Last week I started the discussion on measuring benefits and the two types, or groups, of benefits;
- Hard Benefit ROI – For instance, improved collaboration will support efficient shipment consolidation across suppliers and thereby reduce the LTL shipments by 30% which will reduce the overall transportation costs by 5%.
- Soft Benefit ROI – For instance, improved collaboration will increase the flow of information and simplify shipment tracking.
This week I thought it would be helpful to discuss some of the benefits that can be achieved through collaborative forecasting and planning. I think that everyone can agree that there are many benefits that can be achieved through improvements in collaboration and communication with your suppliers and partners within your extended supply chain. As I mentioned in my last article I saw in a recent study that said that only 7.5 percent of key suppliers and 6.3 percent of key customers are highly involved in collaborative forecasting and planning process! This indicates that the opportunities for improvements through collaboration and improved communications in the extended supply chain are still in their infancy. The challenge, however, is to identify and segregate the benefits that are ‘hard’ (can be measured for instance through cost savings) and ‘soft’ (more general types of benefits that are difficult to attach a financial savings).
So, what types of benefits should you expect from implementing a collaborative forecasting and planning process? Every organization is different and the improvements must be focused on the specific areas required by the individual situations. This will bring different benefits and amounts to the table, depending on the individual needs and costs of each organization. These improvements and benefits should be developed as a part of a continuous improvement program in order to ensure that the improvements can be focused in the areas that provide the greatest benefits.
Here are some suggestions for areas to evaluate for benefits;
- Inventory – Improved forecasting and planning can have a dramatic impact on your inventory and improve the turns! A simple reduction of 1% or 2% in inventory carrying costs can bring dramatic reductions to your bottom line! This requires a collaborative approach and sharing forecast information from both the sales and the manufacturing perspective in order for the full benefits to be achieved.
- Transportation – This is another area that can provide dramatic improvements and reductions in costs through consolidation of shipments. These improvements can take similar courses for import and domestic shipments; a reduction in less-than-container loads for imports and reduction in the less-than-trailer load shipments for domestic shipments.
- Customs / Global Trade Management – Don’t overlook the potential for savings provided through improved collaboration and partnerships with import suppliers and shippers that can be realized with improvements in managing the global trade customs paperwork required for all import shipments. There are two areas for improvement that can be achieved in this area; reductions in delays and handling charges for delayed or incomplete paperwork in the ports (the delays can incur additional costs at both the import and domestic ports), and, reductions in the effort and potential customs fines incurred due to inaccurate, late or incomplete paperwork!
- Receiving and quality control – Collaboration and forecasting improvements will also provide the opportunity to improve the flow and handling through improved scheduling when product is delivered to your distribution center. This has the potential to improve your yard management with trailer coordination, scheduling of shipments to reduce wait time and even eliminate trailer drops and pick-ups, which incur additional costs. Improved delivery coordination will also improve the flow through the receiving area and allow for improved resource scheduling and planning in receiving, QC and backstock management.
- Supplier performance management – Improved collaboration with supplier partners will provide the opportunity to develop service levels using performance indicators that will drive continuous improvements into the process, and partnerships, for everyone. Key areas to start the performance management program are product quality, order quality and delivery quality. Developing a set of service levels and standards in these areas will not only strengthen the partnership through the execution of clearly understood and accepted standards, they will also provide the basis of a robust continuous improvement program that will provide benefits to all partners in the relationship. Utilize the service levels and performance indicators to develop scorecards to rate and evaluate your partners on an equal basis to help you identify areas of strengths and improvements.
There is one additional requirement to take into account, and that is ‘How do you measure the ROI?’ In fact, this is at least as important, if not more important, than defining the potential benefits. As part of your exercise to evaluate and determine the benefits, make sure that you also evaluate and define how, and when, you can measure the ROI.
Now for the audience participation portion of this program……
How do you justify your initiatives?
Have you been challenged to deliver hard benefits when submitting initiatives for approval?
Would you please provide examples and types of hard benefits you have identified in collaboration and communication to help the community justify their initiatives?