Supply Chain Velocity: Shifting Into Overdrive

Supply Chain Velocity: Shifting Into Overdrive<br />

When expediting shipments, visibility, communication, and customer service get into gear.

The contrast between speed and velocity is as recognizable in the supply chain world as it is in the physics lab. Velocity is a measurement of the rate and direction of change in an object’s position. Speed is a subset of this quantity, defined as an object’s distance traveled per unit time. Simply, velocity is speed with direction— it’s intelligent urgency.

In the supply chain, speed for speed’s sake, without considering variables that may alter changes in a shipment’s position, can have unintended consequences such as poor service and extra expense. In best-case scenarios, such a failure may warrant expediting a replacement part, or finding a misdirected shipment already in the system, then rerouting it with make-up speed and cost. At worst, it’s a missed sale or lost business.

When shippers decide to expedite freight— whether it’s standard product protocol or transportation management by exception— speed is a constant variable. What happens before and after shipments accelerate through the supply chain is considerably more flux, yet equally important.

“Pressures often come from dynamic changes in customer demands as they try to capitalize on getting products to market,” says Adrian Wood, executive vice president, business development, Pegasus Logistics Group, a specialty logistics provider based in Coppell, Texas. “These can include last-minute changes in delivery requirements and the rush to meet industry cut-off times, or having to rapidly investigate alternate shipping methods to address cargo capacity constraints.”

Every shipper-customer relationship comprises unique characteristics that shade the importance of how products move, domestically and globally, by ground or air, and at what cost. Given expedited freight’s high value and demand-sensitive disposition, collaboration, visibility, and communication intrinsically feed the need for speed.

On a Wing and By Ground

H&K, a Dublin, Ireland-based global supplier of stainless steel kitchen equipment to the food service industry, has a reputation for quality products and precision manufacturing. Starting out in Canada in 1975, H&K has grown to become a key supplier to McDonald’s and other notable chains, establishing manufacturing operations at strategic global locations. Ensuring customers have equipment necessary to get restaurants up and running often means transporting shipments within tight time windows and service constraints.

Since 2002, H&K has been working with Pegasus to provide customized solutions for its high-volume, major project rollouts throughout the United States. Pegasus is the winged concierge for all the kitchen supplier’s white-glove transportation needs, including a dedicated in-house project manager; end-to-end planning and execution for customer projects; expedited shipments; and reverse logistics.

Pegasus primarily serves H&K’s domestic needs. Shipments leave the supplier’s Dallas facility and are typically transported by truck to customer facilities. Occasionally, as demand dictates, cargo moves via air freight to meet immediate delivery requirements.

“McDonald’s is our largest customer. We custom-fabricate product that needs to be installed at its restaurants on a timely basis,” says Mark Hogan, vice president of logistics, H&K. “Plumbers and electricians have to be on-site to help with installations, so we have to schedule deliveries accordingly. If we don’t, McDonald’s has to pay to have workers wait for shipments to arrive.”

When working within these kinds of delivery specifications, failure isn’t an option. Pegasus works with H&K and its customers to anticipate needs and offer multiple solutions to reduce expedited spend. This effort includes reviewing outbound shipments daily and evaluating carrier cut-off times to ensure that it can move freight by ground expedited instead of air when possible.

“We will also split a delivery to expedite only the quantity that is actually needed,” says Wood. “The total order amount often is not the true quantity necessary to meet the immediate demand, which is driving the spend.”

“In addition, we routinely work with companies to help prioritize their specific production schedules to maximize load capacities and available transit times,” says Wood. “This effort greatly reduces the need for last-minute loads.”

Stretching the Supply Chain

For Birmingham, Ala.-based Stretchy Shapes, fast growth required finding a swift logistics partner to meet customer demand. The company, famous for its children’s bracelets, couldn’t keep up with demand when co-founders April Mraz and Cherie Stine started operations in preparation for the 2009 holiday season.

Watching their children and classmates embrace the Silly Bandz phenomenon sweeping through U.S. elementary schools, the entrepreneurs struck out on their own and opened two retail locations in Birmingham to sell the novel product for the holidays. When suppliers were unable to meet their expectations and demands, they chose to custom-design their own “stretchy” product, sourced from China.

“Within three weeks we were in production with a factory in China to manufacture our Stretchy Shapes,” says Mraz. The first shipments arrived on December 8, 2009. “We thought we had ordered the mother load of inventory and weren’t sure if it would ever sell.”

It did. By the end of the year the company was outselling competitors five to one until it ran out of product. Then Mraz and Stine shut down the business.

“We called it a day, and agreed this was the craziest thing we had ever done and we were glad it was over,” recalls Mraz. They sold one location to an investor and shut down the other one. Then a funny thing happened.

“We started seeing our product sell on eBay and Amazon for much more than the manufacturer’s suggested retail price,” Mraz says. “People began calling from all over the country looking for Stretchy Shapes.”

So the two owners designed six new packs, traveled to the American International Toy Fair in New York City in February 2010, and sold out of all its products by the end of the show. Sales reps started calling to court their new Stretchy Shapes designs and the company found itself in need of a distribution strategy— fast.

The company was producing its own product with a primary factory in China. The plant was predominantly manufacturing goods for domestic consumption, which was an important consideration given the brand’s newness and potential for counterfeiting. In short time, Stretchy Shapes brought on more capacity with the addition of three factories— still centrally managed by its original manufacturing partner.

As far as importing product into the United States, Stretchy Shapes bounced around among a number of transportation carriers. But its Chinese factory was dictating how shipments moved.

“Our factory told us what forwarder to use,” recalls Mraz. “They called the shots, which was fine with us, because we didn’t have time to deal with it.”

Stuck Between Supply and Demand

Stretchy Shapes’ explosive growth placed it in an odd position. Chinese suppliers were dictating how it transported product in response to increasing U.S. demand, and working through an offshore forwarding agent added unnecessary time and expense.

After the initial post-holiday rush of success, Mraz and Stine were able to slow down and re-think their strategy for bringing product into the United States. Instead of enabling suppliers to push supply to demand, they decided to control inbound transportation themselves. DHL Express’ international service turned out to be the best way to execute this new approach.

“DHL provided the one-on-one experience we needed and it coordinated directly with our factories in China,” says Mraz. “Beyond that, it acted as a liaison with our primary supplier in China. It worked with the factory to cut out the forwarder so DHL could pick up product at the door.”

DHL helped speed overseas deliveries from as many as 12 days to three simply by circumventing the freight forwarder. The majority of Stretchy Shapes’ packages are transported in larger shipments— upwards of 150 units per move. As soon as airfreight shipments from China arrive at DHL’s Cincinnati hub, they are sorted onto a flight to Atlanta, then trucked to Birmingham. Stretchy Shapes sends shipments from Birmingham to select U.S. retail customers such as Nordstrom, Hallmark, and Learning Express via other transportation carriers.

“We work with our Chinese counterparts to let them know when a large number of shipments will be moving on a particular day, then make sure we have enough capacity to run them through our Hong Kong gateway,” says Paul Brady, area sales manager, DHL. “Once a shipment arrives at the Cincinnati hub, we make the local station aware of what’s going on, then contact Stretchy Shapes so they are prepared to receive 150 boxes at once.”

During the entire process, from China to Birmingham, in aircraft and on trucks, there is continuous product scanning and visibility to track shipment location at any moment.

Demand sensitivity has been a good problem for Stretchy Shapes, but it took the company some time to properly align sales with available supply. During the spring and summer of 2010, Stretchy Shapes had a two-month waiting list for customer orders. The company would stage boxes affixed with labels and packing slips so when shipments arrived in Alabama, workers could tear open inbound cartons, re-pack boxes, and send them out fast.

“We started managing inventory using Excel. Soon we were juggling 15 spreadsheets with thousands of lines of orders with different quantities,” says Stine. “We recently acquired some inventory management software that helps us better forecast orders. We’re not just waiting at the door for DHL.”

While nothing has been normal about Stretchy Shapes’ remarkable one-year growth, the company reached some semblance of routine toward the end of summer 2010. Because of its factory ties and DHL’s expedited service, it currently ships products within 48 hours of order. This gives Mraz and Stine flexibility to produce enough product to support existing demand, while thinking strategically about creating more holiday designs.

“It used to be about getting product out,” says Stine. “Now, it’s about getting the right product out.”

Stretchy Shapes’ predicament is common for many small businesses. But in the expedited supply chain, the real pressure to deliver on a timely basis often comes from the end user.

For H&K’s restaurant customers, expedient delivery is the only priority. “Our top challenge is on-time performance,” says Hogan. “We’re always looking for competitive pricing, but if you choose the lowest-cost service provider, you get what you pay for. It costs more in the long run in terms of managing exceptions and rectifying problems.”

In these circumstances, the white glove/managed delivery process starts from the moment a project plan is developed— way in advance of any actual shipments, explains Wood.

“The project plan always includes an audit of the client and its customer’s needs, extensive data analysis, simulated scenario planning, site survey/profiling and preparation, and partner evaluation,” he says.

Serving the restaurant space often takes Pegasus well beyond typical responsibilities, at its customer’s behest. “For some white glove services, Pegasus drops shipments off outside, unpacks, removes trash, takes product inside, and installs,” adds Hogan. “It has even placed installations in pre-set spaces, taken measurements, and prepared units for use.”

Performing product placement and startup diagnostics to ensure that onboard electronics are intact and working is part of the expedited service package that Pegasus delivers for H&K. Pegasus also trains H&K on how to properly maintain the equipment.

Handling this function necessitates even more planning. Some of H&K’s customers are in remote areas, which requires strategies and contingencies for moving and staging inventory at reasonable costs.

“The products we move for H&K are uniquely configured oversized items that are often high value,” says Wood. “That adds to the challenge of developing a ‘perfect plan’ because we know expedited shipments will be costly.”

Hiccups in installation also inflate spend, so Pegasus completes a pre-delivery process that details requirements for each location. For example, a location with no freight elevators or loading docks, and limited hours of operation, must be given extra consideration when planning a massive rollout within an expedited time frame.

And because restaurants are focal consumer locations, the timing of deliveries has to be exact. “For example, we manage ‘after hours’ shipments carefully to avoid additional expense,” says Wood. “We also have to consider the importance of meeting the deadline of a new store opening, which carries additional costs and risks.”

Managing the Minutiae

When it comes to expedited shipping, there are limits to how fast something can realistically move. But there are fewer restrictions on how quickly companies can respond to shifts in demand. That’s why having transportation and logistics partners that understand the minutiae necessary to execute successful deliveries is a critical denominator.

For Stretchy Shapes, finding a global expediter was necessary to accommodate rapid growth. When it was rushing production in China and accelerating shipments to catch up with rising demand, DHL was the one-stop-shop that could engage suppliers, bypass forwarders, and provide a seamless pipeline for importing product. Now the partnership is expanding in new directions as quickly as it began.

DHL’s global network offers Stretchy Shapes the capabilities to sell into new offshore markets. The company already has a presence in Australia and the Middle East, and is working on a contract for Scandinavian distribution, among other places. Currently these products are imported to Stretchy Shapes’ Alabama facility, then re-exported by DHL. But the company is already looking at opportunities to transport product direct from its Chinese factories to other foreign markets.

Pegasus also shares with H&K the intimate role of fulfilling orders for fast-food restaurant customers that demand timely service. Pegasus’ ability to integrate with its client’s systems, facilitate rapid response, and expedite requests, is key to the partnership’s success.

“There are so many factors involved in deliveries and installations that customer service really trumps price,” says Hogan.

Being able to track and trace shipments in transit is particularly important for H&K, given the cost involved in installing kitchen equipment. But total visibility into its supply chain is equally significant in terms of understanding how shifts in demand and supply signals impact transportation. Wood sees this aspect as a new direction for Pegasus and H&K to explore.

“Upstream and downstream visibility into our clients’ orders provides the ideal awareness of due dates and delivery schedules,” he says. “We can match this information with carrier capabilities to execute timely deliveries. Managing the suppliers’ order release process is one example where we can improve efficiency.”

Whenever there’s a sense of urgency, speed is a given. But customer service— the phone call or email alert— is imperative. Visibility and communication are critical elements that ensure shipments arrive intact and on time, transforming transportation speed into supply chain velocity.

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