In recent blogs I explained why beverage manufactures wanting to succeed in Asia have to acknowledge the region’s rich diversity. I highlighted the unique problems posed by the region and explained how manufacturers can improve their market penetration and get better returns on their investments. So far, my focus has been on issues related to demand, supply and production.
In this blog, I will focus on areas equally important to a beverage manufacturer’s success: logistics and distribution.
The key objective of getting the product to the destination promptly is to reduce time-in-transport and increase the time-on-shelf (the period between the product’s arrival on shelf and the “best before” date).
To crystalize the problem in your mind, let’s describe a typical scenario. A beverage production plan is set about 2-3 months in advance based on historical demand. That plan may be adjusted along the way but, in essence, it may not change much. Incoming customer orders will continuously generate shipping orders to be transferred to distribution. The logistics departments of beverage manufacturers use historical orders to contract transport capacity, typically for a 6-12 month period, to get the beverages to market. Individual daily shipments covered by those contracts are then planned in transportation management systems used exclusively by the logistics departments.
Why this results in suboptimal plans – and unnecessary costs
Let’s assume you are a typical beverage manufacturer in Asia. By following this process you are losing between 1-4% of your margin. You are purchasing the wrong transportation capacity by buying too much in certain periods. At other times you are purchasing too little, and need to pay premium prices for emergency transportation services. The worst part is, you assume this expense is “cost of doing business”. You either pass this cost on to the distributors, and ultimately the consumers, or accept the loss yourself.
Why do so many beverage manufacturers take this dysfunctional approach? Well, the answer is very simple. They cannot do anything differently, because they are limited by their system tools.
Did you purchase an IT solution from one vendor, demand management solution from another and transportation management from yet another vendor? Or did you buy one solution that pretended to have to all? Either way, you have to follow a fixed business flow originating in your demand planning application, through supply chain and production planning applications and end up in the transport planning application. Not only that. In either case, those applications communicate one way transferring files containing the plan down the path dictated by the application workflows. Along the way, the plan is “re-optimized” multiple times until the whole advantage of the optimization is completely lost. What a waste of money and effort.
The culprit: A flawed perception of supply chain planning and optimization
If you consider your forecast and demand plan to be the origin of all subsequent decisions, then why would you agree to use it all the way down the chain sequentially? Simply stated: Why would you create your 6-12 month transportation plan based on a mixture of shipping history and shipping orders confirmed at the time the production plan is actually finished? Why would you not do it based on the dynamically (say bi-weekly) adjusted demand plan? Nine out of 10 people would answer: “Because my transportation management application does not talk to the demand planning application”.
At DELMIA Quintiq, we are proponents of doing all of the planning and scheduling using a single optimization platform. Only the platform-based solution enables balancing of multiple resources; whether they are yours or owned by third parties. The benefits of DELMIA Quintiq solution are especially clear when it comes to customers in Asia. When you produce beverages, the supply chain starts with customer demand and, as I’ve discussed, demand in Asia is uniquely complex. The supply chain ends with distribution which also poses special regional challenges. All segments of the beverage supply chain affect one another, so when you have standalone planning applications for each department, you are never working with the optimal plan, if you are only optimizing individual plans of your organizational silos.
One more piece of the puzzle
There is one more part of logistics that the beverage industry typically neglects to include in their definition of a supply chain. In my next blog I will look at reverse logistics – a puzzle that no beverage manufacturer can afford to ignore.
In the meantime, find out more about planning and scheduling for the beverages industry or get in touch for some personal feedback on your planning puzzle.
