Two Simple Measurements to Assess Supply Chain Performance

By Tom Cisewski | Principal, Supply Chain Design Let’s start with the obvious: on a per unit basis, heavier shipments are cheaper than lighter shipments, and...


By Tom Cisewski | Principal, Supply Chain Design


Let’s start with the obvious: on a per unit basis, heavier shipments are cheaper than lighter shipments, and shorter shipments are cheaper than longer shipments. In most cases, shorter and heavier shipments also provide better service to customers as well – they arrive faster, are handled fewer times, have less damage, and are more likely to arrive when and how the customer wants it.

With transportation making up 60-80% of total supply chain costs, the heavy and short vs. light and long assessment matters. Now that we have discussed the obvious, ask yourself,

“How well does my company measure and track shipment size AND shipment distance?”

If the answer is not “Great!,” then you are not alone. At Chainalytics, we work with companies on several dozen supply chain design projects a year. On each, we review supply chain key performance indicators (KPIs) and business intelligence (BI) reports. While many track either shipment size or shipment distance, few track both. Most are highly aggregated, and are often point estimates (e.g. “our average shipment size in February was 6,300 pounds”).

A better approach is to assess shipment size AND shipment distance at the same time (think X-Y scatter plot, quadrant analysis, etc.) By doing so, you can see how many shipments are light and long vs. heavy and short – a much more powerful way to assess and address two key supply chain metrics. The diagram below is a simple way to visualize the data.



If we plot our client’s data two-dimensionally and see a lot of shipments in the lower left, it’s a symptom of bigger issues. The remedies could be simple or complex, but a deeper analysis is definitely suggested to get to the root cause(s) of the problem.

Here are three questions to ask if you have “light and long” issues:

  • Do we have the right number of distribution centers in the right locations?
    As a general rule, if your customers require a lot of light shipments, then supply chains with many sources of supply, closer to customer demand, are usually favored. Network design analyses can determine the appropriate number and location of distribution facilities, considering inbound and outbound transportation costs, facility operating costs and inventory carrying costs concurrently.
  • Can we implement a freight pooling or cross-docking strategy?
    My colleague, Mike Eaton, is writing a blog entitled “Cross-Docking Is Not As Complicated As You Think.” I had a preview and it’s a great read, with practical advice on assessing cross-dock opportunities. If you find yourself shipping many light shipments to a region far away from your distribution center, establishing a cross-dock may convert many light and long shipments to one heavy and long shipment and many light and short ones. If moving distribution centers isn’t an option and customers require light shipments, then cross-docks might provide opportunities to reduce cost and improve service.
  • Do we know where our inventory should be at what time?
    If you have a large number of light and long shipments because of (unplanned) out of region shipments, then a closer look at demand planning and inventory deployment processes is warranted. Measuring and monitoring light/heavy and short/long concurrently will give you the opportunity to better quantify the impact of inventory repositioning and out of region shipments. If the impact is large, there are a number of forecasting and inventory deployment strategies that can address the issue, but that’s a subject for another blog…

For help finding the answer to these questions regarding your supply chain network strategy, I’m an open book. Feel free to connect with me on LinkedIn or continue the discussion on the Supply Chain Intelligence Network™ group.


Tom Cisewski is a Principal of the Supply Chain Design practice at Chainalytics.  In addition to leading client engagements, Tom is responsible for advancing Chainalytics’ project delivery methodology and mentoring consulting staff within the practice. Fun fact: he has had conversations with three U.S. Presidents, but none of the conversations had anything to do with supply chain performance indicators.

 

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