When you're managing more than $500m worth of inventory at 250 locations throughout the U.S. and Mexico, you had better be able to measure the performance of that supply chain on a daily basis. And when the goods actually belong to someone else, the situation becomes even more critical.
That's the challenge confronting xpedx, the largest North American distributor of printing paper, graphic supplies and equipment for publishers, printers and offices. (It is also a big distributor of packaging and janitorial supplies.) Based in Loveland, Ohio, the wholly owned subsidiary of International Paper Co. generates more than $7bn in annual sales as a supplier of product, inventory management and logistics services to more than 80,000 active customers. If its results were broken out from those of the parent company, xpedx (pronounced EX-PE-DEX) would still rank among the Fortune 500.
While many companies are running away from inventory, or at least trying to minimize their exposure to it, xpedx is embracing what can be a severe drag on corporate balance sheets. Frequently the company takes title to goods on behalf of its clients, performing demand planning, purchasing, logistics services, freight management and payment to suppliers. So xpedx has a pressing need to ensure that product running through its network is being handled in the most efficient way possible.
Good metrics are essential, says Michael Ukropina, vice president of operations and supply chain logistics. The trick is figuring out which ones to use. It begins with three or four high-level metrics, then expands into another 15 or 20, all relating to key elements such as financial and productivity measurements. Examples include lines per hour, days inventory on hand and pick accuracy, but the actual metrics employed depend on the customer's unique needs, says Ukropina.
Often the chosen metrics will be customized to address a particular situation or line of business. For example, a retailer opening a new store must have certain products arriving on certain days, with virtually no margin of error allowed. So carriers will be measured down to the hour of delivery, says Jeff Neely, director of sales for xpedx Supply Chain Services. (His unit serves large and mid-sized transport providers, retailers and pharmaceutical companies.)
It's equally important to adopt a set of metrics that measures performance across the supply chain, in real time. xpedx tracks productivity down to the number of picks per hour at all of its facilities, says Neely. It also keeps close tabs on the carriers who are moving goods to consignees, including the 1,300 xpedx trucks that travel throughout the U.S. and Mexico every day.
All of that information is downloaded into a series of reports that are accessible on demand to xpedx's clients. Just because they have outsourced responsibility for inventory management and logistics doesn't mean they don't want to know what's going on in their supply chains. So the xpedx service known as ePortfolio offers more than 30 separate reports, which can be viewed online or downloaded as spreadsheets or other types of documents for analysis. The reports are available in four major categories: inventory management, order management, program performance and shipment items and trends. Built around a proprietary, in-house system, information is drawn from a large-scale database and funneled through a report-writing tool.
Customers get information such as inventory status, alerts, receipts classified by supplier and the location of all product on the floor, on order and committed. They learn of any shipment that was late or short along with back orders, credits and returns, off-cycle ordering and complete purchase histories, among other things. Reports are downloaded each night out of the xpedx mainframe, although some may be issued on a weekly or monthly frequency. Says Guy Belew, xpedx's corporate vice president of marketing: "Our business is entirely dependent on product, service and supply chain excellence-every hour, every day."
The Offshoring Challenge
The globalization of supply chains presents new challenges for companies trying to get a handle on vendor and inventory performance. Sunnyvale, Calif.-based Finisar is a maker of optical transceivers for data networking and telecommunications. Customers include some of the world's largest high-tech companies, including Cisco Systems, Dell Computer and Hewlett-Packard. Recently Finisar followed the example of many other producers and ventured into overseas manufacturing. In a departure from common practice, however, it opted to run its own plants in Malaysia and China, and even made some strategic acquisitions of suppliers. (Finisar also conducts research and development in Singapore, and operates wafer fabrication facilities in Texas and California.) But even with direct control over offshore manufacturing, the company faced big challenges in the area of performance management.
First came the question of selecting just the right metrics. "You don't want too many," says Duane Hardacre, director of supply chain strategy and business systems. "Then you get lost in the weeds."
Finisar had to determine which ones would help to drive top-line growth, allowing it to capture market share while ensuring profitability. "It has to tie back to your balance sheet," says Hardacre. "Otherwise, what's the point of measuring it?"
Key metrics for Finisar include purchasing spend, plan management, and open purchase orders. Below that, it measures elements that are mostly of interest to operational executives, including on-time delivery, inventory value and turns, and manufacturing yield management. In the case of the last, even an increase of one or two percentage points can have a multi-million-dollar impact on the bottom line, Hardacre says.
|"You have to boil down the metrics to the essential ones. You don't change what you don't measure. And you don't measure what you're not going to change."|
- Paul Hoy of Cognos
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