Supply Chain Marching Orders: Support New Product Introductions and Reduce Costs

Sell more SKUs to your existing customers and cut costs in the process! In May 2008, FORTE conducted its first ever survey of supply chain executives in an effort to uncover the key issues on the minds of logistics professionals, and these two messages resounded loud and clear from the survey results.

Cost reduction initiatives were cited by this group of executives as the top enterprise-level event that is affecting their supply chain management, cited more frequently than changes in sourcing strategy or introducing new sales channels. (Figure 1).

FIGURE 1: Enterprise-Level Events Affecting Supply Chain Management (Click to Zoom)

In view of recent economic news on Wall Street, cost cutting is likely to remain a key pressure on supply chains for some time to come. On October 6th, The Boston Globe reported that, “when the government releases quarterly numbers later this month, they are expected to show that consumer spending shrank 3 percent or more. That would be the first quarterly decline since 1990, ahead of the 1991 recession, and the steepest since 1981.” Furthermore, with credit markets constricting, and ready access to capital diminishing, companies are under pressure as never before to improve the efficiency of their supply chains.

The top area companies have targeted for savings is in reducing transportation costs. (Figure 2). This is no surprise considering the fact that gas prices have doubled in the last two years, and tripled since 2000. Top companies are using strategies such as expressive carrier bidding, automated audit and payment for freight invoices, and a variety of flavors of load optimization in an effort to reduce their overall freight spend. “At the beginning of this year, I was tasked with reducing our freight spend by $500,000,” said one executive at the conference. “And that was before the worst of the fuel price hikes. Strategies such as these will be instrumental in helping us reach that goal.”

FIGURE 2: Supply Chain-Level Issues Impacting Operations (Click to Zoom)

As Figure 1 shows, companies are also concerned with properly managing new product introductions. This pressure was felt most heavily in the healthcare and consumer goods manufacturing industries, but likely for different reasons. Medical device manufacturers, for instance, face intense regulatory pressure each time a new product is rolled out for distribution, with stringent requirements for the distribution center to accommodate an influx of new product at the same time. Consumer goods manufacturers tend to release new product much more frequently than companies in the healthcare industry, and often the sheer volume of new SKU’s can overwhelm a company’s supply chain. Transportation models must be revisited, space in the distribution center becomes an issue, proper slotting comes to the forefront, and people and processes must handle surges that may far exceed normal operating conditions. Sadly, for many companies, there is no centralized ownership of new product introductions from a supply chain perspective.

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