2017
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businesses: Policies and practices had evolved over
time to become the “way we do things.” Moreover,
Team X had taken assumptions from its well-established domestic market and carried them into the
international arena.
When international customers represented a small
portion of the company’s sales, process inefficiencies
caused by those unquestioned policies and practices
were not visible. However, when growth outside
North America rose to more than 50 percent of
net sales, these inefficiencies became much more
noticeable. Rapid international growth coupled
with top executives’ focus on operational efficiencies
and improving inventory turns were the genesis of
this study.
Like others in its peer
group, Team X has two distinct fulfillment models:
one for finished goods and
another for service parts.
This study focuses on its
service-parts flow from the
United States to a European
distribution center (DC).
Diagnostic output and
hypothesis: As shown in
Figure 3, Team X’s European
DC sent monthly transfer
orders to the U.S. distribution center, which then built the shipments. These
shipments moved in multiple 40-foot containers,
flowing from a southern U.S. inland rail port to a
U.S. East Coast port of lading, and then by ocean to
Europe. At the European discharge port, containers
were offloaded and shipped to the inland European
DC via barges.
This is a commonly used transportation flow, yet
it was plagued with excessively long and inconsistent cycle times. The variable cycle times meant that
Team X’s in-transit inventory was unnecessarily
high, tying up precious capital. Additionally, a high
degree of variability in the fulfillment process resulted in higher safety-stock levels at all nodes in the
supply chain. Recognizing this, the client engaged
Expeditors to assist in designing and implementing
a project that would address those problems.
After working with Team X, we hypothesized that
if shipment cycle times were reduced, then in-transit
inventory could be cut and working capital could be
freed up. With our hypothesis established, we set out
to identify root causes and quantify performance
gaps. After gathering historical data and conducting
interviews with process stakeholders at the DCs in
the United States and Europe and the relevant third
parties in both regions, we entered the “feasibility”
and “due diligence” stages.
Feasibility: During this phase, we employed process analysis, workflow review, and statistical analyses to determine whether it would be feasible
to reduce in-transit inventory via a reduction in
shipment cycle times. We used statistical analysis
to determine the baseline performance of shipment
cycles. This analysis focused on the average cycle
time and standard deviation in shipping times
between the five shipment milestones shown in
Figure 3.
Based on historical data,
we determined that 24 days
separated the minimum and
maximum cycle times, indicating that it would indeed
be feasible to reduce cycle
times. Pareto analysis then
told us to focus on those
milestones with the greatest variability: from the U.S.
DC to the loading port; from
the discharge port to the
European DC; and during
receipt and putaway at the European DC.
Due diligence: To help us determine how Team
X could improve shipment cycle times, we interviewed key stakeholders to identify existing practices
and policies at both origin and destination points.
The interviews revealed constraints and practices
that existed outside the officially approved processes, such as sites holding extra safety-stock buffers
and transfer-order procedures that did not follow
approved protocols. The interviews yielded a wealth
of information about process inefficiencies that
directly and negatively affected cycle times.
After defining Team X’s current state, we calculated an achievable cycle time based on internal process
factors, such as order-approval times and receiving,
processing, and putaway practices, as well as on
external factors, such as transit times across multiple carriers and modes. Even though improvements
clearly were necessary, a compelling business case
was needed to provide an incentive for the U.S. and
European DCs and the third parties to make chang-
