At the heart of every business that delivers a product to its customers, you’ll find its supply chain. Managing your supply chain so that it operates smoothly, efficiently, and cost-effectively is essential to both the health and long-term survival of your organization.
When you dive down into the nitty-gritty of supply chain management, it might feel like there are as many models as there are types of businesses. To keep it simple, we like to use the Supply Chain Council’s supply chain operations reference model (SCOR), an industry-standard that breaks down supply chain management into five parts:
In this first article in our Supply Chain Deep Dive series, we’ll focus in on that first step: plan. We’ll take a closer look into what supply chain planning entails, we’ll discuss why it’s particularly critical for businesses operating in the Hawaiian Islands, and we’ll offer you a few tips from our supply chain experts for you to consider during your own planning process. Let’s start with the basics . . .
Understanding Supply Chain Planning
Legendary investor Warren Buffett is quoted as saying, “Someone’s sitting in the shade today because someone planted a tree a long time ago.” In other words, a little foresight and planning can lead to significant benefits down the road.
But even more than offering some nice-to-have benefits (such as a patch of shade!) supply chain planning is crucial to the survival of any business. Without it, you not only wouldn’t have the shade but you also likely wouldn’t have the land or the tree, either.
Supply chain planning asks a company to make a series of decisions around every phase of your product’s lifecycle, starting at the raw materials, continuing through to the finished product, and even including post-sale activities, like returns and recycling. The goal? To optimize your supply chain operations to achieve your organization’s most important values and objectives.
Within the planning phase, you’ll consider topics like:
- Demand planning: What kind of demand can we reasonably expect from our customers? Will that demand change over the year and/or will it be affected by seasonality?
- Supply and inventory planning: How many supplies or raw materials will we need to source for the future? How will we balance the cost of carrying inventory and supplies against delivering quickly for our customers?
- Production planning: Will we create our finished products entirely from raw materials, or will we purchase a few pre-fabricated components from suppliers? Will we use a “push” model in which stock is ready and waiting to be “pushed” to customers? Or will we use a “pull” model in which customer orders will “pull” finished products through the system?
- Sales and marketing planning: Will we market and sell products directly to consumers? Or will we be supplying them to a vendor who will sell them to their customers?
- Operations planning: How will we measure and define supply chain success for our organization? What KPIs or metrics will we identify, and how often will we monitor them?
The areas you choose to focus most of your attention on will depend on your organization’s needs, setup, and goals. A company that’s manufacturing one-of-a-kind, made-to-order bathing suits on Oahu versus one that’s brewing and canning beer that’s both sold on Maui and shipped to the mainland will have very different answers to each of these questions. However, therein lies the opportunity within the planning phase for your organization to set its priorities and set up its supply chain to support them accordingly.
And, as you’ll see in the next section, these issues can be especially crucial for organizations operating in Hawaii.
Why Planning Is So Vital for Hawaii-Based Businesses
Although the planning phase of your supply chain management process is important for every business, there are a few factors that make it even more essential for those in Hawaii:
1. First, let’s state the obvious: a unique geographical position creates unique freight challenges.
When you’re moving supplies, inventory, and/or finished goods to and from the Hawaiian Islands, you’re either looking at air freight or ocean freight—or a mix of the two. As you likely know, air freight is, on the whole, faster and more expensive. Depending on your budget, air freight simply might not feel like an option for you. In that case, you might look to ocean freight, which is more economical but slower. If you want to take advantage of the lower cost of ocean freight, you’ll have to plan carefully so you’re not stuck without critical supplies or inventory.
Ultimately, when you’re deciding on your freight modes in the planning phase, think of it as a balance between cost and speed, and choose the right mix that keeps you well-stocked without breaking the bank.
Pro Tip: Consider Air Freight Consolidations
Although many businesses don’t even consider air freight because of its expensive reputation, you might be able to make air freight consolidations work within your budget. Because you’re essentially bundling your load with that of several other shippers, consols offer lower, more affordable rates. To discover more, check out the three ways air freight consolidations can help you save money.
2. Second, demand planning can be a little tricky.
Because tourism is such a big industry in Hawaii, your demand planning might need to account for two different types of customers. Although the holiday season is a peak time for both tourists and residents alike, the other troughs and valleys may not line up as neatly. For example, if you’re selling backpacks, you might see a surge during the back-to-school season as residents scoop up bags going into the new school year. However, if you’re largely catering to tourists, your demand may reach another peak during Spring Break, when the islands see an influx of visitors.
As you do your supply chain planning, make sure you evaluate your customer base thoughtfully and plan your peaks and valleys accordingly.
3. Third, you’ll have some decisions when it comes to direct shipping and warehousing.
If your business stretches across more than one island, you’ll have to consider how you want to handle your distribution. Some businesses choose to establish a central warehouse in Oahu where all mainland shipments are sent. Then, these shipments are broken down, repackaged in the warehouse, and sent back out to neighbor islands.
Other companies choose to ship directly to neighboring islands, such that inventory headed for the Big Island heads straight to Hilo, rather than having to pass through the central warehouse and distribution system in Oahu.
Pro Tip: Take a Look at Direct Service
To put it plainly, we’re big fans of the second option: direct service, which can save you up to 25% in Hawaii freight costs. Of course, every business has to make this decision for themselves, but this is something that’s important for any Hawaii business to consider in the planning phase.
4. Finally, costs are simply higher to run a business in Hawaii.
Between labor costs, real estate expenses, utility bills, and taxes, running a Hawaii-based business can get expensive quickly. That’s why it’s even more important to spend time in the planning phase and get your supply chain operating at peak efficiency. That way, you can put in place the systems you need to keep costs manageable and secure your business for the future.
Pro Tip: Focus on Your Landed Costs
You’ve probably heard that data is king in the world of supply chain management. That said, it can be sometimes tough to separate the vanity metrics from the ones that actually help you make meaningful decisions. Especially if you’re starting a new business, we suggest focusing on your landed costs: the complete cost of your product from its very inception until its delivery to your customers. By understanding this cost, you’ll know whether your plan is feasible—or whether you need to make some tweaks.
A trusted 3PL or freight forwarder can be an invaluable resource for helping you calculate this number—and setting up a supply chain that keeps your business in the black.
Additionally, a 3PL or freight forwarder can also be crucial in helping you establish the right freight mix—and negotiating the long-term rates that will make it feasible to do business in Hawaii. If you haven’t established this kind of partnership yet, consider seeking out a 3PL or freight forwarder during your planning process to help you refine the blueprint on which you’ll base your entire supply chain.
Planning for Supply Chain Success
No matter which supply chain management model you subscribe to—or where your business is based—planning is one of those crucial elements that always makes the cut. Solid supply chain planning sets you up for success in several areas, by ensuring your operations meet your organization’s objectives, keep your customers happy, and ensure your organization stays in the black.
Want some help planning for supply chain success for your Hawaii-based business? Our experts have 15+ years of experience working with businesses based on all four major Hawaiian Islands, and we’d be happy to talk with you. Simply request a complimentary consultation, and we’ll be in touch!
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