Asset Management in the Supply Chain

Over the last decade more and more companies have implemented returnable and reusable transit packaging fleets and pools, whether it is pallets, tote bins, steel stillage, cages or even wooden crates. What is guaranteed is that these fleets require a capital investment, (whether directly or by a fleet / pool provider), and should be protected as you would any other company asset.

The specifications of the packaging vary enormously depending on the industry, the application and budget. However one thing common to many of the established packaging fleets or pools is that when they were originally specified, costed and implemented, a number of elements were not considered, and often still aren?t. These include repair and maintenance costs due to normal wear and tear as well as misuse, equipment loss, stockpiling and extended dwell and cycle times, lifespan of the equipment and the flexibility of the chosen design to adapt with developing and changing supply chain demands. These elements all have a cost impact, which can be substantial, and surprisingly many companies are either unaware of the real cost of their packaging pools, or just accept that it is a high cost and budget accordingly.

The key to managing costs of a packaging fleet is the in the initial equipment design and specification, the processes specific to the fleet within the supply chain and having an effective management and control system which can be easily integrated into the existing supply chain operation.

The starting point is therefore establishing the objectives of the packaging fleet and the requirements within the supply chain that you are looking to satisfy. Analysis of the operation and supply chain requirements, now and for the next five years, needs to be carried out and once the objectives and requirements are confirmed then the methods of handling and the type of packaging required can be established and specified. Success will be facilitated by a simple cost effective process design, which adds value to the existing operation by generating ?self funding? fleets, to include cost control mechanisms to reduce cost of damage, loss and misuse.

Process designs are unique to the individual customers supply chain needs, whether it is a simple hub and spoke operation or a complex multi tiered supply chain. Identifying the subtle differences between the needs if an inbound or outbound pallet or container pool is crucial to a successful solution.

The actual equipment design must take into account the physical requirements of the packaging, as well as the lifespan under actual working conditions, the ease of maintenance and repair, the ease of handling and of course the capital investment. It must be remembered that when costing a fleet it will probably be an initial high capital cost, compared to disposable packaging, but it is also an asset that can be depreciated over a number of years. The annual cost of running the fleet can be budgeted and this will vary depending on the individual supply chain needs. However these costs can also be monitored and controlled with a suitable management system.

There are a number of asset management systems being used to manage fleets or pools, and experience shows that a simple system, using established technology can provide the perfect tool for controlling your fleet effectively.

The objectives of a fully integrated pro-active fleet management system are as follows:

? To reduce overall packaging fleet costs
? To increase fleet visibility and cost control
? To optimise packaging fleet utilisation and minimise cycle times
? To provide proof of accountability for damage and loss
? To manage a repair and maintenance program

A suitable system should be modular, enabling it to cope for example, with a simple hub and spoke operation developing into a more complicated multi-tiered supply chain over a 3 to 5 year period.

Equipment losses can be put into two categories, actual loss and perceived loss. Perceived loss is where it is assumed that the equipment is lost as no one can account for its physical location. In reality the equipment is sitting in a warehouse or yard area unaccounted for and ignored. Actual loss is as its name would suggest and the equipment has been permanently mislaid or destroyed. Effective management will identify actual loss via audit trailing facilities and should negate perceived loss.

Damage will always occur to packaging equipment in the supply chain. However experience would suggest that an estimated 70% of damage is avoidable. Effective management will allow you to identify who is damaging equipment in the supply chain and handling processes of regular offenders can be examined and changed or improved to ensure damage is reduced. Damage data can also identify any design areas within the equipment itself that could be changed to reduce overall damage levels and therefore costs.

The example below shows the effect that increasing or decreasing the delivery trip cycle time in a pallet pool has on the pallet pool costs.

Cycle time management is key to the fleet size and therefore cost, so all efforts to reduce or maintain a minimum cycle time are paramount. This can be achieved through synchronous container flows integrated with lean manufacturing process. Cycle times should not be averaged out across the whole fleet and a good system will enable you to set individual cycle time parameters for specific user requirements. Minimising and reducing cycle times can create a surplus of equipment in the packaging fleet or pool. However this should not be regarded as wasted capital, but as cost avoidance on future packaging requirements as your business expands.

In order to ensure your objectives and requirements are met the system specification process must be thorough and realistic and tailored to suit the individual customer and supply chain needs.

? Your current management systems and process will be evaluated, and a suitable packaging management system designed and implemented
? Packaging fleet data can be captured via RFID readers, bar code scanners, or by manual entry of bulk movements.
? Data entry should be minimal so as not to increase on-costs and the risk of human error.
? There must be a high degree of control and a wide range of reporting capabilities, available via a local network or over the internet on a secure password access basis.
? The system must manage overall packaging fleet performance, including additional operations such as repair and maintenance, cleaning, damage inspection procedures and KPIs.
? There should be no limit on pallet / container types or the amount of locations where the fleet can be used in order that it can be flexible to a growing business.
? Data synchronisation with other systems within your business will facilitate accurate equipment planning for future or seasonal requirements.

The impact of packaging on overall supply chain costs, and indeed the impact on packaging costs brought about by changes elsewhere in the supply chain, can be tested theoretically using various cost modelling soft ware prior to actual implementation.

Gideon Hillman Consulting can assist you with knowledge and experienced based proposals and modelling solutions for Asset Management in the Supply Chain Investment into planning and consultative project management at the outset can negate over investment and additional cost in the longer term.

Gideon Hillman was employed at a Senior Management Level throughout Europe within the Materials Handling, Logistics and Specialist Supply Chain Services industry for over 12 years, (7 of which with TNT Logistics), prior to establishing Gideon Hillman Consulting in 2004. Gideon is a Member of the Institute of Logistics and Transport & The Institute of Management Consultants. As well as presenting to, and working with, Industry specific forums such as BARD / BPI in the music retail industry, the IISRP in the Global Automotive Tyre Industry and the Odette Group for Automotive Materials Handling, he was a Keynote speaker on "Asset management in the supply chain", at the 1998 IFPWA Global conference and has worked closely with the IARC (International Automotive Research Centre) on RFID implementation for Automotive Stillage Tracking. He was also a speaker on Asset Management in the Humanitarian Aid Supply Chain, at the 2006 Aid & Trade Humanitarian Relief Conference in Geneva.