I recently came across an
interesting white paper from GT Nexus They’re in the business of helping
relatively large companies synchronize supply chain data from various sources
via integrated logistics software. The paper is a thinly-disguised sales pitch,
but a good one. And although it targets retailers, it has some interesting
implications for manufacturing companies as well, even relatively small ones.
The supply chain problem that
needs to be solved, according to GT Nexus, has to do with understanding the
true cost of landed goods (which could be anything from plastic toys to
components for valves). That cost has three components: The first component is
the cost you actually pay per unit. This is usually straightforward. The second
component is the cost of getting those units from the supplier to you. This
cost includes freight, duties and a host of other miscellaneous costs such as
customs brokerage, warehousing, drayage, and loss/damage insurance. The third component
has to do with the financial terms of the sale. This includes factors such as
cash flow, inventory costs and the effect of exchange rates.
Wouldn’t it be great, the paper
asks, if you could buy software that would integrate all these factors in real
I would say the answer is yes for
many large companies. But even if the answer is no for your company, there are
some interesting points.
The most important is that as
soon as you have separate departments for purchasing and for handling
logistics, you automatically have a conflict of interest. The goal for
purchasing, to over-simplify a bit, is to get the lowest unit cost for the
desired item. The goal for logistics, again simplifying, is to reduce transportation
costs. Think about it. Situations are going to come up all the time where the
cheapest unit cost can be obtained by buying in, say, Shenyang, China… but that decision can double
or triple the logistics costs. From the perspective of logistics, it would be
better to buy in Buffalo, New York.
Deciding for Shenyang vs. Buffalo
can have implications for the finance department as well.
A lot of companies are
re-thinking their supply chains in the wake of rising oil costs. If you’re one
of them, you should make sure that you get purchasing, logistics and finance
people all in the same room at the same time before making a decision. And,
sorry GT Nexus, but the only software you’ll need is an Excel spreadsheet.