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November 12, 2007

Changing the Supply Chain Game

Let's take a look on the inside today and evaluate how well we are playing the game we are in. What I mean by this is that we need to look into the puzzle pieces of our company to make sure everything is still working the way it was intended. Seth Godin talked about "Changing the game" for your business to out-maneuver the competition. Similarly, you should change the game internally to avoid creating long-term bad habits.

Everyone knows by now that metrics are the keys to understanding how things work. If you are curious as to how well your car is running you track the miles per gallon it is using, how many dollars per month it is costing in maintenance and how comfortable the ride is. Using those metrics you get a pretty good feel for if your car needs work done or if it is time to trade it in for something newer. The same applies to your supply chain where you should be constantly tracking your metrics. What metrics matter most in your supply chain? How about:

SF per Area (Receiving, Putaway, Picking, etc)
Workers per Area

Pallet Product In
Carton Product In
Each Product In

Pallet Product Out
Carton Product Out
Each Product Out

Operating Hours to Date
Orders Out

Utilities Cost
Admin/Overhead Cost

Why are these the important metrics for your warehouse? They tell you just about everything you need to know about your suppliers, your customers and yourself. These metrics will let you know when situations change and you need to adapt. Look at these numbers on a either a bi-weekly or monthly basis. If you evaluate daily or weekly there will be too many fluctuations to see clear trends. More than monthly and you won't be able to react or understand the changes. Let's look at each of the metrics so that we can see why the metric is important.

Square feet per area and Workers per Area go hand in hand. You should already be allocating work hours by department so that you can understand where your costs are coming from. This is an extension of that. If there is a change in the number of Workers per SF in an area then it is time to evaluate what is going on in that area.

Monitoring the way product comes in and out gives you an understanding of supplier and customer trends. If there is a shift to in type of units inbound there may be a need to change the storage methods to accommodate the new size. You'll have the data to go to the purchasers or suppliers and ask them about the change so that you can adapt to meet it or explain why it isn't going to work. You will be able to meet with them before you get overwhelmed by the change. On the customer side you can begin to pre-work items to meet expected customer demand. If customers are ordering cases instead of pallets, there may be the wrong allocation of forklifts and order pickers to meet the change.

Orders Out and Operating Hours tells you how many orders per person-hour are going through your facility. This is the high level facility efficiency. If this changes downward then there is probably over-staffing. An upward trend should coincide with changes made to improve efficiency. If an upward trend suddenly occurs it gives reason to look at the staffing throughout each area.

Utilities and Admin costs help you understand and plan for operating costs. Seeing the trends in these costs will help you understand the economic conditions around your business. Spiking admin costs without the resulting improved orders should be a call to scale back. Utilities that are trending upward should be a sign to plan for higher future costs.

Knowing these metrics and charting them regularly will give you the tools to improve and monitor your supply chain. Using these metrics assumes that the operation currently in place is efficient and operates the way you want it to already. Monitoring the metrics of a poor operation won't help the underlying issues and will be of little value at all. If you need help in determining if your supply chain is in good shape our company can help.

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