UPS Supply Chain Logistics- The Direct Method

Every company that manufactures products relies on supply chain networks and logistics. Logistics visionaries have talked for years about eliminating the role of inventory in modern supply chains. The most efficient, slack-free supply chains, after all, wouldn’t require any inventory buffer because supply and demand would be in perfect sync. This vision certainly has its appeal: The death of inventory would mean dramatically reduced logistics costs and simplified fulfillment. The direct-to-store approach is not necessarily the appropriate model for every company, but this technique reduces the inventory drastically. It requires additional coordination further back in the supply chain, including more-accurate demand forecasts and precise delivery allocation planning. And the complexity of managing the process makes it even more necessary to have sophisticated tracking and tracing tools in place to provide detailed supply chain visibility, even as shipments change hands and hop from one mode of transport to another. It also requires a higher level of coordination among functional groups such as inbound and outbound transportation and warehousing.

Direct-to-store offers cost savings in a number of areas:

•  Capital investment savings: No need to invest in expanding current warehouses or building new ones.
• Improved network efficiency: Companies can respond to seasonal and peak   demand without having to overbuild distribution capacity that might remain idle during nonpeak times.
• Reduced inventory-carrying costs: Without the need for warehouse processing and storage, companies can eliminate warehousing and carrying costs, which are estimated to represent about 3.8 percent of sales.
• Reduced material-handling costs: Direct-to-store can provide significant savings in labor and product-handling costs, both for receiving and outbound shipping.
• Lower administrative costs: Simpler direct-to-store consolidates management of supply chain functions, so fewer management resources are needed.
• Lower damage costs: Fewer touch-points and less handling mean less risk of damages to shipments.

Effective transportation management can lower transportation costs, improve inventory management, and enhance customer service and reliability. For innovative companies and products that fit the profile of direct-to-store, skipping the warehouse and keeping inventory in motion can have a direct impact on global business success.

Sources:

• http://www.ups.com/content/us/en/bussol/browse/supply-chain-optimization.html
• http://www.ups.com/media/en/wp_inventory_in_motion.pdf
• http://www.ups-scs.com/transportation/network.html
• http://highered.mcgraw-hill.com/sites/dl/free/0073525235/940447/jacobs3e_sample_ch11.pdf