INNOVATION IN THE SUPPLY CHAIN FOCUS ON DISTRIBUTION

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INNOVATION IN THE SUPPLY CHAIN FOCUS ON
DISTRIBUTION Presented by Bill Tallman,
President, William H. Tallman Associates,
Inc. Date February 17, 2009
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Supply Chain

• ABSTRACT
• ITEMS WORTH NOTE
• 3 million jobs lost in homebuilding industry
  since 2005.
• Housing starts down 34 in 2007 vs. 2005.
• Real estate market value is down and has not
  reached a bottom. Owners may defer selling.

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Supply Chain

• THE CHALLENGE
• New houses will be fewer.
• Homeowners will be reluctant to sell.
• PERHAPS WE CAN TAKE SOME COSTS OUT OF THE
  PRODUCTION AND DISTRIBUTION PROCESS AND REDUCE
  THE PRICE TO THE CUSTOMER!
• Would this kindle some interest in the customer
  to buy?

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Supply Chain

• SUPPLY CHAIN ABSOLUTES
• Prepare process map / flow chart of the process.
• Does each step add value?
• If each step does not add value , does it provide
  a necessary operational audit trail?
• If it does neither of the above stop it.
• Develop an accurate, up-to-date forecast
• Quality estimate
• Trend / regression analysis
• Product category (ABC)
• Product mix (P/N, Size, Style, Color, etc.).

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Supply Chain

• SUPPLY CHAIN ABSOLUTES (Contd)
• Make sure your ERP system has a robust Supply
  chain module. If it does not, get one.
• Buyers / buyer planners must have access to the
  forecast.
• Perform ABC Analysis to determine ABC vendors.
• Reduce the Cost of Quality.
• Establish Six Sigma concepts in the Purchasing
  process

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Supply Chain

• SUPPLY CHAIN ABSOLUTES (Contd)
• Certify all A vendors within six months.
• Implement a cost reduction program.
• Implement a lead time reduction program (internal
  / external).
• Implement an inventory reduction program.
• Institute the concept of proprietors of the
  various categories of inventory.

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Supply Chain

• SUPPLY CHAIN ABSOLUTES (Contd)
• Implement an inventory turnover improvement
  program.
• Finished Goods, 8-12 turns per year.
• Maintenance, Repair and Operational Supplies
  (MRO), 4-8 turns per year
• These are starting points. The more turns the
  better.
• Implement a Cost of Goods (COGS) Reduction
  Program.
• Direct Labor
• Direct Material
• Direct Overhead

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Supply Chain

• SUPPLY CHAIN ABSOLUTES (Contd)
• Implement a consignment Inventory Program.
• On site
• Vendors location
• Implement a vendor managed inventory (VMI)
  program.
• Perform a warehouse / distribution center
  analysis.
• Physical layout, aisles (one-way?) wide enough,
  too wide?
• Lighting location (green consideration)
• Using the 3rd dimension properly?
• Know OSHA requirements
• Know Capacity (pallet spaces use the cube
  wisely

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Supply Chain

• SUPPLY CHAIN ABSOLUTES (Contd)
• Provide 60 hours of training / year / person
• Implement a performance based green and lean
  environment.
• Assign Champions
• Identify responsibilities
• Determine deliverables
• Accomplished with existing staff
• Do not reduce staff because of productivity
  improvements. You will need them to accommodate
  the additional business you will receive
• Determine time frames for accomplishment

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Supply Chain

• SUPPLY CHAIN ABSOLUTES (Contd)
• Build a project plan to document all the
  initiatives that will be undertaken.
• Work breakdown structure (WBS)
• Critical Path
• Resources
• Milestones
• Dispose of all obsolete and slow moving
  inventory. (See Appendix for How To.

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Supply Chain

• SUPPLY CHAIN ABSOLUTES (Contd)
• Investigate the Production / Distribution
  Process.
• Order entry
• Production
• Receiving / Shipping
• Transportation / Distribution
• FOB Issues (Who owns the product enroute?)
• Establish use of a Customs Broker at Point of
  Entry (POE) for off- shore materials
• Expeditious handling
• Shorter lead times

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Supply Chain

• SUPPLY CHAIN ABSOLUTES (Contd)
• Think Green and Lean
• Implement improvements
• Recycle products where possible
• Efforts must be cost and results justified
• Establish responsibility for HAZMAT
• Ordering
• Receipt
• Storage
• Issue
• Usage
• Return
• Disposal

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Supply Chain

• SUPPLY CHAIN ABSOLUTES (Contd)
• Investigate supplier / vendor data base.
• Reduce the number to three (3)
• All three receive business
• Provide for business continuity in case of
  shortfall
• Determine inventory carrying / ownership costs
• Cost of capital 8.0
• Cost of obsolescence 8.5
• Salaries, wages, benefits 3.5
• Depreciation / deterioration 1.5
• Insurance (inventory and building) 1.2
• Warehousing storage facilities and services 1.5

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Supply Chain

• SUPPLY CHAIN ABSOLUTES (Contd)
• Determine inventory carrying / ownership costs
  (Contd)
• Loss and shrinkage 3.5
• Material handling 1.8
• Inventory control 1.5
• Federal / state asset tax 1.5
• National average 32.5
• Range was 25 to 40

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Supply Chain

• SUPPLY CHAIN CONSIDERATIONS
• Form or join a purchasing consortium / business
  association
• Form or join an inventory disposition consortium
  / business association
• Form or join a political action committee (PAC)
  or lobbying group
• Establish a plan to migrate the purchasing
  process to performance based blanket orders,
  multi-year contracts

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Supply Chain

• SUPPLY CHAIN CONSIDERATIONS (Contd)
• Perform feasibility study to determine if
  Procurenment Cards would be practical for small
  purchases.

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Supply Chain

• APPENDIX
• The Pareto Principle
• The Breakthrough Promise of 16X
• How to Develop an Inventory Reduction Program
• Developing an accurate, upto-date forecast
• Performing an ABC Analysis
• How to determine the active and inactive
  inventory
• How to develop the inventory disposition program
• How to Introduce New Products
• How to Retire Old Products

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Supply Chain

• APPENDIX (Contd)
• Managing the Bill of Materials
• Reporting on How We Did
• Cost / Benefit Analysis
• Cost Containment / Reduction / Tracking
• Cost of Materials in Future
• The CPI (Consumer Price Index)
• SGA / GA Expenses
• WHT Bio