January 2004 | Commentary | Checking In

Scale-Ability

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Can being proficient in supply chain practices position you to benefit when the economy picks up and your sales take off?

Matching demand signals to your supply line will help you save money, but it's only half the story. It is a very big half, considering our never-ending quest to be cost effective or to speed and reduce inventory and its supporting infrastructure, or to reduce the costs associated with stockouts and inventory misallocations.

We tend to focus on the benefits of supply chain management when the economic situation is not good. We should also focus on supply chain management when the economic situation is good and getting better. No business can afford to leave money on the table due to lost sales because product throughput can't keep up with increasing demand. Practicing demand-driven logistics gives you the scalability you need to ramp up your pipeline flow supporting increased sales without melting down your network.

Thinking about logistics scalability is a relevant concern, considering last month's reports from the Institute for Supply Management. ISM found that new manufacturing orders rose in December at the fastest rate in more than 50 years. On the non-manufacturing side, ISM reports "non-manufacturing business activity increased for the ninth consecutive month in December."

"The strength in December's data provides significant encouragement for prospects in the first quarter of 2004," says Norbert Ore, ISM's survey committee chairman. Let's hope he is correct. And if he is, and if your logistics network is demand driven, then you stand a better chance of maximizing your business benefit if/when demand for your product increases quickly and/or exponentially.

One example of supply chain scalability can be found in the Family Dollar Stores. For a while there, Family Dollar was growing at the rate of 500 to 600 new stores each year. With its old network, inbound transportation was decentralized, leading to problems in matching demand to supply, according to Jim Burns, vice president of transportation.

After centralizing the inbound logistics function, cost savings were achieved. But, at least for Family Dollar, more importantly, flexibility and scalability was achieved, enabling it to support continued growth.

Another retailer, AutoZone, achieved similar results. During the past five years, AutoZone's retail network grew exponentially, so fast, in fact, it would have stressed most logistics operations to the breaking point. Scalability to support this growth was achieved by going outside to leverage a 3PL's network, better matching increased demand to supply lines.

Wholesalers and distributors can do it, too. MRO wholesaler W.W. Grainger has ambitious growth plans. Grainger's goals for 2004 and beyond include "aggressively targeting growth," says Chairman and Chief Executive Officer Richard L. Keyser.

To support this aggressive growth, Keyser details some of the planned infrastructure investments for 2004, which include implementing an advanced logistics project. As part of that project Grainger will accelerate completion of its ERP platform, enhancing logistics IT systems to provide visibility needed to match growing demand to supply.

The investment Grainger is making provides the IT backbone and information flexibility garnering logistics scalability. Result? Aggressive growth is possible without logistics meltdown.

Effectively leveraging a logistics IT system works for manufacturers, too. Technuity, which manufactures computer backup power systems, optimized linkage of sales signals to product supply in preparation for its high-volume holiday season. Technuity
typically accommodates a 40-percent increase in volume for sourcing, packaging, and distribution for its top retail customers.

Technuity's experience gives us some insight into how supply chain excellence can, given the open-ended scalability unimaginable before those practices were implemented, prove that a rapid 40-percent increase in product throughput across a product line 3,100 strong is doable—because they did it.

You can do it, too.

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