How Slack Impacts Your Supply Chain
April 21st, 2017 by Vicki Warker
Every supply chain has blind spots — between the supplier and the plant, from a truck to a cargo ship or from a plane to your customers’ store. And while there are sophisticated inventory, warehouse, and transportation management systems, the reality is they are insufficient. Why? Because they only show where materials or finished goods are at a milestone at a particular point in time. Between milestones, supply chain operators are often flying blind. So, to account for unknown variables that impact ETA, planners add slack. Add a day to the schedule to get materials from the supplier to the plant. Perhaps another two days from the plant to your customer’s store. Add another week in case there are weather delays — the container sits at a port waiting for an overdue inbound ship, there is an additional port stop your freight forwarder didn’t disclose or delayed drayage at the arriving port.
Congratulations, you have just added ten days of slack to your supply chain. Don’t forget the freight forwarder adds slack too —let’s say five days — each time you sign a shipment contract. Historically planners use slack to guard against the unknown, with the hope that doing so will ensure goods arrive within an acceptable delivery window.
There is a quantifiable impact of slack on organizations. One of our customers, a large Fortune 50 CPG company, estimates that one day of global inventory is worth $50M. A regional or national manufacturer would be less, let’s assume one day of inventory is worth $1M. Ten days of slack translates to ten extra days of inventory on hand, to avoid out of stocks. Replicated throughout the national or regional routes, 10 days of slack costs $10M. That is a very high price to pay to account for the unknown.
Quantifying what slack means to your organization makes it clear how critical it is to find a way to illuminate those blind spots. Doing so facilitates more accurate planning, eliminates unnecessary slack and gives you the confidence to lower safety stock. The good news is now solutions exist to give supply chain planners the visibility they need to devise more precise timelines.
A solution that offers continuous live, streaming information about the location and condition of your in-transit inventory from end-to-end can help you create a more realistic plan for what will happen between the milestones managed by your inventory, warehouse, and transportation management systems. With a few sensors, in-transit visibility software and predictive analytics, you can dramatically increase your knowledge of what happens in those blind spots. And over time you can identify areas to focus on to optimize your supply chain. Is it worth it? If you can remove one or more days of slack from your supply chain and reduce safety stock by one or more days, it likely is.