancing customer service and holding the line on costs, while maintaining or increasing their flexibility and agility—and, at the same time––allowing management to concentrate on growing their businesses by focusing on their core strengths.
Real-Time Forecasting Delivers For P&G
As a leader in reducing supply chain costs, Procter & Gamble already enjoys highly efficient logistics operations. To further economize, the company recently looked in a different direction, in effect, straight to the source, by implementing a new Real Time Forecasting solution from Norwalk, CT-based Terra Technology.
This expert system augments and improves traditional demand planning programs by combining real-time data with advanced mathematics to cut forecast error dramatically.
Piloting the program in Western Europe last year, the CPG giant reports it reduced forecast error by over 30 percent. This translated into a better than 10 percent reduction in inventory.
"When you reduce forecast error, there are three things you can do: reduce inventory, improve service levels, or smooth out your production planning or supply chain operation. We said we're satisfied with our service levels and operational costs, so we'll take our savings in inventory," says Mark Kremblewski, global business expert in demand planning with P&G.
Terra's RTF system is not a forecasting solution per se. Rather it is a "black box" piece of software that takes existing forecast information from the demand plan, combines it with other real-time data like daily shipments and orders, and applies complex pattern recognition algorithms and other formulas to create forecasts on a daily basis for every product at the line item level. The program automatically updates these forecasts daily based on real-time data on orders and shipments as they continually flow into the system. Once the demand plan is created and sent to the RTF module, virtually no human interaction is required.
The system does not affect all inventory components equally, but can have dramatic effects on what is generally the biggest component, daily turn inventory.