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How to implement new logistics routines with minimum disruption and maximum time to profit.
You know the dilemma. You either dont have a well-functioning logistics system, or you need to upgrade the routines you have but its going to cost you a packet or so you think. How can you solve your current logistics problems without breaking the bank?
According to Joakim Gustafsson, Senior Consultant at Consafe Logistics, there are three parts to the puzzle of greatly improving logistics in a cost-effective way, namely; technical issues, processes and the companys own organization. Joakim explains that technical issues are by far the easiest to solve as both the software and hardware tools are already available. The hardest work by far is to get the company to have a clear mindset and ensure that everyone in the company works towards the same goals.
Give the organization an Outsidein perspective
Logistics is by definition horizontal and cross-functional, but the problem many companies face is that they are organized into specific functions, all of whom tend to mark their own territory. There are problems we see time and again from almost all organizations, that Sales people seldom talk the same language as people in manufacturing is a well-known phenomenon. Says Joakim. We see the same risks in logistics management where dispatch doesnt talk to incoming goods. This leads to inefficiencies, wrongly delivered goods, and most of all, unsatisfied customers.
Joakim stresses the importance of building a logistics organization and for that matter the whole organization from the outside inwards according to customer needs. He stresses the truth in the well-known 80/20 rule and how important it is to ensure the 20% of customers supplying 80% of the business are happy, especially from a logistics point of view. Large customers need special attention because they are more profitable by definition, or they are complex and require more and hopefully pay more, says Joakim.
Think about company cultures
Making small changes in how the company is run could reap big rewards for efficient logistics. We all agree that the customer is king, its the customer who decides over dispatch times. This gives new roles for the organization for instance, a packer close to dispatch suddenly gets greater power, as that person knows what goods must be dispatched, in what quantity and at what time.
One large problem that often arises is a clash of company cultures, especially when the supply chain crosses continents and international boundaries.
Creating the correct internal willingness to change is crucial for logistics savings.
Joakim cites cross-cultural suspicion as a real problem. We found that logistics partnerships were often slow-spreading on the American market as companies there were scared of sharing their information which often led to a lack of consensus and trust in partners. In Sweden there was no problem in sharing information, but the problems came in doubting a partners own expertise and ability to make time investments in order to reach fundamental improvements.
There must be some incentive to promote willingness to change. Joakim points out two types of incentives:
Sales promoting incentives such as deepened relationships through preferred supplier type arrangements that can financially benefit both parties, or open, co-operative calculations that lead to a strengthened common offer to end customers and increased sales volumes for both parties.
Cost-saving activities such as avoiding double workloads, creating a transparent flow of information to lower total inventory levels and by having a common view of market demands thereby avoiding having obsolete goods in stock and implicitly increasing customer service levels.
Show me the costs
A surprising number of companies work without having total control of what their costs are. Their top line looks great, but the CFO cant really understand why the bottom line catches up so quickly.
Its important to look at what processes you have today and how those processes can be made smarter. says Joakim. Rather than thinking about how much stock we have, we should consider how frequently each stock item needs to be replaced. In the same way, by concentrating on picking routines they become far more efficient, saving time and manpower. Thirdly, by clearing out dead products and compacting low frequency articles we again save considerable time and money.
Joakim points to Activity Based Costing as one way of making considerable savings. By using this method we can control the cost per overhead and thereby the net profit, or contribution to throughput, for a product or a logistics process. Profitability must then be expressed as contribution to throughput in relation to constrained resource use - in other words finding out the right price, and way, of moving goods from A to B. says Joakim. This enables companies to focus on profitable products and processes.
Simplify the supply chain
This is probably one of the trickiest areas of logistics, as by definition you rely on a chain. The way forward is again to be very clear on what goals you want to reach. Make sure that everyone in the chain speaks the same language and uses the same definitions. says Joakim. For example, when we order goods is everyone in the chain clear about how we refer to them? Are we talking about them as individual items, pallets, or what? Joakim also recommends measuring inventory balance by duration rather than by item. The important question is how long does my stock last balanced against sales? We prefer using time as a parameter. Some people advocate measuring warehouse size, but this too can be used as a fixed measurement of time. For instance we know that a certain volume of goods is the equivalent of 3 days sales.
Different businesses, same problems
In Joakims experience, there was a consistent set of problems to be overcome regardless of the size or the nature of the business. The only difference was in the type of solution to be implemented according to customer requirements. Even hospitals and their customers (patients) are benefiting from greater logistics awareness. One group that can really benefit from the flexibility of a well-functioning logistics system are SMEs. By intelligent use of logistics systems they can become leaner and more agile, able to adopt to customer needs at very short notice and quickly customizing for customer campaigns whatever they might be.
10 steps to minimize costs and maximize profits:
Build your organization correctly satisfy your customers in the right priority.
Take an outside-in perspective
Make sure everyone speaks the same language. Lock sales and R&D people into the same room and dont let them come out until they communicate the same goals
Supply customers according to the 80/20 rule
Promote the people with the true power to satisfy customers
Overcome culture clashes with common incentives
Increase throughput using Activity Based Costing
Apply a common language throughout the supply chain
Always measure stock control using time
Use greater logistics control for added customization and more sales