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"Inovis is a leading provider of on-demand Business Community Management solutions that empower companies to transact, collaborate and optimize communications with
every facet of their business communities. By standardizing and automating mission-critical business interactions, companies can dramatically reduce the complexity and cost of supply chain communication."
Source: Inovis
Tips to Improve Inbound Logistics by Managing Partner Performance
Logistics is also known as :
Distribution Warehousing,
Fleet,
Fleet Management System,
Global Logistics,
Inbound Logistic,
Inventory,
Inventory Control,
Inventory Management System,
Inventory Tracking,
Logistics Management,
Logistics Outsourcing,
Storage Warehousing,
Supply Chain Management,
Transport Management,
Warehouse Inventory,
Warehouse Management,
Warehousing,
Warehousing Management System,
Warehousing Solutions.
Introduction
As business organizations in every vertical sector know all too well, inbound
logistics is one aspect of the trading-partner community that is rife with
problems. Because there are so many steps involved in getting materials or
products from the supplier to the buyer, there are so many opportunities for
things to go wrong. Each error is a potentially expensive one, in terms of time, labor,
money, customer satisfaction and, ultimately, competitive position in the
marketplace.
The complexity of inbound logistics makes it tough to get a handle on the process.
Fortunately, however, there are strategic and tactical tools available to help
companies boost the logistics performance of their trading partners. By putting in
place a formal partner performance management program, a business organization
can dramatically reduce the number and impact of inbound-logistics problems and
thereby dramatically strengthen its competitive abilities.
This white paper will take a brief look at some of the common pain points associated
with inbound logistics; discuss how a formal program to manage trading partners'
performance can tackle those pain points; and detail some strategies that make up
such a program.
The topics included in this white paper are:
- Inbound Logistics - a Collection of Expensive Headaches
- The Best Remedy - a Partner-Performance Management (PPM) Program
- The Top 10 Strategies of an Effective PPM Program
Table of Contents
- Introduction
- Inbound Logistics - A Collection of Expensive Headaches
- The Best Remedy - A Formal Partner Performance Management (PPM)
Program
- The Top 10 Strategies of an Effective PPM Program
- About Inovis
Inbound Logistics
A Collection of Expensive Headaches
Although the following examples of inbound logistics problems come from one
industry, most companies in most vertical sectors are all too familiar with their own
variations of these headaches. XYZ Company is a national footwear retailer with
several hundred stores throughout the United States and a half-dozen warehouse
distribution facilities. On any given day, XYZ managers at the distribution centers
encounter one or more of the following problems:
- They don't receive what they thought they would receive. Trucks from
a supplier show up but instead of delivering an order of black running shoes,
they bring in an order of white running shoes.
- Trucks from a particular supplier do not show up at all. However, the
workers whose job it is to unload those trucks do show up. Obviously, XYZ
Company has to pay those workers even if there's nothing for them to do
and, to add insult to injury, the company can't replenish its store inventory of
black running shoes in a timely, cost-effective way.
- Trucks from a particular supplier show up but, as the workers begin
to unload them, they discover that part of the shipment is damaged.
One of the two trucks apparently has a crack in the cargo section, and a
recent rainstorm has soaked most of the shoes inside. Just what is XYZ
supposed to do now?
- Trucks from a particular supplier show up, but that supplier has not
complied with XYZ's shipping requirements. Specifically, the supplier
floor-loaded the boxes of shoes, rather than putting them on pallets and then
putting the pallets on the trucks. That means XYZ workers must spend a lot
more time and effort to unload the shipment by hand which means, of course,
that XYZ Company must spend more money on labor and more time in
getting the shoes out to its retail stores.
- Trucks from a particular supplier always show up, but the shipments
often are not consistent. Sometimes the supplier ships more shoes and
sometimes fewer shoes than XYZ ordered. On other occasions, the supplier
ships a load of Size-9 black loafers, when XYZ had ordered Size-10 black
loafers.
Each time one of these errors occurs, XYZ Company takes a hit, one that typically
triggers several other negative results as well. The falling-domino effect of a single
logistics problem extends well beyond time and money to hurt other aspects of a
company as well: operating efficiency, customer satisfaction, profitability and, of
course, competitive status in the market.
The Best Remedy
A Formal Partner-Performance Management (PPM) Program
Like their counterparts in so many other business organizations, the managers of
XYZ Company realize the best way to solve"or, better yet, prevent"these inboundlogistics
problems is to get trading partners to improve their performance. The best
way to achieve that objective is for XYZ to work closely with them, via a formal
partner-performance management (PPM) program, to 1) identify the cause of each
problem and 2) establish procedures to eliminate those causes"or at least
drastically reduce the number and impact of each one.
Consequently, many leading companies today are looking to invest in services and/or
software applications, such as those offered by Inovis, which are designed to help
them manage their trading partners' performance. The challenge, though, is sorting
through the myriad solutions available in the market to determine which ones will
solve their logistics problems in the fastest, most cost-effective manner.
The Top 10 Strategies of an Effective PPM Program
Although there is no one-size-fits-all solution to inbound-logistics problems, every
effective PPM program, regardless of the industry in question, incorporates one or
more of the following 10 strategies. By investing in a formal PPM program that
includes these strategies, a company can go a long way toward improving its
inbound logistics and thereby enhance its overall operating efficiencies and
competitive position in the market. The top 10 strategies are:
- certification as part of rollout
- post-go live stabilization and monitoring
- daily worklists for suppliers
- proactive/predictive alerts
- invoice deductions
- scorecards
- scorecard improvement programs
- performance improvement incentives
- catalog program integrated with PPM program
- get audited
1. Certification as Part of Rollout
A major portion of the issues that cause inbound-logistics problems have to do with
data or, more accurately, the lack of correct data. Chances are very good that a
company's trading partners are not providing the information that company needs to
deal with them effectively on inbound logistics. Therefore, when bringing a new
supplier into the trading-partner community, a company should add to the
onboarding procedures a certification program that 1) tests the supplier's ability to
provide the specific data the company requires and 2) spells out the business rules
that will drive that testing process.
For example, for certified receiving, XYZ Company will test the supplier's ability to:
- provide detail-level advanced ship notices (ASNs);
- match those ASN details with the purchase order (PO);
- match the PO ship-to location to the intended ship-to location stated on the
PO;
- use the correct standard carrier alpha code (SCAC);
- match the preferred carrier to a given shipment;
- include valid stock keeping units (SKUs) on the ASN;
- provide in the ASN the extended product attributes required by XYZ
Company; and
- match those attributes to those spelled out in XYZ Company's product
catalog.
Although many companies have a rollout program, and a few do some testing as part
of such a program, the vast majority test against the structure of the data, rather
than against the content or cross-document information. XYZ Company managers,
on the other hand, recognize the importance of testing with live PO data for
authentic POs which contain supplier-specific information. Otherwise, the supplier
more than likely will fake or "fudge" the results because its systems are not set up to
generate an ASN"and that scenario will negate the benefits of a testing program. To
strengthen the value of the testing program even more, XYZ Company intends to
validate line-item attributes against its live product catalog.
Of the possible ways to implement the certification-as-part-of-rollout strategy,
companies can choose to test orders with ASN validation, as XYZ Company plans to
do, or take advantage of third-party testing services.
2. Post-Go Live Stabilization Monitoring
Although testing suppliers in the rollout-certification process is a best practice, that
does not mean the tests will catch every possible problem. Consequently, it is
important to establish a stabilization period with a formal monitoring process and
workflow collaboration between the company and the supplier. This will enable XYZ
Company, for example, to monitor production transactions for each supplier for a
specific period of time, report to the supplier any major issues that crop up and then
measure the effectiveness of that supplier's efforts to correct those issues. However,
the stabilization-monitoring process must be a joint effort, simply because some
problems that appear may be caused by XYZ Company, not the supplier.
Basically, in the joint process for the just-launched relationship between XYZ
Company and a given supplier, XYZ:
- watches each transaction/order/shipment/invoice/business process for any
problems;
- when uncovering a problem, reports it both to its own staff and to the
supplier;
- begins, together with the supplier, a formal investigation process to
determine what caused the problem;
- establishes with the supplier a timeline for identifying the right solution to the
problem and applying the solution to fix the problem; and
- follows up to assess the effectiveness of the fix.
By maintaining, via the stabilization-monitoring process, an "open issues log," XYZ
Company prevents any problems from becoming embedded in the logistics process.
Furthermore, XYZ makes it clear to both its own staff and the supplier that neither
side is to reallocate resources dedicated to the onboarding process until both sides
get a clean bill of health in the post-production period. Otherwise, both sides will
reallocate those resources to the next buyer or supplier, which means that when a
problem does occur, neither side will have available resources to fix the problem as
soon as possible.
Of the possible ways to implement the post-go live stabilization monitoring strategy,
companies can choose from the following:
- error reports in Enterprise Resource Planning/Warehouse Management
System/Transportation Management Software (ERP/WMS/TMS)
- incident logs at distribution centers
- monitoring software
- edits and validation in B2B software
- testing and certification products or services that include production
stabilization monitoring and management
3. Daily Worklists for Suppliers
The underlying principle of these worklists is to provide a formal mechanism to be
used by the supplier for identifying 1) open production issues between the supplier
and the hub and 2) XYZ Company's expectations for a resolution of those issues. In
other words, daily worklists for suppliers treat each production issue as a formal
process, one in which XYZ Company gives the supplier all the information it has on a
production issue and states clearly which resolutions are "most acceptable,"
"acceptable but not preferred" and "unacceptable." These worklists also track issues
that, if fixed, would prevent further negative impact on the buyer, the supplier or
both. Using these worklists, the trading partners can track the cause of a problem,
identify what the supplier has done to resolve it and categorize that supplier's
resolution accordingly.
An example of a production issue might be late routing of a PO. XYZ Company's PO
contains a date by which the supplier must schedule an appointment for this
particular order, say, June 26. When June 26 comes around, the supplier has not
scheduled the appointment; XYZ then adds that to the worklist as a production issue
for that PO.
As part of the worklist, XYZ basically says to the supplier:
- The most acceptable outcome is for you to get this done by the end of the
day.
- An acceptable but not preferred outcome is for you to get it done by the end
of the week, a few days before the shipment is due at our distribution center.
- An unacceptable outcome is that you don't route this PO, and your truck
shows up at some unknown point in the future.
- Next, what caused this problem, and what are you going to do to fix it?
After receiving the relevant answers from the supplier, XYZ Company tracks whether
the supplier actually followed through and, if so, with a most acceptable, acceptable
but not preferred or unacceptable response.
Of the possible ways to implement the daily worklists element, companies can
choose error reports in ERP/WMS/TMS and/or Business Process Management (BPM)
software or invest in partner performance management software that offers
worklists.
4. Proactive/Predictive Alerting
As the name implies, this strategy within a formal PPM program focuses on issues
that are not necessarily problems but may become problems if the supplier does not
act on them. The idea is to 1) monitor production data and provide a warning before
a particular issue affects the business; 2) track the escalation of that issue "
internally and with the supplier, so that 3) internal staff, such as XYZ Company's
distribution-center workers, get the visibility they need to plan accordingly.
For example, the proactive/predictive alerting strategy warns XYZ Company that an
ASN is a summary-level notice, meaning line-item information is missing. XYZ
Company therefore knows that the shipment is coming but doesn't know what it
contains. The company's distribution-center workers will have to have extra labor on
hand on the arrival date, which obviously translates into extra time and money. By
giving the distribution-center staff an early warning, XYZ managers can make sure
the additional workers are in place to receive the shipment manually, i.e., figure out
what the goods are, count boxes, etc. By giving the supplier early warning, they
offer the supplier an opportunity to send a replacement ASN, one that contains the
missing line-item information and which thereby allows XYZ to avoid the costly
manual receipt process entirely.
Of the possible ways to implement the proactive/predictive alerting strategy,
companies can choose either integration-server custom alerting and/or supply chain
visibility (SCV) solutions.
5. Invoice Deduction Programs
Proven to be a powerful tool across many vertical sectors, an invoice-reduction
program simply calculates the cost of an interruption to the inbound-logistics process
and then deducts that cost from the supplier's shipment invoice. For example, XYZ
Company buys $10,000 worth of shoes from a supplier, and the supplier is late in
shipping that order. The invoice-deduction program calculates the cost to XYZ of the
late shipment to be $750; that cost includes the financial impact of XYZ's dock
remaining empty at the scheduled shipment-arrival time plus XYZ's cost for
allocating labor to the dock for the [unscheduled] time when the shipment actually
arrived. The invoice-reduction program automatically subtracts that $750 from the
supplier's $10,000 invoice, prompting XYZ Company to pay the supplier only $9,250.
Of the possible ways to implement the invoice-reduction element, companies can
choose a reporting database; audit collection at the distribution center; or
compliance software.
6. Scorecards
As the old saying goes, you can't improve what you can't measure. Therefore, the
three primary aspects of the scorecard strategy are:
- to identify the key performance indicators (KPIs) for the effectiveness and
efficiency of the inbound-logistics process, for example, on-time delivery,
order fill rates, etc.;
- to establish procedures to measure those KPIs; and
- to feed, as XYZ Company measures them, the results of that scorecard into
the company's overall PPM program and thereby provide appropriate visibility
and troubleshooting opportunities to the supplier.
So, when XYZ Company is re-negotiating pricing or guaranteed purchases with a
particular supplier, it can use the scorecard on that supplier as a point of negotiation.
This enables XYZ Company to motivate the supplier to improve performance levels
or, in cases in which that supplier fails to do so, to compensate itself for that
supplier's inadequate performance.
Of the possible ways to implement the scorecard strategy, companies can choose to
integrate scorecards from disparate systems; use a custom business intelligence
rollup; or turn to scorecard-software suppliers.
7. Scorecard-Improvement Program
Certainly having a scorecard program in place delivers a great deal of value, but a
company can extract the maximum value from that program by also running a
scorecard-improvement program. This establishes an accountability process that
enables the company to manage a trading partner's performance improvement in a
way that reflects the strategic value of that trading partner.
As a result, XYZ Company can:
- use a scorecard to track a supplier's performance;
- create criteria for the expected performance level (of each supplier or class of
trading partner), based on the strategic value of XYZ's relationship with that
supplier; and
- categorize each supplier accordingly, i.e., "strategic partner" or "non-strategic
partner" and then "strong performer," "moderate performer," "weak
performer" or "unacceptable performer." The strategic value of a given
partner and its performance determines how much XYZ Company invests in
that partner's improvement efforts.
For a supplier that is strategically important to XYZ Company but scores as lessthan-
a-strong performer, XYZ Company then can help that supplier to improve its
performance by:
- presenting the scorecard results;
- working jointly with the supplier to identify problems and analyze the
cause(s);
- asking the supplier what action(s) it will take to resolve the problems;
- following up to determine if the supplier takes those actions and, if so,
actually improved its performance.
For suppliers that are moderately strategic and score as "unacceptable" performers,
XYZ Company does not want to invest a lot of time but does need them to improve
their performance. In those cases, XYZ can supplement the scorecard-improvement
program with incentives; for example, the company may temporarily waive
applicable penalties, as long as those suppliers are making progress in improving
their scorecard results.
Scorecard-improvement programs are effective because they focus attention on
performance and enable the company to work with suppliers not once each quarter
or once a year but daily. The visibility and constant, sustained interaction between
buyer and supplier drive the improvement in performance.
Of the possible ways to implement the scorecard-improvement strategy, companies
can choose to use BPM software, distributed project management software (in
conjunction with their scorecard technology) or find a scorecard-software provider
that integrates scorecard-improvement management.
8. Certification Program or Benefits
Similar to providing benefits for a supplier's participation in a scorecard-improvement
program, this strategy enables a company to reward suppliers that are showing
exemplary improvements. For example, if a supplier's on-time delivery rate,
fulfillment rate and data-accuracy rates all come in at 98 percent or above, then XYZ
Company may allow that supplier to cross-dock with XYZ, meaning, that supplier's
goods will flow out to XYZ's retail stores faster than they otherwise would. Or, XYZ
may choose to audit fewer of that supplier's shipments or exempt it from the
company's invoice-deduction program.
In sum, this element allows XYZ Company to reward suppliers executing at a certain
level by giving them a strategic advantage or by ignoring minor errors"as long as
each supplier in question continues to over-perform.
9. Roll Out a Catalog Program and Integrate it with PPM Strategy
This strategy is designed to synchronize data at the product catalog level, thus
streamlining inbound logistics and preventing problems. For example, XYZ Company,
as a shoe retailer, receives shoes from Supplier ABC. Supplier ABC has a product
catalog containing a full set of information about the shoes it manufactures and sells,
and XYZ Company has a product catalog containing a full set of information about
the shoes it sells. If the two companies' catalogs do not match"for example, right
down to the SKU and ASN level"problems are inevitable.
By integrating a catalog program with a PPM program, XYZ Company basically tells
Supplier ABC, "These are the data I need from you so that 1) you can sell to me, 2) I
can integrate my retail product line with your manufacturing product line and 3)
therefore ensure that I can effectively sell your products." Upon receiving that
information, Supplier ABC publishes that information out of its system and provides
it to XYZ Company in a way that XYZ can use. As a result, the two companies
eliminate the catalog-update issue and all the problems that come with it. This
strategy does more than just make the whole process more efficient for both
purchaser and supplier and thereby save both sides a whole lot of money. It's also
infinitely preferable to the alternative, which is having employees manually key in
product items and cross-reference tables, an expensive, time-consuming procedure
that inevitably introduces data-entry errors into the inbound-logistics process.
Of the possible ways to roll out a catalog program and integrate it with a PPM
program, companies can choose to use data-sync providers; Product Information
Management (PIM) custom integrations; and/or flat-file e-mail/imports.
10. Get Audited
If the managers of any company considering a PPM program are not sure where to
begin, or they don't know what the organization's "low-hanging fruit" might be
(processes or problems most susceptible to a PPM program), they can go outside for
help"to either a specialized consulting firm or the professional services organization
of a business community management (BCM) software firm.
This third party will assess the company's inbound logistics situation by:
- analyzing its collaborative processes;
- measuring actual error rates;
- quantifying the impact of those errors on the business; and
- making recommendations to improve all segments of inbound logistics.
About Inovis
Inovis is a leading provider of on-demand Business Community Management
solutions that empower companies to transact, collaborate and optimize
communications with their entire trading community. By standardizing and
automating mission-critical business interactions, companies can dramatically reduce
the complexity and cost of supply chain communication. This foundation of highquality,
reliable and secure connectivity provides real-time visibility across the orderto-
payment lifecycle. The resulting actionable intelligence enables users to
proactively address supply chain issues before they impact profitability, shortening
cycle times, improving productivity and increasing customer satisfaction.
With more than 20 years of expertise, Inovis delivers its products and services to
more than 20,000 companies over a wide range of industries and markets across
the globe.
Inovis Global Headquarters
11720 AmberPark Drive
Alpharetta, GA 30004
USA
Main +1 404.467.3000
Toll-free +1 877.446.6847
Fax +1 404.467.3730
Email: info@inovis.com
Website: www.inovis.com