Supply Chain Brain - October 2009

Line Between Manufacturing
and Distribution Is Blurring
What Is Systematic Logistics
Network Planning?

To keep pace with changing consumer demand,

companies are embracing strategies that require a

much broader set of skills on the distribution end,

says Dave Kilzer, principal with Consultleague.

Nothing less than a method of structuring the

entire process of planning a supply chain net-

work. Shekar Natarajan, Pepsi’s director of sup-

ply chain, talks about the value of the exercise.

Years ago, manufacturing and distribution constituted two distinct areas within most companies. Things are different now, according Kilzer. As they scramble to meet changing customer needs, organizations are embracing creative processes that have blurred the line between traditional functions. Chief among those innovations is the concept of postponement, whereby a generic product is modified to meet the specific needs of a region in a facility close to the customer. “You don’t have to plan the end unit back at the large manufacturing centers,” says Kilzer. Suppliers can react more quickly to customer demand, and do a better job of managing promotions. In the process, distribution operations find themselves adopting terms that used to be the exclusive province of manufacturing, such as bill of materials. And the discipline that has long been known as “distribution” becomes something quite new.

Into this picture steps the third-party logistics provider, which has broadened its menu of services to keep up with the change. “3PLs do much more than put a box on the shelf and ship it when required,” says Kilzer. They become partners in their customers’ efforts to reduce total pipeline costs.

A company should not accept outright the claims of a 3PL to such multifaceted expertise. “A little bit of nervousness is not bad,” Kilzer says. “Trust has to be developed. It doesn’t come without a little bit of history.” The best 3PLs win business by building a track record. Potential clients should consult companies that are familiar with their services. Ultimately, the right choice of partner will depend on a combination of the client’s knowledge of its own business, the skill sets of the 3PL, and the high-level view of a consultant, if one is hired.

To view this video interview in its entirety, visit www.SupplyChainBrain.com.

Systematic logistics network planning can guide a company through the complex challenge of designing the major elements of a supply chain, according to

Natarajan. The exercise involves a series of key documents and formal output which allow managers to keep track of where they are in the process. A number of large organizations, Pepsi among them, have found success with the approach, he says.

An improperly managed network planning effort can run into opposition from key employees, who might cast doubt on its credibility. They grow frustrated when the program doesn’t yield answers quickly enough. The culprit in many cases is the lack of an overall planning process that’s robust enough to manage the project from beginning to end. Systematic network planning, Natarajan says, “gives you a framework of how you manage those projects, and [specifies] what are the checks and balances that you need to have in place.”

The required resources aren’t that great, he says. Employees can get a handle on the concept in half a day of training, “then can use it on a Monday morning.”

First, however, senior management must be sold on the concept. Executives can be presented with multiple scenarios, which take into account various quantifiable factors as well as intangibles. The availability of such detailed information helps to drive consensus among all involved.

Natarajan says the benefits to an organization are many, and relatively easy to convey. Each step in the process is tied to a specific document, charting progress along the way and confirming results. They include worksheets covering project orientation, a summary of variables, baseline validation (comparing the model’s output with reality), scenario planning and a final analysis of all costs and results.