Supply Chain Management Best Practices. David Blanchard

by quality problems (exacerbated, according to a 2019 New York Times investigation, by “a culture that often values production speed over quality”),⁶ the company has succeeded in upping its monthly production of Dreamliners to 14.

Consumer-Packaged Goods: The Moment of Truth

There is a defining moment of truth for every customer who enters a retail store, and it comes when the customer selects a specific product for purchase. If there is one thing retailers and their consumer packaged goods (CPG) suppliers fear more than anything else, it's the dreaded empty shelf. When you consider that the out-of-stock rate for retailers averages around 10%, there's a lot of money not being spent by frustrated consumers.

      When Procter & Gamble Co. formed its Consumer-Driven Supply Network, it set some lofty goals for its supply chain transformation efforts: reduce inventory by 50%, trim out-of-stocks by 50%, and achieve 20% savings in logistics costs. Reaching those goals required addressing such key areas as product availability, shelf quality, and on-time delivery.

“Time is money—the longer and slower the supply chain, the more costly it is,” explains consultant Patrick Arlequeeuw, formerly P&G's vice president, global business services. “When you take time and cost out of the supply network, you increase flexibility and responsiveness.” Instead of a long, slow chain from raw materials to the finished product on the shelf, P&G set out to create a network of suppliers, manufacturers, and retailers that would facilitate real-time information flow between all these partners, starting with what's happening at the shelf, he says.⁷

      What that means is that P&G moved from the traditional CPG model of producing to a forecast to producing according to demand, with the goal of replenishing products as soon as they're purchased. Part of that strategy depends on technology that can receive point-of-sale data from the retailer and convert it into a replenishment order. For instance, P&G synchronizes item data with key retail customers, which helps eliminate unnecessary transcription work while reducing out-of-stocks.

      Equally important to that strategy is having an idea of what consumers want even before they enter the store. To that end, P&G regularly surveys its end consumers and works directly with its retailer customers to continuously improve its service levels. The Consumer-Driven Supply Network is “based on a vision of using a consumer purchase to trigger real-time information movement throughout the supply network,” explains Arlequeeuw. “This requires a fundamental change in how supply networks are designed. It means looking at the supply system from the shelf back and determining what is required to deliver the desired consumer experience.” By focusing on its supply chain strategy, P&G has been able to drive consumer needs deeper into the supply network, while increasing its responsiveness and flexibility.

      Digital transformation is one of the current buzzwords of the 2020s, but P&G's interest and investment in transformational supply chain technologies dates back many decades. The company, for instance, helped pioneer the development of the electronic product code back in the 1990s, an important milestone along the road to the emergence of radio frequency identification (RFID) as a business-oriented solution. In more recent years, P&G has launched initiatives involving such technologies as the Internet of Things, robotics, augmented reality, and artificial intelligence.

As Bob Herzog, P&G's senior director of planning, points out, “The commercial leadership of our company recognizes that the digital transformation we have in supply chain planning is a competitive advantage.” The company's North American supply chain group is responsible for 16,000 SKUs, 45,000 orders planned per day, and 2,800 vehicles shipped out every day, and the group oversees a supply network of 30 manufacturing plants and 1,200 suppliers. Using concurrent planning, an AI-based technique that synchronizes schedules and events across organizational departments and throughout the supply chain, allows P&G's planners to run scenarios for their product lines several times a day.

“By knowing what's happening sooner and responding faster to it, it allows us to do in just minutes, or at most in a few hours, what used to take us multiple days to do,” Herzog explains. “We can respond to customer requests on the spot, taking time out of the supply chain and winning at the moment of truth for our partners.”⁸

Food and Beverage: Cutting Out the Middleman

According to an industry study, more than 80% of the manufacturers and retailers in the United States are outsourcing at least some of their logistics operations to a third-party logistics provider (3PL).⁹ Be that as it may, dairy producer Land O'Lakes believes it has gained a significant savings on its freight costs by bucking the 3PL trend. As a result of bringing its logistics operations back in-house as well as participating in a collaborative transportation network, the nation's leading butter producer has been able to shave as much as 20% off its annual freight costs.

Those savings came in several ways. For one thing, Land O'Lakes no longer had to pay administration fees to a 3PL, which were running as much as $20 per load. Considering that the company might ship out 30,000 truckloads per year, that adds up to a hefty savings right there. Also, by eliminating the 3PL from the equation, Land O'Lakes was able to negotiate its own transportation rates with the motor carriers—in effect, cutting out the middleman—and in the process reclaimed logistics as one of its core competencies.¹⁰

      Land O'Lakes' use of a web-based collaborative network also enables it and other participants—manufacturers, retailers, and carriers—to plan, execute, and settle their inbound and outbound truckload and less-than-truckload (LTL) transportation. That allows the company to be more proactive about getting the level of customer service it needs from the trucking companies. It wasn't so much that the 3PL wasn't equal to the task, but Land O'Lakes preferred to execute on its own freight strategy, which could happen only by bringing the transportation process back in-house.

The collaborative network it uses consolidates and updates information about routes, loads, and schedules from all of the members' in-house logistics scheduling systems. One advantage to using a collaborative network is the ability to set up tours—sharing truckload capacity with other network participants. For instance, Land O'Lakes is involved with another consumer goods company on a backhaul pilot project. The two companies are partnering to share loads with the goal of reducing empty miles—those periods of time when a truck is traveling from one destination to another without carrying any freight. In the packaged foods industry, trucks are often empty as much as 25% of the time spent moving between stops. If, for instance, Land O'Lakes has several truckloads of refrigerated freight per week going from Chicago to Philadelphia, and another member of the network community has a similar number of weekly truckloads going from Philadelphia to Chicago, then both companies stand to benefit by sharing the available capacity and eliminating empty “deadhead” miles.

There is some risk involved in such a partnership, admits Yone Dewberry, Land O'Lakes' chief supply chain officer. “If we accept a return shipment from the other shipper, there is the chance that delays associated with that shipment could lead to that truck not being available when it is needed.” The key to making such a partnership work for all parties, Dewberry says, is real-time shipment visibility.¹¹

Land O'Lakes is also working with Uber Freight on a project utilizing freight-hailing technology to match suppliers with available trucks using an app similar to the one passengers use to hail taxi-like car rides from parent company Uber. For a single lane between the Texas cities of Fort Worth and Nacogdoches (a distance of roughly two hundred miles one-way), Land O'Lakes posts all available loads to the Uber Freight app, where carriers and drivers can see all the details of