improve involves spare parts inventory, Rio says. He estimates that
only about a third of companies are employing good inventory
management practices of spare parts. “This is becoming more of a
problem because rapid technology changes are driving companies
to replace equipment more often and they end up with a larger vari-
ety of assets, which translates to more parts.”
Rio says that in one case he examined, a company’s spare parts
inventory went up 150 percent in three years. “This was not
because the company was growing but because of equipment
upgrades, technological changes and new equipment,” he says.
“This kind of increase is unsustainable and directly affects the bal-
ance sheet.”
The first step in addressing this problem is to eliminate part
number duplication, which often is responsible for significant
inventory overstocks, says Rio. Secondly, companies should reex-
amine their min/max for reordering. These two steps, after allowing
time to work down existing surpluses, should result in a significant
reduction in spare parts inventory, Rio says.
today are attempting to do more with less—especially less inventory—but are also determined to be flexible enough to react to
unexpected changes in buying patterns.
In the past, says David, processes applied to response man-
agement have generally been supply-centric. Companies have
scrutinized their finished goods inventory, sub-assembly opera-
tions and manufacturing. But a complete program must look
beyond those areas to inventory throughout the network. Suppli-
ers need to be able to take an order and re-prioritize it using exist-
ing pools of inventory,
wherever it lies.
Response manage-
ment today has become
an integral part of risk
management, which
involves some new “soft”
metrics such as the
impact of supply-chain
problems on customer
service. By reallocating
inventory on the fly,
David says, supply-chain
managers can actually
help to boost revenues.
First, though, a lot of tra-
ditionally manual work
has to become auto-
mated.
David has heard of
companies driving revenue growth of between
1 and 2 percent through
the application of better response management. He cites the case of
a consumer electronics company that suddenly experienced a
surge in demand by a big retailer. It was able to work with its supply-chain partners to respond quickly to the development.
Getting a Handle on Your Freight Spend
How Response Management Can
Drive Revenues
Too many transportation professionals use their freight payment and audit company, if they have one, as a procurement
tool rather than as an information management tool, says
Steven Shoemaker, owner of RateLinx. You need actionable
data first in order to reduce your freight costs.
Companies are looking to automate their time-consuming
manual processes in order to react to unexpected shifts in
both supply and demand, says Mark David, supply chain
solution principal with SAP.
Response management is all about dealing with variability in the
supply chain, according to David. It incorporates traditional con-
cerns about innovation and adaptability to changing dynamics in
the marketplace. And it addresses critical issues such as globaliza-
tion, outsourcing and intensified customer demands. Companies
It’s no surprise, really, that transportation professionals face chal-
lenges with their carriers today. One side wants to lower fright
spend, the other wants price increases. This dance has been going
on a long time. So what else is new?
