| By Ben YoKell | Vice President, Integrated Demand & Supply Planning | Chainalytics|
While cross-functional supply chain planning processes such as Sales & Operations Planning (S&OP) and Integrated Business Planning (IBP) have become an increasingly common component of the broader business management dialogue, very few organizations have integrated the logistics and transportation functions into those consensus processes in any meaningful or actionable way.
Traditional S&OP and IBP models do not include a “Logistics Review,” and stakeholders from transportation functions are rarely included in the demand and supply planning cycle. In most companies, supply chain planning decisions are made long before transportation managers can weigh in on the impact to their operations and budget. And yet, these supply planning decisions have a direct impact on logistics spend, with a level of interdependency that suggests the status quo is overlooking a critical intersection in modern supply chain management.
As transportation capacity has tightened, logistics managers are being driven deep into the routing guide and forced onto the spot market even as their contracts are turning over at higher levels of cost. P&L owners are stuck watching profitability and service take a hit without many options to mitigate the damage. For the most part, the burden of response has fallen entirely on the logistics function.
What else is a CSCO or Supply Chain VP to do in the face of the driver and carrier capacity crunch? There is another lever to pull. While there is no question that the transportation market conditions are going to raise the water level across the board, inventory deployment and supply planning decisions – what to stock where and how to resupply those stocking locations – can be reconsidered to help reduce the total delivered cost to serve.
Stocking products in fewer locations reduces forecast error and consolidates inventory, which in turn reduces redeployments, expediting, and out-of-plan shipments. Some companies may be able to dramatically reduce the impact of the capacity crunch by consolidating portions of their portfolio into fewer locations.
At the same time, while stocking more items closer to market in more locations means a more fragmented demand signal, less efficient inventory, and a harder time meeting replenishment minimums – it can also drive the outbound and last-mile leg freight costs down dramatically.
Chainalytics has extensive experience delivering network-wide inventory deployment strategies which combine network optimization and multi-echelon inventory optimization approaches into a holistic, least total landed cost to serve model that maximizes return on invested capital and emphasizes a balance between fulfillment speed, product availability, and cost to serve. This approach has been used at multiple companies in the past few years having tens of thousands of SKUs, where stocking every item at every location would have loaded the balance sheet with untenable working capital requirements, yet high service and minimized transportation costs were key requirements.
Ultimately, the inventory deployment strategy best suited for each organization depends largely on the dynamics between supply, demand, logistics costs and balance sheet impacts for that business. But irrespective of which inventory deployment strategy is employed to meet service and cost-to-serve objectives, the broader opportunity at hand is to realize that inventory positioning and replenishment planning can be used to respond to increasing pressure on the P&L as the market dynamics change.
With the transportation capacity crunch adding unexpected cost burden to many P&Ls, now is a perfect time for business management and supply chain planning to reach across the aisle and involve logistics during the inventory and supply planning strategy development and planning process, instead of after the fact.
Ben YoKell, vice president, leads the Integrated Demand & Supply Planning competency in North America for Chainalytics. In this role, Ben focuses on the delivery of professional services related to S&OP process improvement and implementation, demand-supply balancing, materials management, and inventory optimization.
Read more about how Chainalytics supports an end-to-end supply chain:
- (BLOG) What’s Holding the S&OP Process Back, Part Two: Establishing a Business Efficiency Planning Process That Works
- (Success Story) Specialty Retailer Engages Chainalytics for Technology Selection and Procurement Service
- (BLOG) What’s Holding the S&OP Process Back?
- (BLOG) Walmart’s OTIF Policy Will Continually Impact Forecast and Planning Strategies
- (BLOG) Put the S in S&OP
