Behind The Scenes Of Today’s Leading Supply Chains
Inbound Logistics pulls back the curtain on supply chain best practices.
Founded in Sweden in 1943, the Ikea Group, the world’s largest home furniture retailer, operates313 stores in 38 territories and countries.
To ensure an efficient, effective supply chain, Ikea focuses on:
Sustainability. Ikea has been working toward acircular supply chainsince 2018. It designs and manufacturers every item withnext usein mind. Depending on the product, this could mean using only recycled materials in production or providing a spare parts warranty.
Inventory management. To avoid waste and inefficiencies caused by bulk ordering items that don’t sell as expected, Ikea employs “minimum settings,” the lowest number of products that have to be available before a new order can be placed, and “maximum settings,” the highest number of products that can be ordered at once.
By packaging products compactly, customers can easily take their purchases directly from the warehouse to their homes to assemble themselves. This allows Ikea to maintain a larger inventory, in turn reducing the company’s shipping costs.
Finally, by automating restocking processes for “high-flow” items—which make up 80% of a store’s sales volume—the business is able to minimize the need for shipping and manual restocking.
In-store logistics. To streamline the flow of goods in and out of stores, Ikea operates with a unique and rare feature: in-store logistics personnel. These personnel monitor deliveries, record all inventory coming into stores, sort goods and ensure they’re placed in the appropriate areas.
By handling logistics in-store, every Ikea location can closely monitor and control all processes, helping to ensure high store-level inventory accuracy—a rarity for many retailers that rely on forecasting and inventory replenishment logic handled at distribution centers.
Not only does this help Ikea reduce costs, it also helps improve customer loyalty, creating an easy-to-navigate shopping experience that allows consumers to buy the furniture they need, where and when they need it.
In light of the COVID-19 crisis, the retailer was forced to temporarily close some stores, but demand for office furniture remained steady as people working remotely seek to create comfortable, practical setups.
The superstore has been quick to adapt to the changing retail environment, adopting new practices in everything from how it stocks warehouse shelves to boosting supply chain transparency.
Target’s supply chain has undergone a significant modernization effort to drive efficiency, improve visibility, make better use of store space, and reduce operating costs.
- Pick-and-pack strategy. Rather than shipping full cases of a product—such as a case containing two dozen jars of pasta sauce—each store receives a tote from the distribution center containing a “mixed bag” of different items they’ve ordered. This move has enabled the company to reduce inventory management and labor costs, and better utilize space in stores.
- Store fulfillment. To cut down on shipping costs, Target shifted digital fulfillment from distribution centers to stores. Customers can either pick up their order in-store or have an employee bring it to their vehicle. Target now fulfills 80% of online orders from brick-and-mortar stores and has seena 40% reduction in fulfillment costsas a result. This represents a major change from thetypical warehouse-based fulfillment model.
- Supply chain visibility. Target has invested in new technology and processes to create better supply chain visibility through real-time tracking efforts for whole shipments and individual cases while automating shipment processes to reduce human error.
- Smaller backrooms. Adopting pick and pack means that stores no longer require as much backroom square footage. Target has put that space to good use, turning backroom square footage into storage space to upgrade the customer “experience factor.” The new backroom model has also allowed the company to open smaller format stores.
- Shop-in-shop spaces. The recent modernization has made a trip to Target an experience for customers, with “shop-in-shop” spaces such as Starbucks or mini Disney stores located in 25 stores. These mini-stores feature music, interactive displays, and comfortable seating. Ultimately, the shop-in-shop concept could turn Target into a destination like a shopping mall.
- Improved sustainability. In 2019,Target set sustainability goalsthat aimed to reduce greenhouse gas emissions 30% by 2030, focusing initially on vehicles, facilities, and purchased power such as gas and electricity. The company intends to reduce emissions in-house while working with at least 80% of suppliers to lower emissions throughout the entire supply chain.
As one of the world’s largest aircraft manufacturers, the world’s second-biggest defense contractor, and the leading U.S. exporter, Boeing operates a vast, complex supply chain.
Managing an aerospace supply chain requires extremely comprehensive planning—often years in advance to accurately project marketdemand changes—as well as a willingness toevolve and adapt. Everything from design tweaks to geopolitical issues candisruptone or more elements in the lengthy chain.
A single Boeing airplane is made of more thanthree million parts, which makes the company’s supply chain amassive, global operation.
The 787 Dreamliner, which first took commercial flight in 2009, marked the beginning of anew structurefor Boeing’s production operations. This structural shift may serve as a useful example of operational shifts on which other companies can model their operations.
Before 2007, Boeing would send fully detailed designs to each of its partners producing differentaircraft components. These partners would then send individual parts to Boeing for testing, validation, and final assembly.
With the 787, however, Boeing worked with individual suppliers that helped design, test, and validate the pieces they manufactured themselves. This meant that Boeing partners at every point in the supply chain needed to communicate with each other and with Boeing, to coordinate the timing of purchase orders, component schedules, and final delivery.
This new supply chain structure helped reduce costs and increase productivity—allowing the new aircraft to be delivered quicker than ever before.
Boeing’s wide-reaching supply chain enables the company to adapt to changing market demands in different ways indifferent parts of the world.
As of 2017, Boeing derived about 70% of aircraft revenue from international customers in more than 150 countries. But countries where Boeing has its biggest operations, such as Japan and China, started to build their own domestic products to compete.
In response, Boeing began selling more of its products in these countries, which made working with the company a more attractive economic option for airlines there.
The company also initiated onshoring, bringing more of its supply chain operations back to American soil. For example, the wings of the Boeing 777, previously produced in Japan, were built entirely in the United States.
To save on costs and keep up with demand for parts, Boeing fully manages teardowns—the process of harvesting retired planes for Used Serviceable Materials.
A typical teardown reaps about 2,500 parts, but in some cases up to 6,000 parts from a single airplane can be salvaged for reuse. Boeing previously outsourced this process to third parties, but now handles it from start to finish.
Under One Umbrella
Similarly, before 2020, Boeing’s acquired brand Aviall marketed and distributed about two million different products from the Boeing catalog. In January 2020, Boeingretired the Aviall brand nameto sell these products under its umbrella.
In response to the coronavirus pandemic, Boeing leveraged its supply chain to spring into a different kind of action.
In April 2020, Boeing shippedmore than 2,300 3D-printed face shields to the Department of Health and Human Services.
In May, the company airliftedmore than 150,000 units of personal protective equipment from China to the United States.
As countries continue to reopen their economies and U.S. suppliers begin to return to work, Boeing has begun to resume aircraft operations.
Costco’s warehouse-style stores and bulk products mean that its supply chain operates differently than the average big-box retailer.
Here’s how Costco manages to think outside of the typical big-box supply chain model.
Simplicity. The company uses a ” No Touch” policy. This means that most products stay on pallets from the supplier for their entire trip through Costco’s supply chain, even being presented to customers on those very same pallets.
The company works with suppliers to make sure pallets are stacked and wrapped to accommodate this efficiency. This strategy creates savings across the company, reducing labor in logistics and in stores.
Costco’s approach to warehousing and logistics is to use a simple cross-docking system to move freight directly from one of their depots to a truck headed to the warehouse that ordered it.
The warehouses act as both retail point of sale and, well, warehouse. They essentially combine retail sales floors with warehouses to minimize square footage occupied and simplify the supply chain so that distribution centers are unnecessary.
Limited SKUs. One hallmark of Costco’s lean approach is carrying limited SKUs. Where you could expect to find more than 10,000 unique products atyour average big-time retailer, Costco only averages about 3,700 SKUs.
Fewer SKUs are easier and cheaper to manage. They require less time, effort, and money to manage stock, and fewer people can handle stock to a more effective degree.
Costco doesn’t have as many suppliers to deal with, which means simpler, leaner procurement operations that shoulder a smaller burden than most multi-national companies.
International expansion. Though Costco moved slowly into international markets, international revenue accounts for about 28% of the company’s total revenue.
Currently, the company has a physical presence in 11 countries outside the United States. Costco recently opened its first warehouse in Shanghai and was forced to close its doors on the first day of operation due to an overwhelming response from customers.
Vertical integration. Costco’s plans for the future include bringing segments of the supply chain in-house to better control costs. For instance, Costco acquired Innovel Solutions to handle big and bulky order deliveries, most of which take place online for the warehouse retailer. Innovel Solutions is a middle and last-mile delivery and installation carrier.
The company plans to add warehouses and logistics centers both here and abroad in the coming years.
E-commerce. While the company wasa little late to the e-commerce party, it has been stepping up its game over the past two years and continues to do so today.
The pandemic has led to an online grocery sales spike for Costco, with a 65.3% growth in Q3 2020 earnings.
Dell’s supply chain has transformed significantly since the company pioneered its direct-to-customer model for PCs in the 1990s. Dell’s customer-centric and lean supply chain have enabled the company to remain competitive despite the rise of tech giants such as Apple.
Direct (B2C) sales. Dell’s direct sales strategy has not only helped the tech company bypass retailers and increase profits on units sold, it has alsohelped Dell gain excellent visibility into what its customers want. This model has led to the compilation of mountains of valuable data on consumer behavior and preferences, allowing Dell to continuously improve product and delivery options to keep up with ever-changing trends.
Leveraging this data gives Dell an advantage when it comes to demand forecasting and planning. This data is passed on to suppliers to ensure demand is met.
Customization to segmented strategy. If you ordered a Dell PC 15 to 20 years ago, you may remember going through a customization process when placing your order, essentially designing a machine and choosing features such as ports, a CD-ROM drive, and so on. Customers would receive a computer that met their specifications and get exactly what they needed without paying for features they had no use for.
For Dell, customization enabled better monitoring of the quality of components and kept on-hand inventory low, reducing potential waste and overflow.
However, in 2010, changes in the market meant customization was no longer the most advantageous strategy. The company switched to a segmented approach where it offered customers three choices when purchasing a PC: configurable, preconfigured, or ready-to-ship.
This approach enabled Dell to continue providing customers with a choice of options while simplifying its processes to drive efficiency. The company’s supply chain has been re-modeled to enable delivery of these three options.
Inventory management goals. Dell relies on a speedy manufacturing process to keep up with orders, enabling it to hold inventory for no longer than six days and cut warehousing costs.
Strong supplier relationships. Dell has prioritized the building of strong supplier relationships to carry out its low inventory strategy and continue to meet consumer demand. Suppliers including Samsung, Motorola, and Sony typically maintain manufacturing facilities near Dell facilities to cut down on transport time and costs.
Communication. Dell uses a platform known as Value Chain to share inventory data with suppliers to help them plan accordingly.
Transparency goals. Dell nominated 2020 as the year it would achieve 100% transparency in key areas regarding environmental and social impact. The company measures its progress in achieving transparency through standardized global reporting practices and requires its suppliers to undertake similar reporting.
SOURCE: Thomas Insights