Inbound Logistics: A Grassroots Revolution
Q: Many companies neglect their inbound supply chain operations in favor of their outbound supply chain. Why is that?
A: Senior executives are more attuned to customer needs, and, in turn, the outbound, customer-facing supply chain. Its gravity naturally pulls their attention, and, as a result, policies and tactics abound for outbound material flow. This results in hidden margin-draining activities for half of the enterprise's supply chain.
Failure to adequately incorporate policies and controls for the inbound supply chain can not only adversely affect profit margins, but may also impact supplier relations, depending on the level of non-compliance.
Q: How can logistics managers raise inbound operations visibility and awareness of its cost impact?
A: It takes a grassroots philosophy—a bottom-up view of the supply chain. Operations and transportation supervisors, managers, and directors are closer to the inbound supply chain's non-value-add activities, and see firsthand the effect non-compliance has on the business. Staff members must be groomed to not only recognize these opportunities, but also receive the CFO's support to properly articulate the fiscal impact to the business.
Mature businesses make provisions to identify and resolve this problem through various methodologies such as Lean, Kaizen, or Six Sigma efforts. Regardless of the mechanism, companies must establish a process for properly identifying issues and articulating cost exposure so senior leadership can determine a course of action.
Q: Once businesses identify opportunities, how can they achieve efficiency and reduce costs?
A: Each organization will have its own approach and remedy to drive optimization, but for the inbound supply chain, the following guiding principles serve as best practices:
- Establish a supplier compliance strategy. Create and communicate policies and tactical instructions for suppliers and vendors on how to do business with your company. This removes ambiguity, and creates an environment for suppliers to work efficiently with you.
- Align purchasing agreements and vendor contracts with your policies and instructions. This communicates the importance of compliance, and will facilitate responding to non-compliance.
- Ensure departments within the enterprise are not working at cross purposes. Take a global view of material movement to align internal departments' goals and key performance indicators to meet the organization's overall objectives.
- Deploy tools to measure, monitor, and report on activities.
- Determine the course of action for addressing non-compliance, articulate it in the organization's policies, and communicate it to the supplier community.
- Establish supplier scorecards to measure improvement and monitor for additional aspects of the customer/vendor relationship you can improve.
In the end, the company with the lowest-cost supply chain will dominate its market. Can you afford to ignore half of your supply chain?