Logistics
Logistics refers to a combination of processes associated with the management of products and services that flow between their original point and the point of consumption. As a rule, logistics is concerned with whether the existing movement of goods and services meets the requirements of customers and companies. For a Supply Chain Director of a large corporation (in the present scenario – the Middle East Division of Cut & Stitch), logistics management is associated with careful planning, implementation, control, and sharing of information related to the flow of goods and services between the points of origins and the points of consumption.
Because products for the Middle East Division of Cut & Stitch have been imported from manufacturers in Spain (womenswear) and the USA (menswear), which have been running at full capacity, the most appropriate solution was to find alternative sources and suppliers in Malaysia (womenswear) and India (menswear).
For ensuring a smooth and efficient flow of goods between the Middle East Division of Cut & Stitch and Malaysia and India, it is important for the Supply Chain Director to assess the following logistical issues:
• Product movement
The logistics manager should analyze the way products move and whether the patterns of movement complement the corporate strategy. For instance, if the company wants to reduce its costs and lower inventories, the product flow should be consistent with the mentioned goals. An issue that may arise with regards to product movement is the lack of flexibility. Since forecasting can be the “weak link” incorporate planning, businesses should be able to efficiently adapt to the changes in logistic processes (Craig 2017). Such efficiency can be achieved through the implementation of a multi-mode or multi-level logistics program for each supplier with which a business operates.
Information movement
Similarly to the issue of product movement, the logistics manager should assess how information moves throughout the factories of suppliers. Information regarding the orders that are coming, how, and when they should be delivered is essential for efficient decision-making. Information should flow smoothly between the company, its key suppliers, carriers, forwarders, warehouses, and customers (Craig 2017).
Time
Issues associated with inefficient time management are necessary to resolve before starting cooperating with factories. If suppliers are unable to respond to the changing dynamics of the global marketplace and cannot implement new sourcing or manage it appropriately, it is advised for Cut & Stitch not to cooperate with them.
Service
In logistics, service refers to more than the expedition of shipment. Service is a competitive factor that influences whether the requirements are met, whether the position of the company in the industry is secured, and whether the corporate culture of the business is preserved (Craig 2017).
Cost
For a business trying to ensure efficiency and prosperity, issues associated with costs are essential to assess for an inventory manager (Girotra & Netessine 2014). The effectiveness of cost control, containment, and management is crucial for ensuring profitability (Girotra & Netessine 2014). The lowest prices are not the solution for companies that want to cooperate with new suppliers; the minimization of costs that go towards warehousing or freight can limit the effectiveness of the logistics department of an organization.
Integration
Issues of integration (within the organization, between the organization and its suppliers, and between the organization and its customers) should be carefully assessed. This logistical issue is of high importance since multi-national companies and those that collaborate with foreign suppliers gain the differential advantage from the ability to exploit the differences in product and capital markets (Awad & Nassar 2010). The supply chain manager of a company should look at three perspectives of integration: technical, managerial, and relationship perspectives, which are the most challenging when collaborating with foreign suppliers.
Transit Times Comparison and Inventory Levels
To assess whether the decision to find alternative suppliers is cost and time-efficient, it is important to compare transit times and rates between the current and the alternative suppliers’ destinations. The table below includes data on the origin and destination charges, ocean rates, total transit times, and distances between the source and the destination.
All data was taken from the Sea Rates website. Based on the comparison of transit times, distances, and prices, the alternative sources are much more affordable and more logical for the Middle East Division of Cut & Stitch. For example, to deliver a container to Dubai from Kuala Lumpur, it will take 16 days compared to 22 days that take a container to get delivered from Algericas. Also, it will take 11 days to ship a container from Bangalore compared to a month that takes for a container to get delivered from New York.
Given the consequent reduction of time required for clothing to get delivered from alternative sources to Dubai, it is advised to reduce the levels of inventories of womenswear and menswear. This will allow the company to develop a supply chain similar to just-in-time (JIT) inventory, avoid overstocking, and ensure that the inventory is sold to customers instead of being stored in warehouses. The change of suppliers can potentially lead to the company implementing the model of JIT inventory, which will allow the division to reduce overhead expenses, lower the costs associated with warehouses, improve their supply management, reduce waste, and reach customer satisfaction (Conrad 2017).
Supplier Performance
For the Supply Chain Director of a large company, measuring suppliers’ performance is a process that subsequently leads to the development of metrics for assessing success (Webb 2017). There is a variety of metrics that companies can select for determining how well their suppliers perform. This section will discuss five proposed KPIs (key performance indicators) that the Supply Chain Director of Cut & Stitch can use for measuring the efficiency of the company’s supply chain.
On-time Delivery
On-time delivery performance in relation to agreed lead times for delivery (CIPS 2013) allows supply chain experts to evaluate the efficiency of their suppliers and determine whether the company’s customers are getting what they want and when they want. To measure on-time delivery, it is important to assess whether the needs of customers regarding this metric and the performance of suppliers align. For example, if both the customer and the supplier give a positive answer to the question “Are you satisfied with the terms of delivery?” then the supply chain manager can conclude that the on-time delivery is on the highest level possible. Variables included in the measurement of on-time delivery performance (against the agreed lead times) include the following:
- Number of items/units per order. For example, if the company ordered 100 dresses for their collection, it wants all 100 delivered. Another outcome is that the supplier provided 99 dresses and the company agreed to close the deal quickly. A possible result is that the vendor delivered 90 dresses, with the buyer agreeing to close the deal with the balance of 10 dresses delivered in a month (Marion 2016). All three scenarios with different outcomes show varying levels of on-time delivery.
- Delivery date. Dates of delivery are imperative to take into account when measuring on-time delivery performance due to rush orders and other circumstances that make buyers set specific dates of delivery. For example, the customer expects the order to get delivered on March 1st, with the “window” being two days early and one day late from the established date. In this case, the buyer should specify how the supplier will be treated in the case of being either late or early. If the set time window is not breached, then the supplier is considered to deliver the order 100% on time.
- Number of line items per order. If the buyer requests five different lines in one order, the supplier should provide all of them on time to fit in the bracket of 100% on-time delivery (Marion 2016). However, if the supplier delivered four lines on time, the buyer should specify whether the 90% or 0% on-time delivery was hit.
To address the shortfalls that may take place when achieving the targeted on-time delivery, the company should implement three simple steps. The first step is agreeing with the supplier on the definition of on-time delivery and time limits set for different orders. The next step is to always let customers know about any delays in delivery to maintain trusting relationships. The third step is searching for more reliable suppliers that will deliver orders on-time in the case if previous suppliers have failed to follow the time limits set by the company.
Rates of Return
Return rate KPIs measure the rate at which shipped products are returned (Arigo 2011). Return rates are measured through diving the number of items returned per order by the number of all items per order. The key component in measuring this metric is determining why items are returned. This will allow the company to get an insight into how many items delivered by the supplier are defective; moreover, rates of return can point to poor production practices (Arigo 2011).
A high return rate can lead to the supplier getting more regular factory audits and higher product quality standards (Arigo 2011). In order to deal with the shortfalls associated with return rates, the company should set a marginal percentage expectation (for example, plus or minus two percent) as a universal standard for suppliers in order to see which of them rarely incur returned items and which of them violate the set 2% percentage expectation (Arigo 2011).
Accuracy of Advanced Shipment Notifications (ASN)
For those suppliers that regularly send their buyers ASNs, it may be useful to assess the accuracy of the provided data. This ties in with other metrics, such as quantities ordered and quantities provided because ASNs play the role of advanced notifications of differences between what buyers expect and what they get. When it comes to measuring this KPI, the company can monitor the number of ASNs sent out by the supplier and determining how many of them were accurate and how many were not. For example, the following formula can be used for measuring ASNs’ accuracy:
Received goods receipts / Quantity of received ASNs (on the current month) * 100% (3 practical metrics for supplier performance evaluation 2016).
An example of the usage of the formula is presented below:
18 good receipts received / 20 ASNs for the current month * 100% = 90% (supplier performance).
In order for the company to avoid pitfalls associated with supplier performance when sending out ASN notifications, the management should communicate their expectations of such reports to suppliers. If suppliers only provide relevant data that does not go against the information on received goods receipts, such suppliers can be considered reliable and used for future business endeavors. If on the other hand, data provided in suppliers’ ASNs is false and does not match the information on the received goods receipts, the company should look into collaborating with new vendors who will not lie to get a deal with a buyer.
Timeliness of Advanced Shipping Notifications (ASN)
When establishing efficient supply management chains, it is vital for managers to be informed about the consignment of upcoming goods on time. That is because the receipts of unscheduled goods cannot always be handled immediately due to complicated workload procedures that include labeling, packaging, barcoding, etc. (Advanced shipping notification 2017). The Key Performance Indicator of ASN timeliness is used by supply chain managers to evaluate the delivery ratings of their partners. Timeliness is measured in the following manner:
If the dispatch date mentioned in the ASN matches the actual date of delivery (plus or minus a buffer period), then the ASN is rated as timely, for example:
The dispatch date mentioned in the ASN is 18.11.2017.
The buyer has specified that the delivery can be received two days prior and two days past the established date (Timeliness of the advanced shipping notification n.d.).
If the delivery of the ASN falls in the timeframe between 16.11.2017 and 20.11.2017, the ASN can be considered as timely. Moreover, it is also on time if it was received on 16.11.2017 or 20.11.2017.
Clear communication and efficient exchange of information is vital for avoiding pitfalls associated with the management of timely ASNs; the Supply Chain Director of Cut & Stitch should identify what current processes are involved in managing ASNs and pay extra attention to communicating the expectations of timeliness.
Lead Time Variance
The lead time of an object refers to the interval between the time it enters the system and the time it leaves (Watson 2015). The lead time of order fulfillment is the interval between the order’s placement by the buyer and receipt of goods by customers. Measuring lead time variance is important because transactions between companies and their suppliers often lack clarity, especially when it comes to large and long-term orders.
In order to measure lead time variance, supply chain managers should possess information on the history database with appropriate timestamps for relevant crossings of boundaries; however, to have this information, a data tracking and collection system should be established. Such systems will help supply chain managers to measure three components that influence the variability of lead times:
- Transit time: collecting all transit times, calculating the average and standard deviation (Watson 2015).
- Order-to-ship time: identifying when the order was placed and when it was shipped (including scheduling, waiting, and processing times) (Watson 2015).
- Replenishment frequency: calculating the extra time necessary for suppliers to replenish their stocks.
To avoid pitfalls linked to measuring lead time variances, the Supply Chain Director of Cut & Stitch should look into the most popular and valuable data reporting tools that will offer the necessary information on transit times, replenishment frequencies, and order-to-ship times.
Conclusion and Recommendations
The Supply Chain Director of the Middle East Division of Cut & Stitch has faced a challenge of finding alternative sources that will supply the company with menswear and womenswear due to the growth in sales and the need to decrease the workload of its current suppliers. It was advised that the supply chain director pays extra attention to specific logistical issues such as product and information movement, time, service, cost, and integration. The mentioned issues are essential for review since they will allow the Supply Chain Director to determine whether the alternative suppliers are reliable and will be able to match the requirements that Cut & Stitch set for its suppliers.
The comparison of transit times between current and alternative suppliers has shown that it would take less time for the division to receive containers of goods by sea from Kuala Lumpur and Bangalore than from Algericas and New York. This means that the Dubai division of the company can reduce its inventory in warehouses since there is no need in waiting a month for the clothing to get shipped. Just-in-time inventory can be a possible solution for Cut & Stitch after collaborating with alternative suppliers due to the reduction of shipping times and costs; JIT is recommended for eliminating waste and improving their supply management.
Supplier Key Performance Indicators will allow Cut & Stitch to monitor how well new suppliers in Bangalore and Kuala Lumpur align with the company’s standards. Price-based metrics, high quality, the accuracy of ASNs, return rates, and on-time delivery are five KPIs that the Supply Chain Director should monitor on a regular basis. If the KPIs do not reach the desired level, the Director should communicate the standards of the company and set guidelines on quality and information exchange to avoid looking for new suppliers once again.
In order to eliminate any shortfalls in achieving the goals of optimizing suppliers’ performance, Cut & Stitch should discuss any arising problems with their new suppliers and work towards their elimination. For instance, the issue of information movement identified in the first section of the report can negatively influence the accuracy of suppliers’ ASNs.
To avoid this problem, Cut & Stitch should set a rule that product specification and shipping volumes are to be shared with buyers every two weeks, which will subsequently reduce the number of instances when the quantities of good receipts do not match the amounts of correct ASNs. In logistics, the effective exchange of relevant information will increase the competitive advantage and improve customer satisfaction, which are the ultimate goals that every large company wants to reach.
Reference List
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Awad, H & Nassar, O 2010, ‘Supply chain integration: definition and challenges’, Proceedings of the International MultiConference of Engineers and Computer Scientists, vol. 1, pp. 1-5.
CIPS 2013, Monitoring the performance of suppliers. Web.
Conrad, B 2017, The advantages of just-in-time inventory systems.
Craig, T 2017, Logistics – five key issues for logistics effectiveness. Web.
Girotra, K & Netessine, S 2014, ‘Four paths to business model innovation’, Harvard Business Review.
Marion, G 2016, How do I measure on-time delivery.
Timeliness of the advanced shipping notification n.d. Web.
Watson, M 2014, Calculating supplier lead-time variability: not as easy as it seems.
Webb, J 2017, ‘How to measure supplier performance: 3 metrics to gauge success’, Forbes.