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INNOVATION IN THE SUPPLY CHAIN –FOCUS ON DISTRIBUTION Presented by: Bill Tallman, President, William H. Tallman & Associates, Inc. Date: February 17, 2009.

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Presentation on theme: "INNOVATION IN THE SUPPLY CHAIN –FOCUS ON DISTRIBUTION Presented by: Bill Tallman, President, William H. Tallman & Associates, Inc. Date: February 17, 2009."— Presentation transcript:

1 INNOVATION IN THE SUPPLY CHAIN –FOCUS ON DISTRIBUTION Presented by: Bill Tallman, President, William H. Tallman & Associates, Inc. Date: February 17, 2009

2 1 Supply Chain ABSTRACT ITEMS WORTH NOTE: –3 million jobs lost in homebuilding industry since –Housing starts down 34% in 2007 vs –Real estate market value is down and has not reached a bottom. Owners may defer selling.

3 2 Supply Chain THE CHALLENGE: –New houses will be fewer. –Homeowners will be reluctant to sell. –PERHAPS WE CAN TAKE SOME COSTS OUT OF THE PRODUCTION AND DISTRIBUTION PROCESS AND REDUCE THE PRICE TO THE CUSTOMER! –Would this kindle some interest in the customer to buy?

4 3 Supply Chain SUPPLY CHAIN ABSOLUTES –Prepare process map / flow chart of the process. Does each step add value? If each step does not add value, does it provide a necessary operational audit trail? If it does neither of the above – stop it. –Develop an accurate, up-to-date forecast Quality estimate Trend / regression analysis Product category (ABC) Product mix (P/N, Size, Style, Color, etc.).

5 4 Supply Chain SUPPLY CHAIN ABSOLUTES (Contd) –Make sure your ERP system has a robust Supply chain module. If it does not, get one. –Buyers / buyer planners must have access to the forecast. –Perform ABC Analysis to determine ABC vendors. –Reduce the Cost of Quality. –Establish Six Sigma concepts in the Purchasing process

6 5 Supply Chain SUPPLY CHAIN ABSOLUTES (Contd) –Certify all A vendors within six months. –Implement a cost reduction program. –Implement a lead time reduction program (internal / external). –Implement an inventory reduction program. –Institute the concept of proprietors of the various categories of inventory.

7 6 Supply Chain SUPPLY CHAIN ABSOLUTES (Contd) –Implement an inventory turnover improvement program. Finished Goods, 8-12 turns per year. Maintenance, Repair and Operational Supplies (MRO), 4-8 turns per year These are starting points. The more turns the better. –Implement a Cost of Goods (COGS) Reduction Program. Direct Labor Direct Material Direct Overhead

8 7 Supply Chain SUPPLY CHAIN ABSOLUTES (Contd) –Implement a consignment Inventory Program. On site Vendors location –Implement a vendor managed inventory (VMI) program. –Perform a warehouse / distribution center analysis. Physical layout, aisles (one-way?) wide enough, too wide? Lighting location (green consideration) Using the 3 rd dimension properly? Know OSHA requirements Know Capacity (pallet spaces – use the cube wisely

9 8 Supply Chain SUPPLY CHAIN ABSOLUTES (Contd) –Provide 60 hours of training / year / person –Implement a performance based green and lean environment. Assign Champions Identify responsibilities Determine deliverables Accomplished with existing staff Do not reduce staff because of productivity improvements. You will need them to accommodate the additional business you will receive Determine time frames for accomplishment

10 9 Supply Chain SUPPLY CHAIN ABSOLUTES (Contd) –Build a project plan to document all the initiatives that will be undertaken. Work breakdown structure (WBS) Critical Path Resources Milestones –Dispose of all obsolete and slow moving inventory. (See Appendix for How To.

11 10 Supply Chain SUPPLY CHAIN ABSOLUTES (Contd) –Investigate the Production / Distribution Process. Order entry Production Receiving / Shipping Transportation / Distribution FOB Issues (Who owns the product enroute?) –Establish use of a Customs Broker at Point of Entry (POE) for off- shore materials Expeditious handling Shorter lead times

12 11 Supply Chain SUPPLY CHAIN ABSOLUTES (Contd) –Think Green and Lean Implement improvements Recycle products where possible Efforts must be cost and results justified –Establish responsibility for HAZMAT Ordering Receipt Storage Issue Usage Return Disposal

13 12 Supply Chain SUPPLY CHAIN ABSOLUTES (Contd) –Investigate supplier / vendor data base. Reduce the number to three (3) All three receive business Provide for business continuity in case of shortfall –Determine inventory carrying / ownership costs Cost of capital 8.0% Cost of obsolescence 8.5% Salaries, wages, benefits 3.5% Depreciation / deterioration 1.5% Insurance (inventory and building) 1.2% Warehousing storage facilities and services 1.5%

14 13 Supply Chain SUPPLY CHAIN ABSOLUTES (Contd) –Determine inventory carrying / ownership costs (Contd) Loss and shrinkage 3.5% Material handling 1.8% Inventory control 1.5% Federal / state asset tax 1.5 National average 32.5% Range was 25 to 40%

15 14 Supply Chain SUPPLY CHAIN CONSIDERATIONS –Form or join a purchasing consortium / business association –Form or join an inventory disposition consortium / business association –Form or join a political action committee (PAC) or lobbying group –Establish a plan to migrate the purchasing process to performance based blanket orders, multi-year contracts

16 15 Supply Chain SUPPLY CHAIN CONSIDERATIONS (Contd) –Perform feasibility study to determine if Procurenment Cards would be practical for small purchases.

17 16 Supply Chain APPENDIX –The Pareto Principle –The Breakthrough Promise of 16X –How to Develop an Inventory Reduction Program Developing an accurate, upto-date forecast Performing an ABC Analysis How to determine the active and inactive inventory How to develop the inventory disposition program –How to Introduce New Products –How to Retire Old Products

18 17 Supply Chain APPENDIX (Contd) –Managing the Bill of Materials –Reporting on How We Did –Cost / Benefit Analysis –Cost Containment / Reduction / Tracking –Cost of Materials in Future –The CPI (Consumer Price Index) –SGA / GA Expenses –WHT Bio


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