A Digital Transformation Guide to Optimize Inbound Parts Delivery Costs

A Digital Transformation Guide to Optimize Inbound Parts Delivery Costs

Leading manufacturers work to master lean tools like Plan for Every Part (PFEP) to streamline their supply chain by mapping the dozens of variables impacting inbound parts delivery. Subsequently, they’re rewarded by realizing and maintaining lower supplier delivery costs. Organizations that have yet to begin their lean journeys could generate reductions up to 15 percent for delivery costs when implementing PFEP. Even industry-leading lean manufacturers or ones who haven’t audited their delivery processes recently could see similar cost reductions. 

Derived from lean supply chain best practices, the definitions and requirements of a PFEP vary depending on specific needs and industry, but in general, a PFEP fosters the accurate and controlled management of critical part commercial information and provides visibility into an expanded set of important part-level data that traditional enterprise resource planning (ERP) systems don’t.

By streamlining the end-to-end supply chain using digital lean tools such as Automated PFEP software, manufacturers and suppliers are working real-time to optimize inbound parts delivery performance. In fact, partnering with suppliers to optimize delivery performance is critical to realizing lean extended enterprise performance results. 

Common Inbound Part Delivery Challenges

Leaders face abundant challenges to reduce delivery costs, that, when combined, are often the root cause for inefficient inbound parts delivery performance. One common element of frustration is the timely visibility of accurate delivery planning data. Teams need to have reliable data available in one place from which to calculate ideal future-state inbound parts delivery performance.

Most plants allow suppliers to ship products as the suppliers choose, but many plants don’t control incoming material in a way that levels the workload of the receiving department. To do this, plants will use receiving windows. By leveling workloads and increasing efficiency using PFEP, receiving windows can lead to fewer errors and less wait time between the receiving dock and purchased parts market.

In an ideal plan, there are specific delivery targets, receiving capacity and maximum inventory levels; then, there’s reality. Industry business challenges and variable inter-dependencies need to be understood and accounted for to bring about results.

What Delivery Optimization Success Looks Like

An OEM of heating, ventilation, and air conditioning (HVAC) systems could partner with their Tier I supplier of electric motors to optimize delivery, which in turn could reduce inbound logistics costs, plant inventory floor space and inventory levels. Input data is typically loaded into an Automated PFEP software tool to calculate a Current State PFEP baseline. Teams then refine input variables which in turn calculates a Future State PFEP.

The key to swiftly refining your PFEP is mastering the interrelationships between inputs and outputs. This is another area that software assists as a productivity tool by automatically calculating outputs. For example, the OEM and Tier I supplier revised their Reorder Period from daily to twice daily to ensure better production flexibility. Further, by transitioning from dedicated partial full truckload shipments to more efficient milk run shipments, they lowered inbound parts delivery logistics costs.

Small adjustments can enable rapid transformations. During times of sudden volume shifts, continuously reviewing and dialing in the appropriate input variables is key. Your adjustments add up quickly as each dollar saved goes straight to the bottom line.

5 Actions to Optimize Delivery Performance

1. Define Inbound Part Delivery Goals

The frequent statement “we need to optimize supplier deliveries” is rather broad, so defining your organizational goals – e.g., lower monthly costs by $14K by the third quarter – will lead to better and quicker results. Invest the time up front to train your team about the variables that impact delivery costs. This will ensure that when costs are reduced, the reductions can be preserved. Automated PFEP software can prove to be a valuable productivity tool for defining quantitative delivery targets and pinpointing ideal variable input adjustments that will reduce costs.

2. Audit Current State of Supplier Deliveries

Determine the percentage of your suppliers that have defined delivery windows by both date and time. Most manufacturers don’t dictate the days let alone the time windows of supplier deliveries. This presents an amazing opportunity for manufacturers to better balance material handling team member workload. If for example, all your suppliers decide to deliver in the morning on Mondays, it creates a spike in workload, hindering internal productivity and causing several additional challenges. These could include safety, due to increased parts build up waiting to be received, and costs, due to higher staffing levels required to execute the receiving workload spike.

3. Balance Supplier Receiving Windows

The supplier order lead time, daily production volume and your receiving capacity will reflect your ideal receiving windows. For example, if you’re a middle-market manufacturer that periodically receives suppliers’ shipments throughout the week, moving to receive shipments Monday through Wednesday could dramatically enhance your team’s productivity.

Today, your receiving windows will likely change more frequently based on a multitude of factors, varying sales forecasts, production forecasts and parts availability. Therefore, you need an agile system that can update you in real time. Many manufacturers are finding success using Automated PFEP software that allow real-time supplier communication of delivery changes.

4. Add Receiving Buffer for Delivery Volatility

When you first transition to defined supplier delivery schedules you’ll realize that some suppliers will comply, and some will struggle. Ahead of deployment, quantify the benefits to suppliers, such as quicker turnaround times, less damaged parts, and faster receipt of parts to embolden buy in.

Further, it’s smart to assume everything doesn’t always go as planned. Although you’re striving for more balance, you need to prepare for the unknown. Set an initial receiving buffer capacity of 20 percent in your schedule to account for missed delivery windows and initial delays. Then, reduce the buffer over time as you achieve your delivery goals.

5. Involve Stakeholders & Track Performance

What gets measured, gets done. You may need to redefine your delivery supplier performance metric as delivered within the dedicated window, not delivered within the expected lead time. Partner closely with your suppliers to implement these upcoming changes well in advance to get upfront process refinement buy in. The best deployments are those that aren’t a surprise, but instead are co-created by suppliers considering early and constant feedback. As in any lean transformation process, it’s important to discuss planned changes with internal and external stakeholders ahead of deployment. This will also help you prioritize which suppliers to onboard first to the new delivery plan.

Partnering to Sustain Optimal Delivery

Delivery cost optimization is a universal struggle for many manufacturers. The cost reduction results achieved, and their long-term sustainability, depend on whether the solutions applied are temporary fixes or institutional changes. Lean is a journey, so embrace a tool such as PFEP to ingrain best practices that empower your team to sustain optimized inbound part delivery.

-William