A Case Study by Ian Brotherton of Supply Chain Associates

Doing It Right First Time!

John and his wife own “J-D Plastic Moulding”. They and their staff of six have been manufacturing commodity-end plastic fixtures for the local market for about five years, from a small unit in Albany on Auckland’s North Shore. They manage all aspects of the business between them, plus a mortgage, two children and a part share in a beach house they don’t see much of.
Like many other producers, they are struggling with low cost imports, and need to make changes to their business if they are to survive.
Finally they have been successful in winning a tender to produce a new injection moulded closure for an FMCG product about to hit the shelves in NZ and Australia.
They realise that they have to make the production as flawless as possible to get the maximum benefit out of each production run.
Only problem is that up to now, their systems have been “seat of the pants” and that won’t work any longer.
I broke down all the steps into bite-size pieces and documented process and responsibility so it could be easily adapted by his current staff to other requirements as the business grew.
John knew his business best, but after 30 years in the Supply Chain, I knew some of the pitfalls, together we could make those:
Deliveries-In Full-On Time
Together we reviewed, implemented change where necessary, and then documented the following areas in his supply chain.

• Purchasing: From specification to vendor selection

• Control of inventory: From dock door to warehouse

• Warehousing :Documentation for mixing/picking to delivery to the production floor

• Distribution: Local delivery and export requirements

These were my areas of expertise, the moulding I left to John, I had some industry experience, but he was the expert.
The process would result in a practical, robust and interlocking supply chain from buy to sell. It would not be “rocket-science” to manage, but would give John the ability to know:

• What he needs
• When he needs it
• Who he should source it from
• At what cost
• How long it will take to source
• Once receipted correctly, where he can find it in his inventory
• How it moves to production, and stored post production
• Effective distribution, locally and export
  

Purchasing - The right item, at the right time, at the “right” price !!

• One person should control the purchasing function, multiple access can be a recipe for disaster.
• Cheapest price is rarely “best” price.
• Understand your own requirements well before passing them on to others to action.
• Spend time with your vendors to understand their capabilities.
• Provide adequate lead-times, legible purchase orders, and pay your vendors on time.
• Review your general purchase costs a minimum of annually, areas such as fuel and energy quarterly, or when market changes occur.
• Purchasing is a potential profit centre, not simply a cost of doing business.

If you manufacture-buy-hold-ship anything, packaging is generally required.
The following steps show what was required to correctly purchase the new shipper required for the closure project.
This process can be modified to cover any purchased item.
A number of critical functions needed to be established, and these had to be understood and documented before production could begin.
Many simple component requirements such as this become a problem because the person originating the idea did not have an adequate grasp of what was required before he passed it on for someone else to action.

Consider these steps in an every-day component such as a corrugated shipper.

• Sizing-cubic capacity. Initially based on closure tool drawing, then refined when off-tool samples were available.
• Quantity in each: Find out what works for the client, make each delivery as efficient as possible for them. A benefit for your client will ultimately become a benefit for you.
• Weight of contents: This combined with stack height will determine the grade of board required and hence the cost, better to pay a little more and be sure goods arrive fit for purpose.
• Graphics: Check with client as to what is required bearing in mind any export requirements. If shipping to dual markets, commonise print for both wherever possible.
• Stock movement: Print a stack pattern on the shipper, to ensure each layer and pallet is constant, this is best practice for both vendor and client.
  

Transit trial: Once approved closure samples available, pack in sample shipper supplied by potential vendor as part of quote process. Ship to clients' furthest dock point, and return. Once carried out successfully shipper good to be ordered.

Summary of process:

• Fit-for-purpose specification created and documented, that could be given to potential vendor.
• All relevant information on the component documented.
• This begins creation of inventory database which is critical to have when system upgrade required.
• Process can be adapted to any component or raw material.
• Proven shipment capability based on transit trial.
• Now ready for vendor selection.

Vendor selection
Currently three major players in corrugated industry, two Australian-owned, one locally.

• Very price-driven environment.
• The way they describe board grades is different, make sure you understand what you will be getting.
• Lowest price not necessarily the best.
• Check lead times, particularly if printed, the graphic process can double the lead-time in days that a plain shipper would take to produce.
• Check carefully any prep costs such as cutting formes and printing stereos, these can be expensive relative to a small run, and need to be amortised over the run length if pricing is to be reflected correctly.

Inventory Control:
Inventory=Pallets of cash
Whoever touches inventory has the responsibility to control it.
Define, document and publish each step in the inventory processing path. If not, how can you expect your staff to carry them out?
Ensure visable responsibility at each step, quality must be owned. Each staff member is a shareholder.
Written procedures do not equate to getting the job done right, train all staff on an on-going basis, and implement monitoring and accuracy tracking KPI’s.
Regularly re-evaluate all steps in the process with the staff concerned, ensure that everything is done for the benefit of the client, ultimately, this will benefit you.

The shipper is about to be delivered…how did we handle it?
Delivery arrived one day late, vendor advised it would be, and production not held up because we had built safety time into it.

• Inwards Goods had access to copy of purchase order to check against.
• Vendor supplied packing slip( not accepted without one). It included the following information we had requested.
• Date-suppliers name-item being delivered, relevant item code-purchase order number-suppliers production order number in case quality issues arose-quantity delivered and drivers name.
• Order quantity was 2000, 2042 delivered. Industry standard for printed packaging is + or – 10%
• Visual check made for any damage.
• Q.A. staff checked sizing/graphics against proofs supplied
• All items were correct, truck left site.
• Elapsed time about 12 minutes.
• Locations found for both pallets in warehouse, manual recording using Location Board in warehouse.
• Goods entered into Warehouse P.C, this generated a receipt in the inventory module of the admin. system updating inventory level, location manually added to receipt (MRP not in use in this operation).
• Pallet cards created with all relevant information and taped to both pallets.
• Purchase Order-Packing Slip-Goods receipt note stapled together and sent to admin for payments processing. (On time payment of vendors is integral part of process.)
  

Prior to allocating resource, training and encouragement, it was not uncommon for receipting process to have taken two working days. Agreed and working KPI reduced this to four hours. It was usually better.


Warehousing
Warehouse= Storage for pallets of cash

A warehouse is often described as “ that place down the back they despatch orders from.” Most staff see it once a year at stock take, and can’t wait to get back to their nice warm office. Reality is that this is where money is made and your customers are kept happy (or otherwise). Run it well and profit from it.
Look forward 3-5 years and incorporate warehousing and distribution into your business plan to get maximum return from layout, resources and staffing.
Light it well, make it user friendly for staff and the type of work they have to carry out. Identify all locations well and in a logical way that suits your operation.
Resource and train your staff well. Like all your staff, they won't understand your dream if you don’t explain it to them.
Ensure Picking-packing documentation is accurate, and the process is clear, well defined and understood. Eliminate “dumb” requests by making sure that all staff who place demands on the warehouse have been trained in the processes themselves.
Some pre-production processing was required prior to moulding and packing the closures, with the following steps applied to them.
A sequentially numbered production job bag was released to the factory and warehouse after signed approval by the owner. It held a material pick list, production run sheet and Q.C. check sheets, which would be signed off by the person who “owned” each step in the production, and these documents would move through the factory as the production process was undertaken. Specific places within the factory had been allocated for the job bags to be placed, so they could be located instantly should they be required.

Pick List
A dated-two part document, containing a list of all raw materials and packaging required to complete the production, it showed:

• Item code
• Description
• Nominal quantity required and actual quantity picked
• Location in warehouse, with inventory being manually depleted as soon as production complete.

Wherever possible, have more than one approved material in case of shortages or cost issues, but never change without client approval. All actions were signed off by staff member who carried out the action.
This production required both raw materials and packaging, so the pick list detailed:

• Natural polypropylene resin in 25kg bags both approved options
• Pigment to colour the resin x three colours and detailed the loading percentage in grams of pigment per kg of resin.
• The new shipper
• Three different shipper labels which defined each colour being packed in the generic shipper.
• Resin/colour mixed and approved by Q.C. staff after being signed off by the mixer. Delivered to factory floor.
• Moulding staff signed for what they received.
  

Staff signing for each step was totally new, but had two prime reasons:
Create a mind-set of “EVERY ONE IS RESPONSIBLE FOR THEIR OWN ACTIONS.”
To begin detailed information retrieval that would enable an upgrade to new technology with sound inventory processes in place.

Production to Finished Goods

Production scheduled with client on-site for approval, steps prior to this were:
Trial production run for colour matching, fit to “mating” component, and all technical run checks. Minor problems with water cooling found, corrected. Production meeting held and all items signed off before client arrived.
Production run commenced, in-process checks done, signed client approval granted, off-tool samples supplied.

Managing Production Inventory

Load cell beside moulder counted correct quantity into each shipper, random quantity checks done as part of in-process monitoring.

Thermal printed label applied to each shipper showing:
Date of production
Client name
Client order number
Item description and code. ( Both client and vendor codes if they are different- try to commonise if possible)
Vendor production order number
Sequential shipper number for track and trace in the event of quality issues
Quantity in each shipper.
As each pallet was completed, pallet ticket created and signed by operator, receipted into F/G warehouse and given pallet location.
Now we needed to carry out the despatch, locally and across the Tasman

Distribution:
Export and Local

The order totalled 350,000 closures-1500 cartons-30 pallets-30 cubic metres , with the delivery being split 1250 cartons to one delivery point in Auckland, with 250 cartons to Brisbane.
We handled the more involved export first, John had never been involved in this before, so we needed to sort out some basic ground-rules.
Who should do the job?
Airfreight or Ocean-freight?
How long will it take?
Terms of trade F.I.S.-C.I.F.-F.O.B Who can tell me what they mean ?
What will it cost?

Do NOT do it yourself, find a freight forwarder and customs agent with experience in the market you are shipping to.
Talk to other companies you know to get recommendations.
Background information-Useful websites
www.biz.org.nz This is a government site which gives sound although a little generalised business information.
www.customs.govt.nz This is the Customs Department website and is very handy for does and don’ts, and has a good information library that can be downloaded in PDF files.
www.marketnewzealand.com A very good site for accessing practical information on exporting and many other related issues.
Take the time to understand what is required, and make use of specialist skill, it will save you time, effort and money.

Your forwarder/agent is responsible for ensuring your goods reach their destination on time and delivered at the agreed price. It is essential you satisfy yourself you are using a company who can do this. My reasons for making my selection were as follows:

• Good reputation, good people, skilled in both air and ocean-freight.
• Good standing with shipping companies and airlines
• Could handle both freight and customs in the same house.
• Good staff at both point of exit and point of entry
• Represented good value for money spent.

If you are looking to export/import on an on-going basis, take the time to find an agent who is prepared to understand and assist you with your business, it is time well spent.

We had three weeks to get the product to Brisbane, so either means of freighting could be used, this is how they stacked up.

250 pieces-5 cubic metres-1250kg
Airfreight
Freight @ $NZ 0.70 cents per kg=$875.00
Pick-up, Export entry, surcharges and fees=$368.50
Customs entry, forwarder charges at destination=$A273.00
Total “door to door” cost=$NZ 1568.50.
Spread over 500,000 closures = 0.00313c per unit.
Delivery within 2-3 days with several airline options

Ocean-freight
Ocean-freight rate $75.00 per cm3 = $NZ 375.00
Bunker Adjustment factor (Fuel surcharge)= $NZ 110.00
Export charges (Docs-customs-security etc)= $NZ 224.50
Charges at port of destination= $A 467.35
Total “door to door” cost= NZ 1265.86
Spread over 500,000 closures= 0.00253c per unit.
Vessel options gave weekly sailings with a transit of 9 days.

There was only a difference of $300.00 so airfreight was used which gave great flexibility in timing with minimal extra cost.
All shipments are different, it depends on the weight and cubic content as to what is the best mode of transport. Use the experience of your agent to give you the best option.

The export had been despatched, now 25 pallets to be moved to one delivery point on the other side of Auckland.
John had one small van which would only take two pallets , plus the loss of one staff member for how long the delivery took. The right option was to find a road freighter to move it in one go.
Choosing a Freight Partner
Talk to similar industries who already use road freight, they will tell you soon enough if their service levels are not up to it.
Cost is not the only consideration.
Find a vendor that has sufficient vehicles on the road to be flexible , if you tell a client 3.00 pm, that’s what it has to be.
Presentation: Well presented, clean trucks with professional drivers
The vehicle that delivers your goods is an extension of your business, make sure it reflects who and what you are about.
The cost of using contract road freight is driven by the time it takes to complete a delivery including driving to pick-up point, through to completion of delivery at clients premises.
25 pallets would require a truck and trailer unit (“ B Train” ) with an average charge out for vehicle and driver of $150.00 per hour.
In Auckland, if possible schedule deliveries outside peak traffic times, if not, add at least one hour each way to chargeable time.
Make pick ups and deliveries as simple as possible. “Fork On-Fork Off is optimum use of time.
Make sure your documentation is as good as that requested from your suppliers. Your client’s staff will soon tell their management if it’s not up to scratch.
If it a large delivery (25 pallets is) advise your client first, they may need to make alternative arrangements about staff/space etc.

OUTCOME

WHERE WERE THEY?

‘Make or break’ point in this company’s history.
After initial discussions, owner recognised that “If I don’t change, nothing will change”.
Small company with a need to grow and implement “Best Practice”
Supply Chain-Inventory management haphazard, little visability or ownership.
Owners so busy working IN the business, no time to work ON the business .
Time and experience to carry out the project were major issues.
Business had to continue while project was carried out.

WHAT DID WE DO?

• Reviewed each step in the Supply-Inventory Management chain with owner and all staff.
• Broke process down into “bite-size” easily manageable proportions so project could be managed while still carrying out daily work load.
• Once reviewed and modified where necessary, each step was documented and signed off by owner and staff. In conjunction with other areas formed pragmatic “Best Practice” policy framework without being too formal.

When completed, the company had a written framework that could be supplied to a specialist technology supplier and would enable them to put together a management system to carry the business successfully through to the next level of growth, knowing their basic processes were sound and profitable.