Abe Lincoln told a story about a frontiersman who lost his way in an uninhabited region on a dark and stormy night. Thunder and lightning that encased the evening sky like an electric spider web. To increase his trouble his horse halted, being exhausted with fatigue and fright.
Then lightning struck a tree, and the ensuing crash brought the man to his knees. He was not an expert in prayer, but his appeal was short and to the point: ‘Oh, good Lord, if it is all the same to you… give us a little more light, and a little less noise.’
Small to mid-size concrete companies sense they are in trouble. Customers want more variety, more convenience, more flexibility, and more service. Yet satisfying them adds even more cost and complexity at a time when pressures are felt from scarce labor and increasing cement and aggregate prices. Big producers have steadily acquired new skills needed to identify and capture the difficult improvements. But with fewer resources, smaller producers are not always able to run the business and keep up with the competition at the same time.
Making matters worse, the industry is awash with wonky jargon that complicates and intimidates as much as it does educate. Businesses without in-house resources must worry about how to adopt “circular economy” business models, migrate to “smart” manufacturing, leverage Industry 4.0 technologies, and harness the Internet of Things. Whitepapers swirl about in a never-ending vortex looking for a desk to land on.
In short, there is a lot of noise out there.
Producers that continue to achieve competitive distance do so because they only drive supply chain improvements that truly matter to the customer and the bottom line. Those that fall behind don’t necessarily need to “digitize” their supply chains as much as they need to stop making tradeoffs between functional competencies.
For example, operations managers try to rationalize overcapacity issues in plants, procurement consolidates their purchasing to leverage scale, and logistics managers seek to cut costs and improve delivery rates. But such piecemeal efforts won’t matter unless they’re part of a broader operational-improvement effort.
Too often, improvement in one area translates into chaos in another.
The answers for small operators lie not in adopting management fads but in shoring up common areas of opportunity that are ripe in value. Businesses that can execute these supply chain strategies have an opportunity to become market leaders.
Minimize self-imposed volatility
One common headache shared across all businesses is missed forecasts. There are two theories to getting an accurate forecast. Neither one works. A big reason for this is that forecasts are typically cannonballed by two forces of volatility: one that is market-driven and the other is self-induced. Companies that have straightened out their forecasting woes have rooted out their own volatility drivers. One real example: Company A discovered that 30% of their forecasting problems stemmed from stock outs. The underlying reason for the outages was the plants had no knowledge of sales promotions and thus had little reason to create inventory. The takeaway was to minimize the self-inflicted chaos and invest in reactive measures like production flexibility to handle the rest.
Prioritize key customer/product combinations
Collaborations between customer and supplier have proliferated as supply chain improvements have become exponentially harder to come by. Producers without a sales and operations planning group can barely find time to find the right mix of products and services to protect their customer bases. However, in a short amount of time at little to no investment, any size operator can implement a “consumer value” approach, which means that customers are prioritized based on profitability and strategic importance while also sorting products on volume demand variability. The sweet spot is at the intersection of these products and customers which should be serviced at the highest priority.
Periodically redesign logistics network to ensure optimal mix of inventory and freight costs
Conventional wisdom states that concentrating inventory in fewer distribution centers leads to inventory savings. However, centralization usually increases logistics costs from underutilized capacity and longer distances. Given the significant position of transport costs on most proft and loss statements, suppliers can’t afford to ignore inefficiencies in their logistics. A company should design its network every few years based on precise knowledge of what customer types need and which activities add value. To maximize on the optimum profitability, businesses must lean on a robust model that incorporates all relevant variables and constraints. Concrete producers can reduce logistics costs by up to 7% while maintaining or raising service levels with an in-house linear program model.
The pace at which supply chains have been incorporating new business models have greatly accelerated over the past 10 years. Now more than ever, supply-chain management is evolving into a cross-functional activity. Teams will have to interact more closely with other functional areas to identify factors that influence self-induced volatility, customer profitability and network hemorrhaging and agree on actions to manage them better. The answer is not subscribing to complicated precepts but being able to translate information into action and using language that is easy to understand.
Take it from Honest Abe.
