Podcast: Designing Supply Chains for Sustainability
In episode four of Be Ready for Anything, hear from Martin Jertz, ToolsGroup’s Business Development Manager for Central Europe, about how organizations can build sustainability into their supply chains while trimming costs and improving efficiency.
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Katie Van Adzin: Hi everyone, and welcome back to the be ready for anything podcast from ToolsGroup. I’m your host, Katie Van Assen, and today I’d like to introduce you to Martin yurts, ToolsGroup Business Development Manager for Central Europe, based in Munich, Germany, Martin’s been with ToolsGroup for the past two years. Thanks for joining me today, Martin. How’s it going?
Martin Jertz: Everything is fine, thank you. How are you?
Katie Van Adzin: Pretty good, happy to talk to you today! So we’re gonna talk a little bit today about sustainability in supply chain. Improving transportation efficiency is a huge opportunity for supply chains to make environmental progress. Can you tell me a little about what kinds of steps organizations can take to lessen the environmental impacts of their transportation?
Martin Jertz: Yes, I mean, Katie, there are a couple of different options, of course you can, you can focus on that. But I would say maybe just focusing on two at the moment. So the first one is maximizing FTL and container shipments. So as an example, a container or a vehicle, which is running empty, or it’s actually partially full, is wasting space and fuel, and generating the additional carbon emissions, of course. So large companies with their own fleet, can actually minimize empty return trips with back holds. So instead of returning after drop offs, your planning solution can help you to group vendors for returning back pickups to make the most of available flight capacity, improve efficiency and balance inventories. The other one is, for example, to improve or to choose the optimal brackets, which means that your planning solution actually can compute best bracket and the timing of the bracket to save money. So you may reduce the turns, but you can save money on this truck time.
Katie Van Adzin: Makes sense. And in addition to optimizing transportation efficiency, optimizing transfer decisions can also be a useful way to cut down on waste, both financial and environmental. How can a smart planning system help with this?
Martin Jertz: Yeah, so a smart planning system can actually help you to make smarter transfer decisions. So as an example, when you need to transfer, or move inventory from one location to another, companies normally face, like, two options. So the first option is, do you place another order and risk an overstock, so long with of course, the extra cost of running a ship or a track and so on? Or would it be actually better to balance the inventory via transfer among a group of the warehouses? So the associated warehouses. So the planning system by itself gives you actually, or identifies for you, which transfer option, will save the most money and ensure sustained services. So when you input, for example, the transportation modes, like for example, the boxes, the trains, the ships, the trucks, and so on, and limitation of each, so the cubes, the weights, the currency and so on, the planning system will calculate the most efficient transfer option for you. In addition to that, it can also suggest opportunities to rebalance inventory, when location has extra stock.
Katie Van Adzin: The environmental aspect of inventory storage is often overlooked. Optimizing inventory in order to stock less while meeting the same service levels, not only saves money, but can also carry huge benefits for sustainability. What should companies be looking at in this regard?
Martin Jertz: Yeah, there are a couple of different of course aspects companies can look into. Let’s start maybe with, for myself, one of the most interesting ones, so it’s minimizing actually inventory space. Approximately 22% of the inventory is actually unnecessary. So when you have, or when a company, if they have a smarter stock mix, you minimize the amount of space required for your inventory, which actually means that, and consequently, of course, that the overhead costs like power, heat, and of course from the real estate by itself, will be reduced in the future. Another thing is to reduce the wasteful expediting costs. So when a company better predicts the consumer demand, it automatically reduces the needs to rush with the LTL and air freight. So along with the costly in-network transfers from warehouse to warehouse. So rush orders and the transfers, they will reduce the profit margins. And often companies, they do not understand, or fail to see that a poor demand forecasting and inventory stocking are actually the origin of the problem. And of course, when you reduce those transfers in between the warehouses, and this rushing transfers, it will automatically reduce the carbon emissions.
The other one, another opportunity is to improve the efficiency, and the timing of orders. So if a company hasn’t improved it yet, the efficiency and the timing of orders, it could result in too many costly LTL shipments and requires extra label to receive cut purchase, or a store and pick the items, for example. So the solution could identify the optimum order cycle, which is aligned with the potential customer demand and tied to a service objective. This helps you or this helps the customer actually, to maximize the space and of course the profit.
Katie Van Adzin: And when it comes to manufacturing, capacity planning is an area where there are a lot of efficiencies to be gained. How many more strategic capacity planning and product transitions reduce manufacturing’s environmental footprint?
Martin Jertz: Yeah. There are of course, specific ways to reduce waste in manufacturing process. Oh, I would say let’s just focus you on two as well. So the first one is to improve the capacity planning. So capacity planning by itself is actually much more than just calculating the resource load based on the production requirements and the throughput rates. So your planning system must help you to manage both, the constraint and additional capacity. So when you consider the probabilities associated with the demand, it is less of a cost to reschedule some plan orders than others. So when you have additional capacity, your planning system actually must pull forward the planned orders that can best contribute to your service performance. On the other side, when you have the capacity constraints, companies must manage the trade-offs across the items to reduce the overall risk of a stock-out or shortage customer order. So by managing over a longer horizon, you can better leverage available capacity to reduce possibility of future shortfalls.
On the other side, what you said in the questions, well, it’s like the product transition. So the aim should be to reduce the product transition. Safety stock levels can be optimized to provide a better buffer against demand variability. This increases schedule adherence, reduces the need to run small batches to fill orders for out-of-stock items. And as we all know, the smaller batches actually generate higher emissions per unit of output. So by evaluating production requirements over a longer horizon, companies can better plan campaigns to minimize the startup, for example, of equipment required for the changeovers, which consequently, of course, then conserves the energy and reduces the emissions. And if or after a company has implemented smart supply chain planning solutions, normally it can reduce production transition days between three and 18%.
Katie Van Adzin: So my final question for you today is about product obsolescence. Product obsolescence is one of the main sources of waste in inventory. How can probability planning help organizations course correct when they’re at risk of overstock or obsolescence?
Martin Jertz: Yeah. So before I would, before I answer those this question, I would like to start with a fact. And it’s quite interesting that in the United States, retailers are actually accountable of about 8 million tons of waste. In Germany, it’s approximately 3 million tons of waste per year. So in process manufacturing, grocery, and under other industries where you have the shelf-life requirements, which typically resides in a high inventory write-offs as lots age out. In discreet industry, for example, you have a bit of a different scenario in which products are frequently updated with newer models. So the problem there manifests a bit more in heavy discounting of the liquidate stock of the original components when the new model is launched. So you can finally get ahead of lots that are at risk and avoiding over-planning stock by understanding the inventory you have and when it will actually expire. The more accurate forecasts there results in producing the right amount of goods to avoid sell-off. Next-gen inventory optimization defines an inventory mix that takes into account shell-life to maximize freshness and minimize risk of obsolescence. It does this by actually generating a stock-to-service curve that helps you to understand how best to achieve service levels without risking obsolescence. Another point would be to reduce the risk of obsolete inventory. So probability planning has one key benefit, especially to production planners there. So by adjusting, as I said before, the lens over a longer term planning horizon, your planning system can actually provide an early warning signal when stock levels are projected to exceed maximum targets.
Katie Van Adzin: Thanks for sharing all of this insight today, Martin. That’s really helpful!
Martin Jertz: Thank you very much for having me.