Kiran Patel
Head of ERP & Project Management
Bluefin Solutions
Driving efficiency in your Supply Chain – storing and handling of goods
27 Oct 2010
ERP, ERP Supply Chain, Consumer Business
A fair portion of the cost of a manufacturing organisation is consumed as part of material storage and material handling. This is cost over and above that of the goods themselves.
Needless to say business’s yearn for the opportunity to drive down costs and run a leaner and meaner operation.
The following are examples of benefits that can be achieved by optimising an already existing SAP solution:
- Reduce the overall stock holding, hence also reduce the cost of storage
- Drive down obsolescence as a result of better planning and improved stock accuracy and visibility
- Improve efficiency and hence reduce labour cost by optimising the number of times a product is handled
- Reduce labour costs with optimum storage and picking strategies
The approach to benefits realisation in this area can be addressed using either a top down approach or a bottom up approach.
Top down approach
A top down approach will endeavour to address company wide benefits of the whole supply chain process. This really needs to be driven as a senior business initiative with a feed from the lower level areas but not aimed at fixing things at a lower level first.
Bottom up approach
A bottom up approach will endeavour to address the issues at the lowest level first hence achieving quick wins before addressing the bigger picture.
An initiative approach
An initiative to approach a cost reduction strategy from both ends at the same time is not uncommon but the two sides need to be appropriately aligned.
In order to make some headway in achieving benefits in the above areas the initial challenge is in understanding where the current processes are not optimal. The trick here is to define appropriate Key Performance Indicators (KPIs) and implement these first, to then allow more informed decisions to be made on potential process or system changes.
Typical KPIs include:
- Performance of ordering and despatch of goods
- Storage and handling metrics
- Performance of inventory and cycle counts
- Scale of obsolescence
So, the message here is quite clear. Leverage data that already exists in your current system into meaningful KPIs and then adopt a strategy either top down or bottom up to then drive cost efficiencies.
I have many examples of this type of exercise done in organisations in the past, but very interested to hear about specific challenges you have faced.
- Was your approach to use a bottom up or down approach, or something different?
- What were the key KPIs that helped drive your efficiencies?
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