By Hugh Finerty, President of Hugh Finerty Global Logistics Consulting
Too Much Variance
What percentage of your foreign sourced orders, shipped by ocean carrier, arrive at your warehouse within two days of your original plan window? In supply chain language, this difference between actual vs. planned is referred to as “variance”.
The answer I get from most the leaders at organizations sourcing overseas is pretty bleak. It is often accompanied by a facial expression of frustration and exasperation.
The largest of companies have been attacking this specific variance issue. Larger staff, sourcing personnel located in foreign countries, technology, and lean type of process improvements, all contribute to the reduction in these costly delivery time variances.
But, even the larger firms are struggling to eliminate the last few days of variance.
There is still more to do.
Cost of Variance
When I ask companies about the implications of this variance, I can sense blood pressure rising and see pupils dilating. I have brought back memories of unpleasant conversations and failed initiatives.
The answers include lost customers, lost orders, reduced orders, air freight costs, low customer satisfaction scores, substitution costs, high levels of safety stock, replenishment whipsaws, multiple fire fighting meetings, rescheduling manufacturing runs, excessive time spent tracing orders, stress on relationships with suppliers, stress on internal staff, cost of switching suppliers, and more.
The implications and costs from delivery time variances are staggering.
It is not just a cost variance for logistics. It is a margin nightmare and an unacceptable stress on people.
Where to Begin
In the logistics segment of the extended supply chain, there are more variables than just the sourcing point.
Identifying and categorizing these variables is a good starting point. This should include categories such as:
- controllable vs. uncontrollable
- predictable vs. unpredictable
- high risk, medium risk, and low risk
I like using Value Stream Mapping to help me identify the significant opportunities along the logistics process:
- First, I map the current state; time to get to the level of detail that shows the wasteful practices.
- Then I create a future state map that includes best practices and emerging trends.
- Now, it’s time for a gap analysis that shows what is needed to move from current state to future state.
Closing The Gap
Dealing with each gap, I analyze the internal staff or external partners handling the associated activity. Time to identify the controllable and uncontrollable risks, the predictable and unpredictable risks, and the amount of impact on delivery performance.
It’s also good to identify current performance metrics and the visibility to the organization of that activity.
Once this analysis and assessment is complete, we can begin adjusting the logistics structure to meet on-time delivery goals.
The solution often includes:
- performance measurement scorecards that will bring the suppliers into compliance on cargo tendering
- technology tools that enhance visibility into the life cycle of the order
- partnership configurations to leverage core competencies and technology
- elimination of the waste that leads to variability
Guest Contributor – Hugh Finerty
Hugh is a highly motivated, curious, and disciplined industry professional. A life-long learner. A specialist in the global supply chain space who develops innovating models to align global logistics partners, processes, and technology into unique lean solutions that create flexibility, reliability, and predictability in global supply chains.
Holding nothing back, Hugh admits that his Myers Briggs Temperament Index (MBTI) profile is “INTJ” and his Gallup Strengthsfinder top themes are “achiever”, “strategist”, “activator”, “analyst”, and “learner”.
Hugh can be reached at: Hugh Finerty.
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