Certification Program and Scorecarding
The next area of concern is the vendor or supplier scorecard. This helps keep a dashboard view of the supplier and perhaps also the carrier’s performance for eventual continuous improvement, or the Kaizen process. Development of a joint retailer/supplier scorecard is critical to success. Measurements include the following:
- Product profitability
- Inventory turns and service level
- Promotional effectiveness
- New product introduction effectiveness
- Quality/returned goods
- On-time performance
The operational issues of certification programs include these:
- Product frequency of arrival with receiving cost in mind
- Product delivery timing during the day
- Vendor minimum
- Item minimums
- Pallet layer stacking
- Frequency of arrivals
- Pallet or container type
- Label type to use
- Label placement
- RF collaboration with current system to make a more efficient information flow between the supplier and the distributor
Certification programs cut Do it Best Corp. lead times down by approximately one day. That one-day savings included a reduction in manufacturing lead time as well as receiving and stocking the product. Do it Best Corp. found that the certification program equates to an additional 2.2% reduction of inventory for each day saved in lead time. Therefore, the savings for the certification program is 2.2% × $222 million in inventory. This is approximately $5 million in inventory reduction, making the new inventory level $217 million.
Do it Best Corp. also mandated the use of specific labels, pallet sizes, and label placement to maximize productivity. Logistics labels are increasingly used to track containers and other logistics units through the supply chain, as recording and monitoring the movement of goods is an essential part of supply chain management. This allows the employees to scan each container or large box and know how many items are inside. These are the most successful mandates:
SCC-14 (Shipping Container Code) is a 14-digit number assigned to fixed-content shipping containers. Using the SCC-14, it is assumed that like items are in each box. When the box is scanned, the count is given without opening the container for counts. For example, the UPC number tells the system that the box holds 12 units.
SCC-18 (the Serial Shipping Container Code) is a unique serial number that is used to identify each individual pallet, assuming that various assorted products are on a pallet. Scanning the pallet gives the items contained on it. The pallet can be moved to the stocking location without the shrink-wrap being broken at this time. Employees can scan more products per hour and move products from receiving to stocking at a much faster rate.
Another part of the certification program is the use of the “funnel” program. Do it Best Corp. asked the supplier to stock like items on each pallet. This means that a pallet may have multiple purchase order numbers from multiple orders for the same item. Using the old system, manufacturers filled their orders by purchase order and any back orders were filled and palletized by PO. Having like items spread across multiple pallets hurts productivity. Do it Best Corp. also requires suppliers to have bin location numbers on their files. The suppliers place stock merchandise in the pallets with the same inventory location.
The largest part of receiving is the breakdown and sorting of product. This accounts for as much as 80% of the time spent in receiving. The bottleneck is eliminated by having the pallets go directly to the stocking location without any breakdown or sorting.
Certification Program Savings
The Lean Savings of the Certification Program
- Carrying cost savings $5,000,000 inventory × 26.6% = $1,330,000
- Freed-up cost of capital is .02 × $5,000,000 inventory savings = $100,000.
The Green Savings of the Certification Program
- 9.75% for Damage and Obsolescence × $5,000,000 = $487,500 per year in landfill savings.
- Total Lean and Green Savings so far is $1,917,500.
To this point, after the Certification Program:
- Company turns are 4.25.
- Sales are $922 million.
- Inventory now is $217 million.