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Simple Modeling Can Lead to Significant Supply Chain Savings

Posted By Everette Phillips, March 28, 2013 at 10:33 AM, in Category: The Adaptive Organization

Posted by Everette Phillips on Mar 28, 2013 10:18:48 AM

At a recent professional development dinner, I got a chance to hear from fellow UCLA Anderson alum Kristen Kravitz, who shared a project she worked on as a consultant to examine and find cost savings in the supply chain. The moral of her story was that a focus on continuous improvement, combined with the use of metrics as part of your management process and simple Excel spreadsheet modeling, can result in real and significant savings.

The importance of using metrics as part of your management process was a key take-away for me. In the warehouse and in the factory, Kristen’s team had, in prior engagements, recorded critical operations productivity success metrics such as the cost to pick a case, the cost to load a pallet on a rack or in a truck, put away costs and replenishment costs. In addition, her team had the habit of recording and maintaining information about the racks. Thus, for each bin location, they had recorded information such as rack height and rack weight limits. They also kept information on trailer door height for truckers and on regulatory parameters affecting different facilities such as the legal stack heights allowed by fire departments and OSHA requirements for certain materials.

Simply tracking these metrics allows supply chain managers to get a feeling of the real distribution of costs and supports analysis that can be used to improve profits SKU by SKU.

Not satisfied with just focusing on efficiency parameter by parameter, however, Kristen and her team created an Excel spreadsheet model based on the data available, adding costs per truck movement, truck weight limits, and cost per pallet. She then asked a simple question: “What if we examined the influence, by SKU, of adding a layer of product or removing a layer of product stacked on each pallet during transportation and storage?"

Kristen created a model that actually looked at three scenarios of adding one pallet and two scenarios of removing a pallet.  At first the model was run without constraints just to get a feeling for dynamics.The potential savings were more than $400,000. The model was then run flagging constraints like rack height, rackweight, trailer door height, and truck weight limit. The constrained potential savings were reduced to about $360,000. However the model showed, by focusing on just 10 SKUs, the team could make significant savings.

By organizing SKUs and pallet dimensions on the manufacturing side and making sure manufacturing filled trucks to the weight limit, by adding a layer or two of product by SKU, and by adding  some other small refinements in the warehouse, Kristen’s team had reduced pallet costs,reduced plant labor, and increased warehouse labor while also increasing freight costs. The total realized savings were $200,000.

We sometimes forget that we carry the computer power in our palms that is equivalent to what was a super computer not too many years ago. With relative ease we can build models and test ideas that lead to real improvements on the factory floor, in the warehouse, or in our supply chains.

Also, we are often so busy that we neglect the simple trade association networking dinner or professional improvement event that can help us share with and learn from others in our profession and related professions.

What improvements in manufacturing will you make in manufacturing or supply chain using your spreadsheet and personal super computer?

EverettePhillips is CEO and president of Global Manufacturing Network, a provider of contract manufacturing, sourcing, and logistics services for products and components with a focus on items with special engineering requirements.

Written by Everette Phillips

Everette's experience includes robotics, advanced manufacturing, supply chain management and international manufacturing. After a career path as a robotics engineer helping automate plants in North America, he became a manager of European Operations for Factory Automation & Robotics in Europe for SEIKO living an expat in Brussels then returning to the US as GM for Advanced Mfg Technologies in North America. Currently, as President of Global Mfg Network, he is involved in coordinating production of highly engineered parts, assemblies and products across a wide range of industries in manufacturing facilities located in Asia and North America and Europe. Everette is a regular speaker and panelist on topics related to manufacturing, international business and technologies such as robotics and advanced manufacturing. He has a BS Bioengineering from Cornell and an MBA from the UCLA Anderson School. Everette serves on the board of Cornell Engineering Alumni Association as a Regional VP and on the Advisory Board for Entrepreneurship@Cornell.

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