How can the total supply-chain cost be reduced?
In addition to providing a high level of customer service, purchasing managers are under constant pressure to reduce costs and provide consumers with real value. Unfortunately, we all know that, driven by increases in the cost of oil and a shortage of trucks, transportation costs are rising.
The cost of operating warehouses has come under pressure over the past years. Every transaction, whether it is receiving a truck, putting product away, or picking it for a store order, takes both time and money. Wouldn’t it be great if there was a way to reduce the number of transactions and eliminate some cost all while reducing the manual effort required in placing orders?
AutoO2 (Automatic Order Optimization) – can generate the kind of savings needed to keep management happy by:
- Creating orders that are more effective at filling trucks and hence requiring fewer loads over the year and doing this all without impacting inventory
- Eliminating the number of trucks received at the warehouse as well as cutting the number of put-away transactions
- Supporting hands-off product ordering
Creating orders that are more effective at filling trucks saving 4-8% of inbound freight
Most purchasing systems are effective at capturing the price break, for example for full truckload shipments, but to determine how much fills up a truckload is often unsophisticated-rules-of-thumb: “Is the shipment more than 40,000 lbs or does it have more than 2000 cube.” Worse, the information on the shipment is far from complete as nearly all purchasing systems fail to take into consideration such important things as the weight of the pallets in the load or what states are the shipments traversing.
AutoO2 uses a variety of information including time-phased demand, product dimensions and weight, as well as how it is palletized, and it’s “stackability” to determine how to best use the valuable lane-specific truck capacity. AutoO2 cautiously uses requirements from subsequent days to ensure that the load is truly full. In the real world, loads are 4-8% bigger, meaning that 4-8% of all shipments can be eliminated.
Surprisingly, putting more product on trucks does not increase the amount of inventory. The following diagram shows how increasing shipment size does not make much difference to inventory levels. What has been found from experience – which is totally counterintuitive – is that inventory levels seldom change. We can speculate the only reason is because the shipments are being optimized and rather than have an analyst fill out of the truck with product that may not be immediately needed, the system is much more disciplined about selecting the right product – product that’s needed soon – on the truck.
Eliminating the number of trucks received, Cutting the number of put-away transactions, and Reducing analysts time by a third
Not only is there a savings of 4-8% of transportation costs, but there are 4-8% fewer trailers coming into the dock and purchase orders to be reconciled. And it does not stop there. In a world where multiple analysts may order the same product from the same vendor, AutoO2 can enable purchase orders to be consolidated so that the product can be received and put away just once rather than having it encountered on multiple orders. With a good requirements forecast, companies have seen up to 33% of their orders created without human intervention.