Manufacturing Supply Chain Pillared on Sourcing, Production and Making

By Luis Espinosa, Director Route Development/corporate account/Supply chain optimization, Panalpina [SWX: PWTN]

Luis Espinosa, Director Route Development/corporate account/Supply chain optimization, Panalpina [SWX: PWTN]

Supply Chain embraces a variety of functions directly connected to the core of the manufacturing bottom line: “Productivity.” In today’s world, the majority of companies do not compete for the brand name, with one example being Toyota vs GM. Instead, companies have close competition between their respective supply chains.

The Strategy is the daily game most manufacturers have to keep in mind. The decisions key stakeholders make will impact the company’s destiny greatly. Here comes the crossroad…

Did I make the right decision? Stakeholders have to deal with the aftermath of every decision they make. Communication, analysis of the current situation, and possible impacts are all key factors to make the right decisions. Three main elements of the manufacturing supply chain are: Sourcing – Production – Making.

The individuals involved in these three elements are the following:

1. Sourcing = Buyers & Planners

2. Production = Master Production Scheduler / Materials manager / Production managers

3. Making = Sales / Customer Service

But- there is one department that for some unknown reason is often not included in the supply chain strategy: Logistics & Transportation. The challenge is: How can the L&T department support companies’ strategies if the information is not available? The more you know, the more you grow. The ideal strategic situation for a manufacturer to work on Supply Chain Optimization is to “work less and earn more.” It sounds nice and sweet. The reality is that behind every successful manufacturing company there is a partner making sure the optimization plan is running as scheduled. What do I mean by that? In order for your partners (vendors indirect material, direct materials, transportation, W&D, Quality etc) to be able to support your “Supply Chain Optimization” plan, they have to design a solution. They must build the solution that is aligned to the final goal. “Productivity”… Work less and Earn More. In order for your business partner to build a solution, there are components of information that have to be compiled (just to name some of them):

1) What is the current situation?

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2) What are the main points or challenges?

3) What is the impact of current challenges?

4) What is the financial impact?

5) What would be business impact with your final customers if the challenge continues?

"The ideal strategic situation for a manufacturer is to work on Supply Chain Optimization is to “work less and earn more"

Let’s put a manufacturing company that’s sourcing 90 percent of their raw materials transported in Ocean containers from Asia into perspective. Current lead time (FOB) from China to Texas is an average of 27 days. Production had a problem with a big batch that Quality inspection rejected. Safety stock for production will only last 3 weeks. Stakeholders have to make the decision to airfreight the raw material in order to keep their MPS running on schedule. The cost of shut down time by reprogramming production line to work on a different part of assembly will cost a tremendous financial impact due to the down time of reprograming of at least 3 hours plus labor without producing. Planners, supply chain, and freight forwarder partners have to put their thoughts and ideas together in order to come up with a solution that will solve the situation moving forward.

Some of the solutions I have experienced to be very valuable in terms of productivity, increase and reduction of inventor, and carrying costs are as follows:

a) The company has 3 ocean containers 40’ HQ per Master Bill of lading every week. We worked with the planners and buyers for their vendors to get the cargo ready on a specific timeline, allowing for the freight forwarder to pre-book a specific sailing schedule every week.

b) Freight forwarders will pick up the containers and prepare documentation with three Bill of ladings (as each container is from different vendor) and will issue a master bill of lading embracing all the three house bills of lading.

c) FFW will terminate in port of unloading. “Long Beach”

d) Containers clear customs and are transferred from port to FFW warehouse and unloaded.

e) The pallets of the three containers (only palletize that can be double stack cargo) will be configured to be loaded into 2 x 53’ Full Trucks and will be moving to their final destination.

The benefits of this Supply Chain Optimization program are listed below:

1) The trade lane from China (Shanghai) to Long Beach lead time 15 days average.

2) Reduction of lead time from truck vs rail terminal saves around 11 days (considering Texas)

3) Inventory carrying cost reduction plus lead time reduction of at least 7 days.

4) Planners will have more flexibility and accurate forecast committed to MPS (master production schedule).

5) Saving transportation from Los Angeles to destination using 2 trucks instead of three. The configuration of 2 trucks provides savings of 4 truck per month / 40 trucks per year savings.

6) Keeping lower levels of buffer inventory

7) Control of raw materials plus producing on schedule equals final customer satisfaction and promotes cash flow by billing their customer faster.

Nowadays, Supply Chain Optimization requires the efforts of the team’s manufacturer and freight forwarder. It is recommended to set up workshops with the customers to define the goals of every department involved in the supply chain in order to understand fine details and create a defined solid objective to be achieved. It will take time, but the results will last for the whole year in productivity, increased cash flow, and minimizing line shut downs by 99 percent.

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