The Evolution of Inbound Logistics--Inbound Logistics: A New Order

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The story of inbound logistics continues to evolve. As consumer economics fluctuate, new economies open up, and global offshoring continues its rapid pace, the challenges of forecasting demand and matching supply to the market, remain considerable.

If supply chains are truly demand-driven, they are flexible and adaptive to shifting global trends. In this sense, inbound logistics is not static. Rather, it is a journey for continuous improvement.

From a micro-level perspective, global businesses today across all verticals face their own distinctive supply chain challenges—from supplier integration abroad to DC consolidation at home.

While each has its own justification, incentive, and context for managing inbound transportation and processes, one common thread joins them: creating a cross-enterprise structure that embraces pull logistics requires vision, leadership, and consequently, the recognition that such an approach is very much a process rather than a product.

For companies such as American Greetings and Panasonic, this understanding is apparent in their own stories from yesterday, and their plans for tomorrow.

Greeting Change: Hello Inbound

American Greetings has been actively controlling routings for collect inbound shipments for more than 15 years.

The Cleveland, Ohio-based greeting card company, which owns brands such as Carlton Cards, American Greetings, and Gibson, services approximately 70,000 retail stores in the United States and 125,000 worldwide.

In the past decade the company has routinely evaluated and adapted its transportation system for both foreign and domestic inbound business and worked with carriers and logistics service providers to meet changing needs.

"We used to hard-code the routings in the purchase order template so we could communicate our preferred carriers to our vendors through the purchase orders. That process worked, but it was cumbersome and slow to respond to marketplace changes," says Mark Copfer, corporate director of traffic for American Greetings.

The company brings in 2,000 to 2,500 containers annually, carrying a wide variety of printed and non-printed products. Domestically it sources some of those same finished goods, along with raw materials such as paper and ink shipped to its manufacturing facilities.

American Greetings' inbound program has evolved with the sophistication of IT capabilities and the emergence of capable logistics service providers.

"We have partnered with Simplified Logistics (a logistics solutions provider based in Bay Village, Ohio), who supplies the 'engine' for the program. We ask our vendors to visit our dedicated Web site, input the salient characteristics of their shipment—origin ZIP code and our destination plant—and the program determines if it should be a package, LTL, or TL shipment," Copfer explains.

For package business it uses UPS collect. American Greetings also uses several LTL carriers in its program but designates just one for every ZIP code pair.

"If the volume warrants a TL carrier, we direct our vendor to contact us for our preferred carrier list. Given the dynamic TL market, we find value in shopping the load to our core TL carriers so we don't lock in one TL carrier for most lanes," adds Copfer.

American Greetings' new Web solution allows it to update routings quickly, ensuring it always has the optimal carrier options in its routing instructions. This process includes compliance reporting and chargebacks to help it modify vendor behavior if needed.

"Our reasons for controlling the inbound business are similar to most other companies—to reduce cost, leverage volumes, reduce the number of carriers, and drive better service," he adds.

But American Greetings also has time on its side. During the past two decades it has developed better working relationships with its partners and created a supply chain-wide blueprint for embracing inbound directives.

Since American Greetings established its inbound program, it has worked through any growing pains with its partners. Today, any new vendor relationships are built with this program in mind. Copfer remains committed to further streamlining inbound transportation.

"We still have opportunities to drive more cost out of our inbound freight," he notes. "We are looking at ways to limit the number and increase the size of inbound shipments. Typically, we don't want our vendors to ship partial orders."

He points to a few value plays that will help ensure vendors ship entire orders complete, and on time.

For example, American Greetings has discussed the practicality of consolidating inbound shipments from multiple, geographically similar vendors. The idea is to create larger LTL shipments, and possibly even TL moves, through the use of timely, accurate information.

"We'd also like a global view of all international and domestic shipments to reside on one system, allowing us to more efficiently plan labor and space resources at our plants while improving communication throughout the corporation about inventory availability," he adds.

While the company's inbound program remains elastic, its commitment to managing inbound logistics remains fixed—and conveying this level of conviction has been crucial to winning over supplier support from the beginning.

"Being able to demonstrate to carriers that you control the inbound business, and that they can expect to receive the volumes you commit to them, has had a positive impact on rate negotiations," Copfer concludes.

Panasonic's Point-of-Sale Pivot

Sometimes the impetus for a demand-driven transformation comes from the customer.

When Panasonic, a leading supplier of plasma televisions, digital cameras, telephones, and other household consumer products, began considering a major supply chain redesign in 2000, it did so at the behest of its retail customers, noted Mike Aguilar, then president of Panasonic National Sales Company.

"Our largest customers came to us and said, 'You have to start a system of supply chain management. You need to reduce our inventory, and you should be reducing yours as well. Most important, you have to reduce the lead time for both of us. The company that keeps us in stock at the highest levels will be the winner in the long run,'" he recalls.

"We took that as a meaningful challenge and found it to be a driver to gain market share that our competitors wouldn't pick up."

Meeting those increased customer demands presented a sea-change in vision and execution as Panasonic's forecasting and allocation systems at the time were highly labor-intensive and based on Excel spreadsheets.

Panasonic, which serves a who's who of major retailers with a penchant for controlling inbound—including Best Buy, Target, Wal-Mart, and Sears—ultimately turned to i2, Dallas, Texas, to transform its end-to-end supply chain management system.

The company opted to roll out i2's Demand Planner and Supply Chain Planner solutions to support its largest customers first, then approach its medium-sized customers.Results were impressive.

"Prior to the i2 implementation, we only had historical data on what we shipped out vs. the backorders," recalls Aguilar. "We had no data on true demand, or out-of-stock ratios on the retail shelves. With the i2 system, we can build a great historical record based on true demand, which we've never had before."

On-time delivery for major customers increased to 84 percent, and in-stock percentage neared 90 percent—which, given the consumer electronics industry's historically long lead times and quick product cycles, were remarkable numbers.

Panasonic didn't stop there. In 2004, after a failed ERP rollout and downtick in financials, it decided to again revamp its supply chain with a demand-oriented solution that could more closely integrate marketing and supply chain initiatives and improve visibility from the factory to the retail shelf.

This time around, Panasonic worked with i2 to configure and implement its vendor-managed inventory (VMI) solution.

The collaborative effort shifted the focus of planning away from the manufacturer and closer to the consumer, comprising key elements of inventory management such as analysis, forecasting, planning to allocation, replenishment, and order execution.

Marked improvements resulted. Inventory distribution aligned with consumption, and customer availability jumped to 95 percent. The average supply in the channel went from 25 weeks in 2004 to just five weeks in 2005.

In a 2006 interview with i2's Supply Chain Leaders magazine, Aguilar reflected on how Panasonic was leveraging point-of-sale signals to better forecast demand for its growing plasma-screen TV business.

"We had to transition from being a 'sell-in' company to being a 'sell-through' company. The real sale doesn't take place when we sell 'in' to our retailers; it occurs when the retailer sells 'through' to its customers. We needed to become more cognizant of what the retailers own and to look at end-to-end supply," he said.

Where does Panasonic go from here?

In January 2007, Matsushita Electric Industrial Co. (Panasonic's parent company) and diversified chemical group Toray Industries announced plans to build a new plasma display panel (PDP) manufacturing facility in Japan to further ramp up PDP production capacity—and make it the world's largest PDP manufacturer.

Panasonic forecasts that 65 percent of the 200 million world aggregate demand for TVs will be for flat-panel models by 2010.

With the first phase of production at the new plant expected to commence in May 2009, the new facility will implement a comprehensive production management scheme to cover all its factories and realize speedier and more flexible supply of products. Panasonic's demand-driven journey continues.

Inbound From Future's Past

One century ago, demand-driven logistics as practiced by Henry Ford and later Taiichi Ohno, was considered the future of manufacturing. Today, inbound logistics remains the next frontier of supply chain enlightenment. But what lies beyond?

In theory, demand-driven practice will always be tied to the future because predicting consumer variability or "knowing the unknowable" is a challenge that transcends time.

Ford Motor Company and Toyota recognized this as they tested and tailored their JIT processes to ensure steady workflows. Companies such as H.J. Heinz, American Greetings, and Panasonic are equally cognizant and attuned to this current and imminent reality as they transform their supply chains.

In practice, their stories—past and present—hint at what is to come; the selective ways businesses across myriad industries can envision and execute demand-driven initiatives.

But in a broader context, beyond our inbound utopia, it is still largely an unpracticed science.

For novices, the demand-driven drift augurs infinite potential to effect a revolutionary shift in how they integrate supply chain functions and coordinate product flow throughout the extended enterprise.

But embracing inbound as a change agent is not without inherent barriers. Technology properly applied is an enabler, but merely a stopgap as a fix for strategic holes. Process improvement requires a hard-core philosophical shift.

Walls must come down and wills must be broken. This requires time, commitment, and importantly, leadership.

Today's few, true demand-driven visionaries are engineering and adapting inbound transportation and logistics strategies to open new avenues for streamlining their supply chains, scaling inventory, enhancing visibility, unbundling total landed costs, and driving collaboration among supply chain partners.

The potential is limitless.

As Toyota learned from Henry Ford, and as today's leaders learn from the Toyota Production System and each other, links in the inbound evolutionary chain continue to twist and turn, break away, and come back together as demand meets supply.

Imagine a time and place where demand-driven DNA is hard-coded into the corporate helix; where those that adapt not only stand a better chance of surviving, but of thriving and propagating at will.

This is the future of inbound logistics.

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