Part 3 of a 6 Part Series: Building Infrastructure Strength for Future Growth
Each week, we will go into details on how to address project and change management now to create a resilient and robust organization for tomorrow.
If you missed last week’s blog on Accessing Inventory Management, you can check it out here.
This week, we will look at the 3rd of 6 ways a company can use downtime to impact the greater good of the organization and position themselves to be a better, stronger company when the work picks back up.
Supply Chain Reconfiguration
The supply chain consists of many elements and it is critical that they are working in concert with each other. Strong communication between departments becomes essential to the success of supply chain operation. For example, the procurement and logistics teams must work together to achieve their goals. Typically, procurement’s mandate compels it to pursue the lowest possible price. The logistics function, concerned with the entire supply chain, is evaluating the best possible price, which includes factors beyond the actual price tag, such as end of day pick up time cut-offs, delivery times to top-tier customers, and damage rate. Departmental synergy between procurement and logistics is a must when a company seeks to evaluate their supply chain and reconfigure for optimal operation.
Specific Example: Centralized Versus Decentralized Warehousing Analysis
In the centralized distribution model, operations are typically limited to a “central” location. If there is more than one hub, the locations may be geographically spaced to handle East Coast and West Coast time zones or area-specific product lines.
When a business moves into a decentralized distribution model, the product moves further away from the key stakeholders at the “central” corporate office and closer to the end customer. While this can be accomplished through self-owned warehouse and logistics, a managed decentralized logistics network is far more agile than the alternative. Industries more primed to take advantage of decentralized supply chains are e-commerce, service and repair, pharmaceuticals, medical devices, and just-in-time inventory.
By applying a hybrid model that blends centralized and decentralized supply chain methodologies, a business can enjoy some of the advantages of each while mitigating the negatives. The idea of a hybrid supply chain, although may be an easier sell to a leadership team that favors a centralized or a decentralized logistics solution.
- Fewer locations make the standardization of systems and processes through the business easier. Company culture is easier to foster and maintain in a single location.
- Management has faster visibility to a product when there is a concern since everything is often located in the same building.
- Each node of the supply chain can be tuned to that specific area's demand to best serve the customer base. Product levels can be distributed to locations across the country based on the volume of orders in that area.
- Customers with critical need may have the option of will call or same-day delivery with moderate cost. For example, a customer may be able to order an item and pick it up in the same day.
- The ability to test systems, products, markets, and suppliers on a small scale before rolling out to the entire organization can lead to better data-driven decisions.
- Standardization of systems and processes is easier. Company culture can be fostered and maintained in a single location.
- Leadership has the ability to locate products quickly if there are concerns about inventory status or reliability.
- The additional locations can be stocked to that specific area's demand in order to better serve customers. Products can be distributed to locations across the US based on the volume of orders.
- Customers with critical needs may have the option of will call or same-day delivery with moderate cost.
- The decentralized locations will grant the ability to test systems, products, markets, and suppliers on a small scale before rolling out to the entire organization.
- Bargaining power with suppliers can be maintained by shipping in bulk to a single location.
Organizational Recommendations for Procurement
At Corcentric, we strongly recommend that Procurement departments do the following:
1) Align with the strategic goals of the organization
2) Consider the sourcing profiles and nuances for all categories
3) Understand each business unit and stakeholder requirements
4) Provide visibility to the entire organization and share best practices across categories and business units
5) Leverage data analytics and tools to identify, road-map, and execute on actionable sourcing strategies that would maximize value with minimum stress while adequately generating reports
6) Enable organizational culture, in which all sourcing activities are centrally led and reported into but execution and tactical deployments are category driven and left to the sites and business units.
Such steps enable volume consolidation with a healthy supply base balance that supports local or regional concerns. Corcentric defines this approach as center-led procurement. The objective should be to build a center of excellence that entails a much more comprehensive structure, one that leverages the blessings of data management, as much as it does cultural alignment or category management modeling. Center-led procurement maximizes savings without causing disruption. It enables superior supplier relationship management, aligns the businesses to the strategic goals of the organization, and provides key insights and visibility into the organization’s purchasing behavior.
If a company is under the assumption that the only options for warehousing are either centralized or decentralized, they should look deeper into the center-led (see sidebar) or hybrid models. The best center-led procurement organizations concentrate on defining strategy and policy, as well as applying best practices to both direct and indirect procurement. They mostly employ a category management structure that supports the roll-out of their directives to business unit and regional levels. Hybrid models adopt a pick-and-choose approach to procurement, with a central leadership structure supported by local managers with some degree of autonomy. The most effective center-led systems maximize communication along the organizational chart to ensure core standards are maintained and aggressively take advantage of technology to facilitate those goals. An organization must be prepared to take action if change is the best option. If it is determined the center-led model works best, it is incumbent on Procurement to gain the necessary buy-in and resources to make the change.
Please check back next week for a look at part 4 of this series where we will discuss ‘Introducing Automation’.