Merits Logistics Management
Gregory Stachura, President, GSA International, Ltd., Novi, MI 48375, 810/344-4990.
80th Annual International Conference Proceedings - 1995 - Anaheim, California
Fundamental business management requires detailed examination of all activities within a business. Without careful analysis of the real cost of any and all processes within a given business, it is difficult to manage a profit. Moreover, without regular re-evaluation of the process to improve the process to eliminate costs, it is impossible for businesses to achieve and maintain a competitive edge. Logistics is one of those elements of business that directly impacts several other areas within that same business. Therefore, logistics management should be approached holistically with true cost/benefit study which includes all actual costs.
The Council of Logistics Management, a leading industry organization, defines logistics as "the process of planning, implementing, and controlling, the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements". CLM notes that the definition includes inbound, outbound, internal and external movements. Given the vast definition of our topic it is easy to see why so many areas of an individual business are influenced by logistics. Principally, logistics can be divided into two major groups with multiple sub groups. The two major groups are transportation and distribution with many related activities performed under one of those two umbrellas. It is important to note the complexities of each process. Furthermore, it is imperative that we understand the relationship between logistics and other business activities effected by logistics management. For example, production control is necessarily dependent upon the efficient management of raw material inventories which is a legitimate logistics function. Without sufficient feed stocks of raw materials, manufacturing will stop. Conversely with excess raw material inventories on hand the business will suffer excessive warehousing costs and inventory carrying costs (cost of money). Therefore, given the codependent relationship of many business activities it is reasonable that the overall flow be managed from start to finish.
AREAS TO MANAGE.
Within the realm of logistics we can find a regular interface between transportation and distribution. Like a hand off during a football game, each player has a distinct role to play yet successful play requires a co-operative effort. Assuming that we shall begin with the management of the movement of raw materials and consummate our business transaction with the delivery of a product or service to the customer we would likely walk through most of these steps:
- Release against purchase order to suppliers.
- Notice to production planning on raw material order.
- Order carrier to pick up order.
- Receive raw materials at plant.
- Inventory finished product.
- Process customer order of finished product.
- Order fulfillment.
- Order carrier to pick up shipment and deliver to the customer.
The variables involved in these steps are significant. If releases against purchase orders are handled by logistics managers, then purchasing must interface with logistics on such issues as supplier production capacity, location, lead time, modal capabilities, and inventory locations (warehouses or distribution centers). Likewise, production planning must communicate raw material demand based on production scheduling, rate of consumption, waste factor, downtime, etc.
Standardized communication perhaps even electronically will facilitate the interchange of data necessary to plan, manage, and control the efficient movement of raw materials from the suppliers to the production plant.
Once the product has been manufactured (or procured) , the product becomes inventory which is a manageable asset of the company. Here the logistics department must manage the safe and efficient storage of the asset while awaiting shipment to the marketplace or to the customer. Providing that the sales department has forecast demand with reasonable accuracy, the inventory should turn as often as possible, thereby reducing the carrying cost of inventory. It is also important for the logistics department to determine the cost effective channels of distribution. Shall orders be shipped direct from the manufacturing plant to customers? Should distributors be used? Would regional distribution centers provide the best combination of price and service? What about pool truck distribution or string drop shipments? Should warehouse allowances be given to customers or would store direct deliveries be best? Many factors must be weighed along with the arithmetic in these calculations? Is perishability or obsolescence an issue? Do company reps need to meet the deliveries to service the customer?
Other issues will be dependent on the answers to all these questions. The type and mode of carrier will depend on the speed of the shipment and quantity of product needed to satisfy the customer. If smaller shipments direct to the customer are the appropriate choices then usually motor common carriers will offer the best combination of price and service. If huge quantities are required in far away markets, rail service could be the better option. In even these matters, decisions must be made as to negotiating with carriers for rates and service including liabilities for loss and damage.
HOW TO MANAGE.
Starting at the beginning of the flow chart is helpful. Often times a map can be used to visualize the locations of suppliers and customers. Such visual aids will assist in planning by highlighting the factors to be considered in the analysis such as critical mass of customers or suppliers, days transit to be allowed for shipments, climate zones to be dealt with in case of freezeables or heat sensitive commodities.
By identifying the origins and destinations of materials, certain options can be recognized or eliminated. If no raw material supplier is near a rail head or on a rail served location then the economic advantage of rail is a moot point. On the other hand, if time is of the essence the infrastructure needed for air freight is an important consideration. Huge quantities of bulk products can move most cheaply by large if the water channels are available to support such a mode of transportation.
Generally, there is already some history in the logistics process which may have been founded on these very considerations. Nonetheless, the world is a dynamic place and a review of options should be conducted with some regularity.
INVOLVE SUPPLIERS. Frequently the suppliers of raw materials may have a better idea on how to supply product. The leverage of larger volumes or transportation market networking may give the supplier an edge in identifying the best mode of transit and or carrier in that mode. Remember it's not important who came up with the best solution but it is important to have the best solution.
INVOLVE CARRIERS & OTHER PROVIDERS.
Many carriers and most third parties can and will contribute ideas to assist logistics managers with the analysis process. The exposure that these pros have to other success stories in the marketplace can often be successfully applied to your company's situation. At the very least, these folks can help to identify the data needed to develop a meaningful request for a proposal bid package.
BUILD A DATA BASE.
The historical data on the movement of raw material in and finished product out is available in company files. Whether electronic or manual, the retrieval process is essential to "getting our arms around" the business to be managed. The average size and nature of shipments will quantify the universe of carriers to be explored. If most shipments are bulk, obviously tank car or tank truck carriers must be employed. If most shipments are small cartons, parcel carriers such as UPS, RPS or parcel post should be considered. Origins and destinations will also impact the selection of mode and/or carrier. Regional carriers with broad market coverage in near zones will often out perform the larger national carriers because of their market niche capabilities. Average class of freight is important in negotiating with carriers for price/service packages. High value freight will be exposed to loss and damage limitations if released rates are applied to shipments. Moreover, some modes of transportation should be eliminated for easily damaged freight. Find out what the historical files show to be the experience of your shipments.
USE THE DATA BASE TO SORT OPTIONS.
Qualify the types of transportation providers needed to suit your needs. Provide meaningful data to those carriers to help them cost the service on which you wish them to quote. Be consistent but encourage innovation. Just because one approach has been used over time, we need not reject all other methods.
CONTRACT AN ONGOING RELATIONSHIP WITH PROVIDERS.
Frequent changes will inevitably result in a continuing trek through the learning curve. The Japanese have mastered the notion of the value in the repetitive process wherein proficiencies are enhanced through repetitive practice. Also by creating longer term relationships with providers, the at risk element created will incent both parties to be committed to the relationships success. Be mindful however that both sides should be genuinely interested in continuous improvement to eliminate costs and enhance value.
Logistics management is never a "once and for all" exercise. Indeed in today's dynamic markets, opportunities and options arrive with greater frequency and velocity than ever before. While tracking the success of your company's current logistics model it is imperative to study the process continuously in a never ending search for a "better mouse trap". The benefits of managing logistics are almost legion. The control of your company's destiny may hinge on the competitive advantage discovered through logistics management. The large number of contract logistics companies, property brokers, and other third parties can help those companies that are uncertain where to begin. These "travel agents of freight" may be the quickest and easiest path to follow.