The 7th ELSC in Mumbai & the state of logistics in India

I went to Mumbai this week to speak at the 7th Express Logistics and Supply Chain Conclave.  It was in fact the world premier of my new platform of concepts "The 12 Principles of High Performance Warehousing".  I have decided to write everything I know about warehousing and put it into a book.  I make no promises on the release date but sometime 2014 is likely.  For those who were at the conference and keen to get hold of a copy of the eBook that gives an introduction to all of the 12 Principles, it is now available on my website if you join the High Performance Warehouse Network and go to the resources page.

I recorded a short video this morning of my observations on logistics on India.

21 mistakes adding cost and killing productivity in your warehouse - #12

12.    Cluttered and badly organised operations benches

Quite frankly many operations benches that I see are a mess, cluttered and covered in stuck orders, returns, old paperwork, out of date work instructions and broken staplers and tapeguns.  There is no point having a highly efficient warehouse if you lose your hard won productivity gains with slow administration in receiving and order confirmation/packing freight. 

Here are my tips for best practice in operations workbench organisation

• The first aim of an operations bench should be to have nothing on it apart from work in progress.  Computers, printers, labels, pens, cartons, pending paperwork should be stored off the surface of the bench itself.  Either above or below.  This way nothing will get lost or mislaid.  Everything is easily to hand and never in the way.
• Custom make your workbench to suit your process.  Make sure everything is in arms reach from the operator.  This can be as simple as installing some shelves and Dexion bins to give everything a place.  If you work space is limited you can install monitor and keyboard stands to get the computers off the work top.  Printers can be installed under the bench or on a separate stand.
• Lay a padded anti-fatigue mat in front of the bench.
• The areas around the bench must be kept clear also with a standardised workflow of products and paperwork in and out.
• Sometimes the best bench is mobile.  Breaking down a mixed pallet of small items can be done on the dock with a multi-level trolley/bench that allows you to sort, check off, book in a delivery and then roll the trolley to the rack for put-away.
• Similarly on the outbound process, orders picked to a carton on a picking trolley can be checked, labelled and closed on the trolley and then rolled to the dock for staging ready for pick-up.
• Take advantage of wireless mobile terminals, and printers or even a laptop to allow transactions to be completed on the spot without the need for constant travel to/from a bench.  Installing a wireless network in your warehouse (even a cheap one) will free you up to perform warehouse transactions at the point of activity.  This is a key driver of efficiency and accuracy and is a good interim step if you have not yet invested in a WMS.

This is post is taken from an ebook that is now available as a bonus to members of the Warehouse Performance Initiative (WPI*).

The WPI is a place for learning how to improve your knowledge of warehouse operations improvement, sharing skills and ideas and helping other warehouse professionals.  Joining the WPI will give you access to a growing range of free and premium content which will have a direct impact on improving your warehouse performance when you apply it to your business.

You can also subscribe to this blog by email and get my future posts delivered to direct your inbox.

21 mistakes adding cost and killing productivity in your warehouse - #9

1.    Poor layout and product flow (in and out)

A poor warehouse layout locks in poor productivity and what’s worse is that it becomes invisible.  Because businesses change over time, a once perfectly suitable layout and racking arrangement can become a drain on productivity.  Perhaps the layout was never planned in the first place but racking was simply put wherever it fitted at the time the installer showed up.

The principles of process design dictate that the design of the supporting systems and infrastructure must support the business process.  So in order to get the layout correct you must first design the process that you want it to support - with full knowledge of what is possible.  This is the approach we take to all our warehouse designs – first the process then the layout and systems to support it. 

Many people make the mistake of starting with the current system and the existing infrastructure and then designing a process around that.  Unfortunately when you do it this way, you are accepting your current limitations without question and missing the opportunity to unleash greater overall productivity in your business.  What often starts as a need for some new racking, or an observation that you are running out of space in your warehouse can be an opportunity for a major reform and productivity gain if you open your eyes to what is possible.

The basic principles of efficient warehouse layout are as follows

1.    Keep fast moving product in the fastest to access areas.  The corollary also applies, put slow moving items in the slowest to access storage areas.

a.    If you have a bad building with pillars and walls in all the wrong places then this idea is what will bring back the productivity into your operations.  Many businesses simply do not apply this principle to their warehouses or do not apply it rigorously enough to get the full benefit.

2.    Use fixed pick locations near to the despatch dock with a periodic replenishment cycle.  This keeps fast moving products close together to reduce travel path.

a.    This requirement must be balanced by the need to allow sufficient access to the pick face so that all of the orders for fast moving product may be picked.  Too close together and you can create crowding as too many pickers need to access the same product at the same time.

3.    Store the balance of fast moving stock in randomly located bulk storage racks.

a.    As per point 1: in bulk storage racks, keep the faster moving products in the fastest to access locations, which, in pallet racking, will be low and nearest to the despatch dock.

These first three points are related to the idea that is commonly called product slotting.  They are important to layout because they will impact what type of racking you put in your fast zone.  We will talk more about slotting in mistake number 15.

4.    Build travel shortcut aisles into long runs of racking or shelving so pickers can cut across aisles to reduce travel path.

a.    Pallet racking should be continuous with beams removed in one rack bay to a sufficient height to let your forklifts travel underneath the higher levels.

5.    Maximise the use of the building volume with high level pallet racking, multi-level shelving modules and mezzanine levels.

a.    Generally you can stack stock to up to 45cm below the level of your sprinkler heads but check with your fire system maintenance provider for the clearance required for your particular installation.

6.    Eliminate air – your stock does not need to breathe!

a.    When I walk into a warehouse, one of the first things I look for is storage density as indicated by the amount of free space (air) around products in the storage racking.  Lots of air means lots of wasted space which means higher storage cost per unit, longer travel path for put-away and picking and poor productivity.

b.    Once you realise that an investment in the most appropriate racking and storage systems for your products is an offset of both rent and operating expense you will not quibble over the cost anymore.  Good racking and storage systems make you money, last indefinitely and are never superseded.  Is any other investment this good? (Maybe real estate!)

7.    Build optimised workstations for receiving, packing and despatching orders near the inbound and outbound docks.

a.    Too much focus just on the pick process and neglecting the whole of the warehouse operations will see you missing out on valuable productivity gains.  However your stock comes in or goes out, you need space and efficient process to get it into or out of the warehouse.

b.    This means a well laid out operations bench which is kept clear of junk and has everything you need to hand such as labels, packing materials, paperwork, computer workstation (if required) & printers.

8.    Allow sufficient staging space for inbound and outbound order staging and processing.

a.    Around the workstations and at each dock you need clearance for staging of product in and out.  Nothing kills productivity and throughput rates faster than the double handling caused by inadequate staging space.

9.    Principles of good warehouse layout must be applied as part of the overall operational process design. This includes the warehouse management system, data collection technology (mobile terminals with barcode scanners, voice directed task technology), racking systems and materials handling equipment.

This is post is taken from an ebook that is now available as a bonus to members of the Warehouse Performance Initiative (WPI*).

The WPI is a place for learning how to improve your knowledge of warehouse operations improvement, sharing skills and ideas and helping other warehouse professionals.  Joining the WPI will give you access to a growing range of free and premium content which will have a direct impact on improving your warehouse performance when you apply it to your business.

You can also subscribe to this blog by email and get my future posts delivered to direct your inbox.

21 mistakes adding cost and killing productivity in your warehouse - #4

4. Carrying too much stock or too little stock

The money you have tied up in stock is usually one of the most significant ongoing investments you have in your business.  Just like any investment, the return will depend a lot on your skill in investing in the right stock at the right time.  Fortunately there are ways of doing this much more reliably for your business stock than there are for your stock market investments!

Too much stock will cost you money not only to buy, but to store.  Your warehouse is an engine that burns cash whether it is standing still or earning you money.  Lease costs, outgoings, electricity, pallet hire, capital costs and depreciation add up to a significant cost per pallet of storage.  This can be anywhere from $4-$8 per pallet per week depending on your circumstance.  

This is one of the most under estimated expense impacts in business.  Slow moving or non-moving susinestock not only depreciates in market value over time but it accumulates storage costs that eat away profit margins and also have an opportunity cost of not warehousing and selling productive stock.  

Often the realization of this does not come to light until the warehouse is full and newly delivered stock must go into hastily arranged offsite storage.  This will get the finance manager’s attention when a large and unexpected invoice lands on his desk!

Too little stock will cost you money in lost sales.  Perhaps the most basic business rule if you rely on product distribution for your bread and butter is to have stock available when the customer wants to buy.  Unless you are tracking this lost demand you may be blissfully unaware that it is even happening.  

Stock-outs will drive your customers to your competition in search of what they need.  It is literally like handing them cash out of your pocket.  You let your customer down and your competitor saves them.  The loss of reputation and customer loyalty may never be recovered.

There are three things you need to do to fix this problem.

1. Use the correct purchasing calculations for re-ordering stock
• This is just mathematics and the functionality should be built into your business system, but it still needs to be set up with correct data.  If your system has the ability to do this and you are not using it then you should get some help to set it up ASAP.
2. Improve your forecasting system

• The re-order calculations are useless without a forecast to estimate how much of each product you will sell in the future.  Forecasting is usually done on a monthly basis.  A forecast can be as simple as a multi-month moving average, or as sophisticated as a best fit iterative forecasting system which uses historical data to assess seasonality and growth trends and then applies the best fit mathematical formula to each individual product.
• Forecasting can be done on a spreadsheet at low cost or a sophisticated forecasting system costing from around ten thousand to millions of dollars depending on the size of your business and the system you choose.  SAP APO anyone?

1. Introduce a sales and operations planning (S&OP) process into your business

• Once you have the first two in place then you need to go beyond the maths and historical demand and gather market intelligence from your sales team and your customers as to what unusual events are planned or likely in the future that will impact on your calculated forecast.
• Get your sales team and your purchasing people together and talk through what is likely to happen and agree on a number for each product or group of products.  This is S&OP.
• Your KPI for this process is forecast accuracy.  The better your accuracy then the stock you will need to hold, the higher your service level will be and the less overstocks you will have.

This is post is taken from an ebook that is now available as a bonus to members of the Warehouse Performance Initiative (WPI*).

The WPI is a place for learning how to improve your knowledge of warehouse operations improvement, sharing skills and ideas and helping other warehouse professionals.  Joining the WPI will give you access to a growing range of free and premium content which will have a direct impact on improving your warehouse performance when you apply it to your business.

You can also subscribe to this blog by email and get my future posts delivered to direct your inbox.

21 mistakes adding cost and killing productivity in your warehouse - #2

2. Inadequate paperwork

Nothing stops a process dead in the water faster than not having the correct paperwork or not having enough information on the paperwork to process the inbound or outbound order.  Any interruption to the normal process flow creates exception processing which is typically two or three times the time and cost of a standardised and optimised process flow.  These interruptions can become so normalised that your staff don’t even notice them any more.  

The classic symptom of this is when you walk into your warehouse and see two or more of your staff standing still with a piece of paper in their hands staring at your stock trying to figure out what to do next.  I once walked into the warehouse of a large online business and saw twenty or more receiving staff standing around looking bewildered!  Needless to say, product was not getting booked in and put-away, which means that stock could not be picked and customers were also being disappointed.

This has potentially worse impacts on the outbound side where inadequate information during order processing can have a direct impact on the customer.  Any processes relying of experience and storeperson memory put you at risk of error and slow down your processes.

The antidote is to conduct a process review of all of your warehouse processes and flow chart all the current business flows.  There are lots of great software tools available to do this but some A3 paper, pencil and an eraser will also do the job just fine.  These flowcharts must include physical and information flows.  

When you do this the exceptions will come to light.  Re-engineering the process flows is about removing exceptions by changing the processes and systems to consolidate exceptions into the main process flow.  Once your exceptions are limited to only 1% or 2% of your transactions that you cannot get around then you will have a more efficient process flow.

Re-engineering a process can involve changing physical flows to reduce the waste of motion.  Introducing new materials handling equipment.  Modifying your business system to change existing reports or create new ones so that the warehouse operators have all the information they need to process a transaction.

This is post is taken from an ebook that is now available as a bonus to members of the Warehouse Performance Initiative (WPI*).

The WPI is a place for learning how to improve your knowledge of warehouse operations improvement, sharing skills and ideas and helping other warehouse professionals.  Joining the WPI will give you access to a growing range of free and premium content which will have a direct impact on improving your warehouse performance when you apply it to your business.

You can also subscribe to this blog by email and get my future posts delivered to direct your inbox.

The Customer is more complex than you think

Universal model of supply chain

I put up this diagram of a universal supply chain model for WPI members.  My idea is to display the supply chain as it currently appears in such a way that is represents what is going on in most businesses.  This supply chain could be a Business to Business (B2B) or a Business to Customer (B2C) supply chain.  My aim is to be both simple and inclusive of every possible combination so please feel free to suggest improvements to the model if you think there are errors or omissions.

This post could also be entitled "The Customer is not Always The Customer!".  The customer regardless of whether they are a retail customer or a business customer is usually not just one person.  In a business context the purchaser is often not the end user and the purchaser may or may not be the decision maker.  Centralised purchasing and procurement often means that the end user can be left out of the decision entirely and must fight for the right to influence the buying decision.

We often think of retail purchases as being personal decisions but they are just as complex as any business buying scenario.  We often buy things for other people, not just gifts but food and other supermarket items are shared within homes, families and friends.  Parents buy almost everything for their children and yet the children usually influence the decision.

The other people that affect the buying or choices of the end user, I have called the influencers.  These are people who may have no real stake in the decision but still make an impact on the end user or buyer.  These people are everyone from the boss and your peers at work, corporate policy makers, friends and of course the reviewers that are now everywhere on the internet.  These will include past customers and people who simply have an opinion about you based on varying levels of experience and expertise.

Of course your marketing and PR have an impact here, but it is your products and services and the way they are delivered that will have the most impact.  Many of the interactions that are occurring in the yellow shaded box above will be out of your direct control.  The only way to really impact these interactions is to make sure that the point of direct connection between your product and service creates the right experience to keep people coming back and becoming a positive influencer on a future transaction.

The customer is the pre-eminent person in the supply chain.  All of the upstream activities simply do not occur without customers.  Assuming you have a product that is in demand the next biggest contributor to your success will be the quality and competence of your supply chain and its ability to reach the customer wherever they may be and deliver your product with the right experience.

Why not map your own supply chain and identify the customers, end users and influencers within your customer?  Then ask yourself (or better still go and find out) how well your supply chain is delivering both the product and the experience?

If warehousing and logistics are important to your business or your personal career then why not follow this blog by email or on Google+.  To tap in to the full benefits of business and career boosting ideas I suggest you join The Warehouse Performance Initiative.

Universal supply chain model for the 21st century

I'll discuss this more over the next few days but here is my model of the supply chain in the 21st century. The black lines represent the flow of materials in a traditional supply chain.  The coloured lines represent more recently developed material flows that will continue to shape supply chain in the years to come.  A full size (and probably prettier) version of this diagram will eventually find its way onto my website for those who are interested.

The first insight I am trying to show in this is that the customer is not just one person.  More on this tomorrow.

Universal model of supply chain

If warehousing and logistics are important to your business or your personal career then why not follow this blog by email or on Google+.  To tap in to the full benefits of business and career boosting ideas I suggest you join The Warehouse Performance Initiative.

What if your logistics is already the best? (Part II)

Is collaborative logistics the future?

Yesterday I suggested that you should collaborate* with your competitors to reduce your logistics costs.  If you actually did this what might it look like and where could you take it?

Well it might look like BevChain. Which is a joint venture between Lion Nathan and Linfox.  This is a live example right now of what I am talking about at least in basic principle.  It obviously helps if you start off with a giant like Lion Nathan to kick things along.  

I think the joint venture is the key.  It is not just a venture by Linfox and Lion Nathan is not trying to be a 3PL.  The two together provides the critical volume required to get economies of scale and essential infrastructure and process development that can be sold to other industry players.  I see no reason why the joint venture idea could not be extended to multiple industry suppliers who provide the logistics volume to make a viable business and who also have a stake in the new company and share in the savings.  Indeed the whole thing could be run almost like a co-op to reduce costs to all concerned whilst still providing a return to the 3PL partner.

If you apply some Vested Outsourcing concepts you will ensure that the costs keep going down over time whilst also enhancing the profits for the 3PL partner.  Once you have the basics running well then why not go further up and down the supply chain?  The new industry based logistics company could aggregate demand for common supplies, raw materials or even  stock and buy on behalf of the group.  This would allow them to negotiate better volume discounts and also manage inventory jointly to eliminate multiple safety stocks.  

Managing the total freight task goes without saying, but why not develop a shared services online direct to customer distribution model?  This could be presented to the customer as a category killer single distributor or individually branded mini-sites, but offer to consolidate freight as an incentive to buy across multiple brands.

Of course such a strategy endangers the currently entrenched distributors, and depending on the relative market power differential between maker and distributor, this may or may not be a good strategy.  Generally the theme of the internet age is that the middle man is being squeezed as the makers of products seek direct relationships with their customers.  If the only value you add is a cheap price, someone will eventually find a way to do it cheaper than you.

This idea was developed by DHL with their Pharmacy Supply Model in 2006.  For a while they turned their pharmaceutical pre-wholesale 3PL business into a wholesale distributor and challenged the big three pharmaceutical wholesalers (Sigma, Symbion, API).  The alliance that made it possible with Alphapharm eventually failed and the business could not fulfill its promise, but it was a very innovative idea at the time.

I worked on the DHL Pharmacy Supply project for my first consulting job with Logistics Bureau and it was an extraordinary experience to help develop such a a ground breaking new logistics service.

If the manufacturers and product originators can't or won't develop such a service it leaves the door open for the wholesalers to do essentially the same thing further up the supply chain - if the circumstances are right.  The retail pharmacy supply industry certainly has the right set of conditions for this to occur.  Three wholesalers serving the same market in a highly competitive and increasingly commoditised environment plus a number of smaller distribution operations fragmenting the supply chain.

These are I think the prime conditions to make such a solution possible:

1. A few major players who can reach agreement for a joint venture to pool their logistics operations
2. High competiton with price sensitivity
3. Opportunity to grow by securing some of the remaining logistics and thus make some profit from logistics services that would not otherwise be available to them.

Like all good consultants I have come up with a name for this idea.  I call it the Integrated Collaborative Logistics Service or ICLS for short.  In part III I will discuss some other reasons why I expect to see more of this type of collaborative logistics in future.


* Just in case it is not obvious, the sort of collaboration I am talking about is not anti-competitive or price fixing in anyway. The formation of a joint venture aimed at achieving a low price logistics service does not limit what any of the joint venture partners do with their cost savings.  They can hold on to them to invest in innovative and more profitable business ideas or continue the price war and be back where they started.  I am simply pointing out the next logical step in logistics evolution when a certain set of conditions exist.

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What if your logistics is already the best? (Part I)

Is this the end of logistics as we know it?

Let's say you have done just about everything you can to optimise your logistics processes.  Let's just imagine that you have the best forecasting and inventory management process.  You have the latest warehouse systems and materials handling technology.  You have the best value freight deals and the most efficiently routed transport fleet.  You are now toiling away at the last 1 or 2% of productivity and efficiency gains available to you.  What now?  Sit back and relax because you are now done?

Now lets add in the fact that you have done all this just to stay in business.  You have several major competitors who have done the same things that you have.  You and your competitors have had to do this because you are in a business that used to be nicely profitable but is now a commodity where the cheapest price wins.  The sliced bread market would be an example of this.

At the macro level logistics is just maths and the maths work the same for everybody.  So all else being equal, at some point your logistics simply cease to be a competitive advantage.  If your products are also a commodity then no doubt you have competed in a race to the bottom based on price.  Your razor thin margins mean that your business may well be an unpleasant place to work because cost control is a primary focus.  A serious dose of innovation is required.

What do you do?  Is there even an answer to this question?  Is this the end point of logistics?  How many industries and organisations are already at this point?  Where else can logistics go?
Does anyone care about who delivers your product?  If your logistics has become a commodity and is largely invisible as long as it fulfills the promise, then does it matter who does it?

If logistics is just maths, and the maths works the same for everyone, then why not make it work for everyone?  Once it has reached this point, there is only one place for logistics to go next and that is to embrace collaboration to its fullest extent.  This means collaborating with competitors - no I don't mean price fixing, I mean take advantage of the maths and get your cost reductions from consolidating logistics operations with competitors in industries that serve the same markets.

Each of the retail outlets you supply probably also get a delivery from your competitor or your competitor delivers to a competing outlet nearby.  This is currently done by two vehicles with two drives travelling similar routes.  How is this not a waste?  You each have a warehouse and storespeople and associated infrastructure and administration.  Your individual volume may not justify investment in the most efficient technology but the combined volume would make such an investment worthwhile and reduce the overall costs further.

This is how third party logistics works and how they make their money.  They share infrastructure across multiple clients and charge what the market will bear. This is about the same or a bit more than what it would cost you to do it yourself if you did it well, which you didn't or you wouldn't have outsourced it.

Does this sound crazy?  If so good!  This is just Part I.  I will explore some possible business models for this really not so crazy idea in Part II.

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Logistics vs. supply chain - what's in a name?

An interesting discussion on Linked In recently about the meaning of Logistics vs. supply chain and how people think about these terms.  My perspective is that the reason this is so hard to nail down is that