Operations is the Hub of Optimization

Operations is the Hub of Optimization

An Interview With Randy Strang

Randy Strang, Vice President, UPS Customer Solutions, shares his view on the challenges facing today’s operations personnel, the role of third-party logistics providers (3PLs), and other critical topics that affect the supply chain.

O+F: What would you say is the No. 1 challenge facing today’s operations and fulfillment personnel and, in your opinion, how can they overcome that challenge?

RS: The No. 1 challenge is to become balanced leaders in facilitating supply chain collaboration and planning for the purpose of optimizing cost and quality of service.

The operations manager/director is the hub that ensures the optimization of information technology (IT) applications, human capital, and hard assets, and is one of the few who can manage the ongoing conflicts between cost, quality, and time.

The challenge is that organizations have not realized this, and they have not placed an emphasis on procuring, training, and developing true business leaders in operational roles. Organizations tend to allow finance, engineering, or marketing to dictate key events that have an adverse effect on the cost and quality of operations.

This becomes critical because, unlike other disciplines, distribution operations have not really driven significant costs out of their operations consistent with the advancement of technology.

For the United States to remain a competitive point for global distribution, we must be the leaders in advanced operations, fulfillment, and supply chain innovations.

O+F: What do you think is the single most important warehousing advancement during the past five years?

RS: I believe the greatest advancement is RFID. Though its benefits are far from being felt on the income statement, the technology will fundamentally change the current supply chain channels we know today. The early adopters/leaders that have the foresight to drive the change will be the primary long-term beneficiaries.

O+F: What is the best way to improve efficiency in the warehouse?

RS: If you define “efficiency” as improved return on investment, then the quickest method with the greatest ROI is to establish work measures for each major warehouse task and be committed to hold employees and operations management accountable to perform up to those measures.
UPS SCS has succeeded in having all facilities operational on work standards, and it has been the differentiator in allowing us to provide world-class service.

Most firms shy away from work standards because they see them as “heavy-handed” and are afraid of employee rebellion. However, we found that once we marketed to our employees that they are, in fact, owners of our business, and if we don’t hold ourselves accountable to standards, our clients may choose not to renew their contracts with us, which eliminates their jobs. Compliance was pretty easy at that point, and our teams took the challenge as a contest to meet and achieve objectives.

O+F: When should operations and fulfillment personnel consider using a third party for distribution fulfillment, and what role can distribution center bypass play in this issue?

RS: All organizations should complete a comprehensive internal review to determine whether a 3PL makes sense for them and how to integrate that solution into their overall network. Some of the advantages that outsourcing to a 3PL can provide are freeing up internal capital to use in other areas of the business and enable more flexible growth.

DC Bypass capabilities will, of course, provide faster and more efficient movement of goods to a destination and would free up DC capacity for growth.

Finding a 3PL that can provide both services in a coordinated way will allow the creation of significant flexibility and cost savings with minimal capital investment.

O+F: How can operations and fulfillment personnel effectively control, and ultimately reduce, shipping costs?

RS: Beyond the traditional practice of pressuring your transportation provider to lower their prices, companies need to evaluate and manage transportation costs strategically.

Companies should intimately know their transportation pricing structures to be able to understand at what weight or dimension the cost per pound reaches optimization, and then modify packaging, buying habits, and pricing structures to try and achieve that cost point.

One of our clients determined that, based upon the buying habits of their customers, a 60-pound carton optimized transportation and packaging costs, and was the upper weight limit that was “friendly” to their end consumers. Our personnel, corrugate, and systems were all remodeled to support this objective.

Another B2C client was focused on optimizing transportation costs as a percentage of revenue, so they incented customers with tiered pricing structures, companion selling, and free freight blitzes to try and optimize the revenue per package shipped.

Our charter was to develop packaging solutions that would accommodate the larger cube orders, without driving incremental freight, labor, or packaging costs.

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