As a brand owner or a distributor, a transporter plays a key role in connecting ordered material to the customer. For a large number of businesses who have
- a large customer base and
- spread across the nation
It is a complex undertaking in terms of making sure the right product reaches the customer at the right time and in the right condition. For instance, one of our clients dispatched ~2L boxes in 6 months from Oct 2019 to Feb 2020, through 12 different transporters. This was just for their B2B business. The numbers get complicated by following additional factors
- Whether we are doing express/courier or FTL for a customer or multiple orders into a single vehicle (LTL consolidation)
- How technology savvy are the providers e.g. do they provide APIs or not?
- Whether this is a B2B delivery or a B2C delivery
In providing our services, we have faced these issues on an everyday basis and have tried to capture the specific questions we ask ourselves to evaluate the quality of freight service we are offering to our clients. These are the following key questions:
- SLA of service being provided by the transporter
- Identifying the true cost of service being charged
- Real time tracking and proof of delivery
- Reconciliation of handed over and returned boxes
- Comparing multiple providers
If we delve deeper into the questions, each of them has a story to tell on its own.
SLA of service being provided
There are multiple factors which define the SLA
- Pin code coverage including ODA, OPA etc.
- Turnaround time (TAT) for specific pin codes
- Performance over time e.g. compares SLA across months, quarters, years etc.
Vendor masters capture detailed information of the service being offered, at a pin code level. This can also be updated easily as the business scenarios change e.g. new pin codes are added by a vendor as part of the service
Identifying the true cost of service
Even the simplest transport contract for a courier has multiple factors
- Basic cost per kg
- Fuel surcharge
- Docket surcharge
- ODA/OPA charges
- Volumetric weight calculation
- Minimum cost per docket etc.
Within FMS, we have built multiple rules and configurations to capture different business scenarios which help in automatic capture of a large number of invoicing variables.
Real time tracking and proof of delivery
From a customer perspective, real time tracking and expected time of delivery is most crucial. This forms a critical part of service metric.
From an internal team perspective, revenue recognition can happen once goods have been delivered to the customer. Delayed POD has a significant impact on quality of financial reporting.
We have enabled tracking till delivery (for forward as well as reverse pickup); if the transporter does not have adequate technology setup to manage the same, they can use the FMS app to do real time tracking.
Reconciliation of handover and returned boxes
Coming back to our example earlier, our client dispatched ~20k boxes over a 5 month period. With multiple handover points ensuring that at the end of the month all the boxes are accounted for (with customer, returned or in-transit) is important to ensure store shelves are stocked and timely recovery of receivables. The problems can be at various points:
- Partial handover to transporters
- Incorrect handover to transporters
- Partial or non-delivery to customers
- Incorrect delivery by transporters
Our system takes individual dependence out of the process and entire work flow from handover to delivery tracking is either guided or managed by the system. User for any given time frame, can check the final status of all boxes created in the warehouse allowing him to take quick appropriate actions at the warehouse or with the transporter
Reconciliation of invoices
Ask any transporter their biggest business concern and it is highly likely that you will get delayed payments or working capital block as the answer. On the other hand speak to a client and their biggest problem is validation of invoices – dispatch, delivery, weight and pricing. At most organisations there is a lot of friction between operations & finance as well as operations and transporters when it comes to invoice reconciliation and payments. Our endeavour is to completely automate this process. Given the automated nature of transporter selection including pricing, clients can generate an invoice report from the system which can be validated by the transporter for payment. This significantly reduces client bandwidth while transporter has high incentive to quickly close the loop thereby allowing a relatively frictionless invoicing process.
Comparing against multiple providers
This is where it becomes most complicated. On the minimum, most clients use at least 2 providers. On the higher end, they end up using 10-12 providers. Every provider has their own format & checking and comparing across providers is close to impossible. What that means is that taking data driven decisions is impossible e.g.
- Which provider has best SLA?
- Which provider has most accurate costing?
- How has the performance of a provider changed over time etc?
Freight Management System (FMS) has been built as part of our Maven suite to help us and our clients answer these questions based on data. Happy to discuss any problems you have seen in your business/experience.
There is a lot of excitement around use of technology amongst supply chain professionals and specialist media with buzzwords like Artificial Intelligence (AI), Machine Learning (ML), Blockchain and IOT used with a lot of enthusiasm to define the supply chains of future.
The technology is promising the wonderland where all internal and external actors collaborate to better synchronise the supplies; decision making is automated and companies can quickly respond without sacrificing efficiency. A few years from now some of these cutting edge technologies might fizzle out while others become part of the supply chain fabric for large companies with big technology budgets and helping improve their supply chain competitiveness.
But how about mid-market brands, manufacturers, retailers and distributors? A lot of these companies are still managing their supply chain on spreadsheets and migrating from MS Excel to Google Sheets to collaborate on data might be the most they have ever innovated. The transition from spreadsheets to AI, if it happens at all, will not be easy and as such this might further increase the gap in supply chain competitiveness between mid-size and large players.
However, successful adoption of modern technologies in future by any supply chain will depend on getting the basics right today. The foundation to build digital supply chain of future rests on the holy trinity of a) Data centralization; b) Quality transaction platform and c) Integrations. Without this strong foundation an organization’s ability to optimize, automate and collaborate using AI, ML or blockchain will remain limited.
Data Centralization: Ability to quickly retrieve data particularly the masters (SKU, vendor & customer) and transaction data (inbound as well as outbound) in desired formats allow the companies to seamlessly exchange information not only internally across various systems but with external stakeholders as well like customers (large format retail stores, e-commerce market places, etc.) and vendors (manufacturers, transporters, etc.). This can greatly contribute to accuracy, consistency and efficiency.
Transaction Platform: Depending on business requirements, supply chain transaction platform can be a combination of an order management system, warehouse management system and a freight management system to allow digital mirroring of all physical transactions across the value chain. Key requirements from a high quality transaction platform include:
- Ability to recording and assigning accountability for all transactions, howsoever small
- High quality dashboards to monitor the performance and pre-empt problems
- Use cases relevant to business are covered to provide management with accurate view
Integrations: Most companies typically start with a basic accounting system (Tally is what would come to mind for most Indian readers) but as an organisation’s needs and business evolves new IT products like CRM, WMS, etc. are added to the arsenal in addition to a myriad of process flows like returns and deliveries, managed using excel spreadsheets. Keeping inventory and order information consistent across these systems and processes can take significant management bandwidth and resources. The situation is only complicated by need to digitally exchange information with external stakeholders like E-commerce (Amazon, Flipkart, own website, etc.); large format retail customers; shipping companies; etc. Without having a strategy on data exchange across systems and partners any technology implementation will only yield sub-optimal results and will unlikely be able to take advantage of emerging technologies
Traditionally, when supply chain can handle the growth and pressures, management looks at ERP as the solution to address the problem. However, for most mid-size companies ERP deployment is fraught with huge risks and deployment typically fails to address all the challenges. The situation is further complicated by multiple channels, integrations, need to respond quickly and ERP deployment is rarely a complete solution in itself. At Glaucus, we have tried to address the problem by combining a complete technology platform with services which allows us to underwrite the service levels for our clients who can in-turn focus on growing their business with no operations overhead.
To summarise, any mid-size company embarking on modernization of supply chain should ask 3 key questions while evaluating technology decisions:
1. Does this allow me to centralize data such that it can be updated once and used across?
2. Does this improve my transaction platform to mirror my business requirements without compromising efficiency?
3. Does this simplify data exchange between existing as well as future systems and partners?
Technology in supply chain is no longer a disruptor but a hygiene factor. If you are not innovating and investing in future you are simply waiting for a nimbler and more efficient supply chain to eat into your hard-built business. I think Bob Dylan said it the best “If you ain’t busy being born, you are busy dying”. So true!
Every time a brand raises a purchase order on its suppliers it is taking a call on the saleability of the design/model. Most of those decisions are taken with less than perfect information about evolving consumer preferences and the second order impact of the competition on these preferences. As such it is inevitable that at the end of the season or product sale life cycle there will be unsold inventory at the retail outlets. When you add this to returns from the customer driven by liberal return policies, return logistics can add up to a significant proportion of forward logistics. The problem gets even more complicated in design driven sectors like apparel & lifestyle where returns can range from as low as 10% to as high as 35-40% of overall sales.
In our experience returns percentage has been continuously increasing over last few years primarily driven by following factors:
- 1. Shorter Retail Shelf LifeLargely a result of changing fashion trends and rapid development of technology
- 2. Increased Competition: Increasing competition from domestic as well as international brands
- 3. E-Commerce: E-commerce has set new paradigms in ease of returns and increasing pressure of high street to match the service levels
- Working Capital: Depending on efficiency of the supply chain, sales returns can add up over a period and form up to 60% of inventory and working capital
- Ageing/Obsolescence: Inability to take a timely call on grading and liquidation of the returns lead to higher losses on account of obsolescence or ageing of the inventory
- Reconciliation: Delayed reconciliation limits ability to debit bad/short inventory to stores
The increasing returns and inability to handle them efficiently put serious strains on business profitability because of the following:
Traditionally, for most companies, sales teams are aligned to pursue growth by pushing fresh inventory through the distribution channels and operations teams are under constant pressure to respond to the sales pressure making returns often the more neglected part of finished goods distribution supply chain.
- Different Grades: Not all material received is good inventory. Received items might be fully reusable, reusable with some minor value addition, salvaged as parts or to be liquidated.
- Jumbled Inventory: Inventory received from stores is not properly segregated by batches, seasons or invoices making scanning and reconciliation a major challenge. This is further complicated by bad quality, overstuffed boxes, missing bar codes and missing labels.
- 100% QC Requirements: Given the state of received inventory, 100% QC and grading is required. Many organisations are not adequately equipped to handle this.
- Refurbishment: Post QC activities could range from basic packing change all the way to full refurbishment or service
Return inventory has some unique features which make it nearly impossible to handle return inventory in the same operations flow as fresh inventory. These include:
- Invoice Reconciliation: Ability to input invoice data in multiple formats (including customer EAN numbers) to automate reconciliation process
- Inventory Grading: After QC, grade inventory into custom grades like, New; Refurbished, Seconds, Damaged, etc.
- Differential Pricing: Ability to differentially price grades
- Dedicated Sales Channels: Ability to expose inventory to different sales channels and customers based on the grades
This needs dedicated work space, trained manpower and specialised process. In the absence of this returns inventory keeps piling up to astronomical levels. In addition, technology systems need to be able to handle the returns efficiently. Some of the system capabilities required include:
- Faster and accurate automated reconciliations
- Improved inventory turnover
- Reduced handling by eliminating need to transport to refurbishment locations
- Real time inventory visibility on both online and offline sales channels removing need for one extra picking, transportation and inward
An effectively managed returns supply chain can yield following benefits:
- Improved Realisation:
- Quick turnaround of received returns has led to ~10% increase in dispatches to the stores over same period
- Additional sales of INR 2 lakh per day generated from online exposure of inventory previously lying idle. This is expected to go up as more channels are brought under the fold
- Release of Working Capital:
- Quicker sales resulting in upto 3 months of working capital
We have set up a dedicated returns management center for a client and some of the benefits delivered include:
The combined benefit of the above has led to a value generation of INR 70 per piece received at the returns warehouse. So, essentially the center pays for itself and then some!
For clients with smaller needs, the same benefits can be derived from our multi-client centers as some of our clients are doing.
Do reach out to us if your supply chain is also struggling with the returns and returns are beginning to elbow out the fresh inventory in your warehouses.
You can have the best of the products and the most loved brand but if your supply chain teams can’t deliver correct quantity of right products in the right condition at the desired time and lowest cost, the love of brand does not necessarily translate into the big moolah. What makes things worse is that the adverse impact of non-availability not only means loss of current sales but future sales as well.
While looking for supply chain solutions, an often overlooked area is talent managing the supply chain. For mid-size companies, there are two main challenges in hiring right talent to manage a modern supply chain
- Supply chains are seen as cost centres -> as a result compensation becomes a huge bottleneck
- Defining clear career progression for people in a small organization -> as a result attrition levels are very high
Supply chains are becoming a source of competitive advantage in a modern connected world. Some of the ways in which a modern digital supply chain is different from a traditional supply chain are:
- Multiple Order Sources: A typical brand today receives orders from 4-5 e-commerce channels, several teleshopping channels, traditional distributors, modern retail, multi-brand retail, company owned retail, franchisees, venue sales, liquidation vendors, etc.
- Multiple Systems: A brand today needs to manage their own ERP, multiple e-commerce catalogue management systems/PIMS, e-commerce seller panels, amazon seller flex, flipkart lite, etc. Even with integrations, each new system adds significantly to the complexity
- Multiple Warehouses: Even smaller brands need multiple stocking points to improve customer service and in addition improved visibility at Amazon or Flipkart require virtual warehouses within a warehouse. This needs regular inventory decisions to minimise working capital block
Having the right set of people who can manage this complexity and deliver meaningful results has become paramount. However, developing a talent pipeline requires a
- Constant focus on hiring the right capabilities;
- Training on the right tools & processes and
- Retaining by offering meaningful professional growth and financial incentives.
For a mid-size company supply chain talent is often low in the order of priority for the management and outsourcing warehousing to a manpower provider can further complicate the situation and is not a sustainable solution for an organization. A full suite of capabilities related to people, process and technology is required, which can be combined with company’s value proposition to deliver meaningful growth.
It is often not easy for most companies to build and continue to invest in these capabilities. Right supply chain partner who not only deliver these capabilities but also bring the market best practices to improve brand competitiveness can be a great tool for most companies to build a future proof supply chain.
Warehousing is the nerve center for any distribution operation and biggest source of customer service issues. These issues are typically caused by inaccuracy in dispatches e.g. short, mismatched, delayed. In addition, a badly managed warehouse can often add to hidden costs of supply chain including shrinkage, sub-optimal packaging adding to transportation costs and wrong choice of transporter.
In a competitive, connected world with e-commerce setting new benchmarks for visibility and delivery of dispatches, warehouse operations can often differentiate a large, successful trading/retail/distribution operation from also rans.
To control this important aspect of customer service, nearly every company in trading value chain at some point has managed their own inventory from own or leased facility and as such there is often a resistance to change as well as temptation to keep a tighter control by keeping it in-house. However, in most self-managed operations, aligning and streamlining operations to achieve customer service objectives is often an uphill task.
A successfully outsourced operation can add a significant measure of reliability, certainty and visibility to the entire supply chain releasing sales bandwidth to focus on what matters.
We at Glaucus have been able to bring together a mix of processes, people and technology to help our clients achieve On-time, In-full, Always. One key focus area which has allowed us to promise fill-rates and on-time ready-to-dispatch as high as 99.9% while shrinkage and error rates as low as 0.1% is “Accountability”.
Large scale operations often resort to automation and robotics to bring reliability to the warehousing operations. However, with scale being a significant constraint to effective automation, distribution warehousing in India remains labour intensive and prone to human errors. We have been able to minimize such human errors by holding individuals accountable to the work that they do and incentivizing for accuracy.
We learnt the hard way that this is easier said than done! In a large scale operation such accountability often comes at the cost of productivity and low-margin business like ours no longer remains competitive with such loss of productivity.
- For us solution was a well-designed, mobile first WMS which ensures that specific individuals are accountable for every activity throughout the order cycle from approval to dispatch while minimizing productivity loss.
- Problem:Large number of SKUs and inventory across categories combined with manual operations led to fill rates as low as 90%. In addition, there were significant customer issues related to wrong packing and outbound QC leading to losses.
- Process Change: Assigning task ownership and holding individuals accountable at each stage of inbound – unloading, QC, GRN and put away as well as outbound – pick, QC, pack and dispatch and assigning individual responsibilities for various customer issues
- Result: Consistently deliver 99.5%+ fill rate and significant reduction in number of complaints.
So, next time you are struggling with problems in your warehouse operations think of ways in which you can hold individuals accountable and combine that with the right incentives. It is simple but very effective!
Technology can help you achieve this. In last decade rapid growth in technology has significantly reduced development cycle and costs allowing rapid modifications to a system to keep pace with the operations. It is possible today to rapidly incorporate feedback and learnings from the floor of the warehouse into the system allowing benefits to be shared across.
So don’t pick a system which is static. Select a system which is as dynamic as the environment that you are operating in and can evolve as your business evolves.
Speak to supply chain professionals and they will have war stories to share about inventory accuracy and audits. Audit of a warehouse is a stressful time for all involved. Be it a third party; the client or the in-house team who is doing the audit, it is not a pleasant experience. Even after the physical process of inventory scan is completed the reconciliation gives nightmares to the best warehouse managers. Pressure from sales teams to minimize disruptions and resume operations as soon as possible adds further fuel to the burning fire.
- Missing Transactions: Material received or dispatched without recording the entries in the transaction system. We recently heard a story where a multi-national auto ancillary company was showing wrong raw material inventory a week before start of assembly for a new launch for a motor cycle company. Reason? Stock issue from warehouse was not recorded in the system! Seems the problem was grave enough that plant head lost his job.
- Wrong Dispatches: Wrong items or excess/short have been received/ dispatched. Such incidences are typically higher when some or all of the processes are manual without barcode/RFID scanning.
- Audit Scanning Errors: Hundreds of locations and places to scan, count, double check.
- Pending Transactions: Open transactions (e.g. cancelled orders, incomplete GRN, picking/putaway in progress etc.). This is especially challenging when audit process is manual and not driven by a WMS or if WMS is not sophisticated enough to account for open transactions or the integration of WMS with inventory management system does not account for these scenarios
What really makes the inventory reconciliations challenging post audit? In our experience, the following are the typical issues:
In most warehouses there aren’t any early warnings systems to detect and rectify inventory issues. Post audit, errors pop up suddenly for everyone to view and then it is the beginning of explanations, discussions and other repercussions leading to further loss of organizational productivity.
A high quality WMS is designed not only to simplify the entire audit exercise by automating the reconciliation process but have enough checks and balances like routine system driven cycle count, fill rate markers and not found warnings to initiate preventive actions. In addition, a robust transaction system will ensure scanning and weighing at all stages, data validations and auto data correction to make sure that the issues don’t arise in the first place.
Most critical features for a good WMS from inventory accuracy perspective are:
1. Cycle Count
In simple terms cycle count requires counting a subset of inventory in identified locations every day, day after day. A good system should:
- Schedule regular cycle counts to cover the entire inventory in a predefined period of time, typically 1 quarter or 1% of inventory everyday
- Trigger cycle count based on the fill rates and not found rates
- Ensure cycle count is a perpetual exercise without any impact on routine inbound and outbound operations
- Require no manual intervention before, during and after cycle count process. Warehouse executive simply needs to execute a scanning task assigned by system and all operations including reconciliation, blocking of relevant inventory/locations should be taken care of by the system.
Inventory audits typically require halting inbound and outbound operations to ensure data accuracy and as such efficiency of the process is extremely critical to minimize disruption. A quality audit system shall:
- Provide flexibility to complete audit for a specific category, brand or SKU
- Freeze the transactions at the beginning of the system
- Factor in dispatch orders at various stages – cancelled, picked, packed, etc.
- Factor in inbound at various stages – GRN, QC, putaway, etc.
- Support for global count and validation of the scanned data with global count
3. Transaction System
This is the most-tricky part. Every WMS by definition is supposed to do this and do this well. Before we built our own solution we evaluated several systems available in the market but we discovered most of them do not do justice to the core transaction management platform. A good transaction system should have a high degree of focus on following key aspects:
- Accessibility: We read somewhere that the best camera is the one that you have it with you when you need it. We guess one can say the something about a WMS in the warehouse! Unless it is extremely easy to record all transactions avoidance of errors is nearly impossible. Ideal WMS should be based on a mobile with hand held or body installed scanners such that the operator always carries it with minimal intrusion.
- Accountability: Unless you hold people accountable you cannot expect productivity or accuracy. A good system should track every activity in the warehouse along with respective productivity to an individual executing the activity
- Validations: To err is human but for a system to accept that error is plain dumb. A good system should have a robust checking mechanism to validate order, SKU, article, location, weight, volume, box, USN (if applicable) at every stage; rectify the error wherever possible and halt the transaction wherever not possible to rectify the error
As the companies and supply chains evolve, audit process needs to evolve as well. Our in-house development capability has allowed us to refine our system and processes over years to make inventory audit process hassle free for our clients.
If you have a war story to share or have discovered innovative ways to solve this age old problem or think that we can help you with inventory accuracy issues in your supply chain, please do reach out to us.
At Glaucus, we love exchanging stories on supply chain efficiency and effectiveness!!