No Room for Logistics Inventory
The retail supply chain is laden with $450 billion worth of inventory, according to an April report from the U.S. Census Bureau. In addition, inventory carrying costs across all sectors increased 10.3 percent last year, according to a recent State of Logistics Report by the Council of Supply Chain Management Professionals.
At Ryder, we estimate that at least 10 percent — about $45 billion — of those inventories are associated with the execution of the logistics network, which we call “logistics inventory.” Already faced with the challenge of SKU proliferation, rapidly changing consumer trends and longer supply chains due to global sourcing, it’s more important than ever to remove excess logistics inventory from the supply chain.
Let’s consider a few examples of where logistics inventory is tied up in the supply chain. In a global sourcing model used by many retailers, goods are sourced from factories in Asia, consolidated at Asian ports, transported across the Pacific (primarily by ocean carriers), enter North America through West Coast ports and are delivered to distribution centers before finally making their way to store shelves. Excess logistics inventory begins to build if the factory has a delay in shipping the goods to Asian ports; likewise, if the ocean shipment delivery date varies by two or three days, more logistics inventory builds. If the goods are detained for import inspection at the domestic port of entry, lead time increases again and more logistics inventory is added.
Applying lean principles to identify and eliminate waste in every process that occurs as an order is fulfilled is one proven method for reducing logistics inventory. Lean tools like visual cues, problem-solving jackets and root cause analysis result in shortened lead times and built-in quality — ultimately increasing speed to market. We’ve also found that ongoing, incremental improvements, both small and large in scope, add up to a significant edge for the retail supply chain.
One important tool for continuous improvement is value stream mapping. These maps are created for many aspects of the supply chain like consolidation and container loading, route optimization and, on a larger scale, overall network design.
Another important factor in eliminating logistics inventory from the supply chain is visibility — that is, knowing where products are located at any given point in time. Visibility allows retailers to manage by exception. This involves knowing when an event is interrupting the delivery plan, and then using that information to adjust the supply chain accordingly. At Ryder, we use a “control tower” approach to supervising and orchestrating movement in the supply chain. The control tower approach provides an end-to-end view of supply chain movement and ensures that the knowledge gained from visibility is used to execute the optimal supply chain.
By gaining visibility to control supply chain movements through a control tower view and applying lean principles and continuous improvement, the execution of your supply chain will become more predictable. A more predictable supply chain will result in removing excess inventory, increasing speed to market and, ultimately, lowering overall supply chain costs.
That’s why when it comes to logistics, execution is everything.