Monday, April 21, 2008

Understanding Cross-docking








Planned cross-docking or flow-through




Opportunistic cross-docking





Are you ready?


















Saturday, April 5, 2008

Are your suppliers helping you, or hurting you? (Part 2)

In Part 1 of this article, we discussed the Fulfillment Execution Metrics for measuring supplier performance. The second part of effectively managing supplier relationships is process compliance. In this part, we cover the Process Compliance Metrics for the supplier performance management.

Well established processes normally provide a repeatable performance that is efficient, normally highly automated, and does not depend on individual level of skills to achieve a dependable result. Purchasing processes cross the organizational boundaries and their total efficacy depends on how well the suppliers comply with the Retailer’s processes. Measuring process compliance helps Retailers identify the suppliers with issues, and address these issues before they start affecting the supply chain efficiency.

The key to a successful process compliance program is to identify which transactions are core to the smooth functioning of the purchasing and delivery processes. Within these transactions, it requires that the key data elements are identified clearly. And finally it requires that these expectations are plainly defined and become part of partner contracts. These transactions cover the merchandise suppliers, as well as carriers, and can consist of all the following.
  • Vendor facing: Purchase Order Acknowledgement, Request for Routing Instructions, ASN (advanced shipping notice), and Merchandise Invoices
  • Carrier facing: Load Tender Response, SSM (shipment status message), and Freight Invoices

Having these transactions automated (for example through EDI messages) helps in capturing when the process breaks as well as managing the resolution quickly.

Process compliance metrics normally measure the following three aspects of any transaction:

  • SLA (Service Level Agreement) Compliance: It measures whether a required transaction response was sent within the agreed time. For example, if PO Acknowledgements are expected for every PO within 24 hours of transmission, then this metric will track how many POs did not get any acknowledgements, and how many acknowledgements were received after the required 24 hours SLA. It applies to all the transactions mentioned above, but is required to be measured only if it brings specific value to the Retailer. For example, if PO Acknowledgements are used to project on-order quantities and enable order promising, it will be a good transaction to track. However if no other functionality depends on this transaction, there is no need to require or track this SLA.
  • Format Compliance: This measures if the required transaction any format issues that may have caused the transaction to fail. Most relevant for electronic transaction exchange (EDI/XML/pre-formatted files), it ensures that the automation does not fail and transactions are not dropped unexpectedly through the process due to formatting errors. For example, if dates are required to be transmitted in mmddyyyy format, was it done? For EDI formats, did it have all the required segments, and was the format of each data element as expected?
  • Content Quality Compliance: It measures the data quality of the transactions exchanged. For example, if the ASN must reference the PO number then this metric will measure how many ASNs did not have the PO number (this filed was left blank), and how many had an invalid PO reference. Of course this requires that such fields are clearly identified and communicated to the partners in advance.

Just like Fulfillment Execution Metrics, these metrics can also be shared with the suppliers as a score-card. These can also be used to identify the top and bottom complying partners to prioritize the efforts of the compliance teams. And finally, Retailers can charge-back when suppliers fail to live up to contracted process compliance agreements.

Are your suppliers helping you, or hurting you? (Part 1)

It is a cliché but it is still true. You don’t know what you don’t measure, and you can’t improve it either. Retailers need to maintain their service levels, they need to make sure that the shelves are adequately stocked with the right merchandise when customers come looking for it. This is no small job, given the large assortments, complex replenishment processes, and a large number of suppliers.

Suppliers (used in a generic sense including merchandise suppliers and carriers, alike) play a huge role in smooth operations of a Retailer especially in the execution phase. They affect what gets shipped, where, how much, when and in some cases, how. While there is a mutual expectation for compliance to Retailer’s requirements, it may not always happen. Unless of course, Retailers measure their suppliers for good execution performance and process compliance.

Here is a quick primer on what to measure for effective supplier relationship that compliments your business goals rather than hurting you. In Part 1, we will discuss what I call Fulfillment Execution Metrics, and in Part 2, we will cover the Process Compliance Metrics. Together these metrics provide a comprehensive view of the working relationship with the suppliers, and can help point to areas of opportunities for mutual benefits.

Fulfillment Execution Metrics:

Fulfillment execution measures how effectively the suppliers fulfill the merchandise orders. The process efficiency revolves around the three main factors, Quantity, Quality, and Time.

  • Quantity: This metric primarily provides the fulfillment rates. There are various quantities that could be measured for effectively measuring the order fulfillment process. These are Ordered v. Confirmed; Confirmed v. Shipped; Shipped v. Received; Shipped v. Invoiced; and finally a Fill Rate calculation that makes sense for a Retailer. Most relevant definition will be to compare the Ordered Quantity to Received Quantity. Other quantity comparisons mentioned above (if routinely short of expectation) simply point to the sub-process that may be under optimized and needs attention. A Perfect Order metric is usually a composite metric generated from the above as orders that were fulfilled on-time, complete, damage-free, and accurately invoiced. However there is no single definition of perfect order and this metric can be computed based on what makes the most sense for a retailer.
  • Quality: Most Retailers do not require inspection on inbound merchandise. However the quality matters. It affects Retailers’ operations through increased consumer returns, unsatisfied customers, and additional labor to process returns. Retailers can get a good grasp on quality by measuring Damaged Packages, Damaged Goods, and Customer Returns. The first two can be made part of the warehouse SOP. Visually check damaged packaging at receiving, and flag the transaction. Check for damaged goods when pallets are broken into case/boxes/eaches. Customer returns are captured through the store returns process or RMA generated/received for the other channels.
  • Time: This is third metric for measuring the effectiveness of the fulfillment process. There are two types of metrics for time that should be tracked.
    • First one of them is the lead-time. There are various types of lead-times that are important. The total fulfillment lead-time consists of lead-time components that are controlled together by the supplier, and the carrier. Some of these components are the Order Acknowledgment Lead Time (time between the order (850) transmission date, and order acknowledge (855) receipt; Order Processing Lead Time (time between order (850) transmission date and RTS (ready-to-ship, typically EDI document 753, request for routing); Ready to Ship Confirmation Lead Time (time between receiving a 753 request, and sending back a 754, routing instructions document); and finally the Transportation Transit Time (time between pick-up shipment status message, 214; and yard-check-in at the destination facility). Keeping tabs at the lead-time provides realistic data for replenishment systems that helps create correct demand forecasts. Trends in lead-time usually point to a broken sub-process.
    • The second one relates to the activity level SLA (service level agreements). Examples in this category are violations of pick-up and delivery-time windows by the carriers.

      Once these metrics are measured, they can also be shared with the suppliers as a score-card. Retailers can use them to identify the top and bottom suppliers to prioritize their relationships. And finally, Retailers can charge-back when suppliers fail to live up to contracted service levels.