Taking control of the supply chain
July 19, 2006 by SwizStick
Filed under 3PL, Airlines, Education, Supply Chain Management
This is a good, easy to follow and understand article on one company’s solution to its supply chain problems in China and how they resolved it:
The most dramatic improvement that’s resulted from all of these changes has been in transit time. Today, shipments from China consistently arrive at TESSCO’s distribution center in one week, instead of taking a month or longer.
But other, less quantifiable benefits are just as important. For instance, TESSCO has been able to exponentially increase shipment volume without experiencing growth pains. The predictability of the twice-weekly flow allows Shockey to better schedule labor at TESSCO’s distribution center. And the increased shipment visibility that is available through BAX’s website allows for exception-based management. Finally, all of the costs associated with the door-to-door shipments are presented to the importer on a single bill, greatly simplifying and reducing paperwork.
The factories gain, too. They no longer have to concern themselves with delivering TESSCO’s orders to the consolidation points. They also benefit from receiving smaller orders with greater frequency, and they can plan on growing their businesses to meet the shipper’s rapidly expanding needs. Intersource, which acts as TESSCO’s eyes and ears in China, is now helping the company expand its sourcing there.
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While TESSCO is justifiably proud of taking control of its import traffic and turning a costly, inefficient situation into a great success, one of its most satisfying achievements has little to do with ROI and customer satisfaction. Recently the company was recognized by its home state of Maryland as an important job creator. “We’ve taken an import model—sourcing from China, no less—and used it to create economic opportunity for the state,” says Shockey. That’s a big win by anybody’s standards.
While I think this a good article that educates companies on how to implement discipline and changes in their supply chains, particularly from China, there are a couple of other points I gleaned from the article:
1) The company made the decision to source directly from manufacturers in China, rather than from third parties, without considering carefully the different logistics involved and the effect on their supply chain. Not too surprisingly, they were unprepared for the multitude of problems and delays that came up. This is a theme that has been cropping up lately as companies continue to follow the crowds to China. No one is saying don’t source from China – only that you should plan carefully and consider every aspect before making such a major decision.
2) What is wrong with BAX? From reading the article it sounds like BAX Global really dropped the ball and I was very surprised that the company in question decided to stick with them. I have to ask “where was their head at?” when their client started experiencing all these problems.
A proactive logistics provider would have looked at the problems and delays they were experiencing, analyzed what was going wrong, and not only alerted their client but provided them with possible solutions to improve the situation BEFORE the client had to take drastic action on their own. At the very least they could have raised the alarm with the client in the beginning, letting them know that their current supply chain model simply wasn’t working and offer to sit down with them and their team to work out a solution. Whether they took you up on the offer or not would be up to them, but at least you discovered and notified the problem promptly and the fact that you did that as well as offer your assistance and advice would be remembered when they decided to change things. I mean, BAX nearly lost the whole business because the client was forced to look at different options from a number of different companies. As a logistics provider you never want to be put into the situation where a client is looking at different options involving different companies because their current supply chain model – of which YOU are a part of – is broken.
For me this is simple common sense. I don’t know how many times I have gone to a customer with problems in their current supply chain model and assisted them or at least advised them in finding solutions and changing the way we moved their cargo. The minute the client starts having difficulties or we start having problems dealing with their shipments, we ask the question “why?” and try to find out why their shipments have become such headaches or why they keep having problems. We don’t know BAX’s side of the story, but it sounds like they did nothing. The customer had to do all the heavy lifting, sitting down with its various division heads to figure out a solution.
Even when they decided to switch to airfreight and kept the business with BAX, they still had problems, with their freight getting split up on numerous flights and transiting via a number of airports. The article states that the company had “…only tasked BAX with freight forwarding and not with managing its entire inbound supply chain, so the forwarder had limited control over the situation.” Complete nonsense. It is true that once handed off to the airline the freight forwarder has limited control over how the airline routes and handles the cargo, but any freight forwarder worth a dime has control over which airlines they use and how the cargo is tendered to the airline. BAX could have tendered the cargo as secured pallets or even better as built ULDs (Unit Load Devices, i.e. airline containers) to avoid the cargo being split up amongst different flights. BAX also could have arranged more direct service via a primary carrier and ensured they had allocated space on the flight to ensure that cargo moved as booked and did not get delayed or transited via other airports. The airline has a vested interest in keeping the freight forwarder happy by ensuring the forwarders demands and wishes are met, not that they are ever perfect, but a large company such as BAX with heavy airfreight volumes should have been able to use their leverage with a major carrier to ensure these problems never occurred. Once again, the client made the necessary changes to their supply chain model, not BAX, at least that’s the impression from reading this article.
3) Changing the selling terms to EXW-ExWorks gave both BAX and the company in question more control over their supply chain and was probably a smart move, but again I have to say that a professional logistics service provider should have been able to provide the necessary recommendations and changes to services to make the previous sales terms work. Regardless, when negotiating sales terms companies should educate themselves on not only the costs and risks involved but also the level of control they will have over the transportation of their product. This should be done before embarking on a major venture or making any major changes to their procurement methods.
Bottom line, companies should consider carefully the effects their decisions will have on their supply chains and, ultimately, their profit. Too many companies these days do not incorporate supply chain strategy into their thinking when making major decisions such as where to source product or components from. One needs to look beyond raw cost of goods and take a good hard look at the changes to their supply chain. By planning carefully, companies can avoid painful changes and corrections that might need be made later.
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