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.

If you found this post valuable and then why not subscribe or follow this blog by email?

5 Rules for managing expiry dated stock

Expired stock?

Managing expiry dated, use by or best before dated stock can be a real headache for the inventory manager.  My background is in pharmaceuticals and medical devices but many of the same principles apply to food as well.   I also think that even non-expiring product has a use by date;  particularly electronics and fashion or anything that behaves like these products.  Once it gets old, you either can't sell it at all or its value diminishes rapidly.  So here are my rules for managing expiry

Can we manage expiry dated stock better?

A great discussion on Linked In, about the possibility of extending the expiry life of medicines after a recent study revealed that some drugs may retain viable potency for decades; long after the product officially expired.  The possibilities of some drugs being able to be sold with very long expiry dates is tantalising and holds the promise of

Nowhere to hide!

One of the big themes of the 21st century is the free flow of power transparency and control of information to the consumer.  KV Pharmaceuticals were granted exclusivity by the FDA on a life saving drug that used to cost $20 but they raised the price to $1500.  They were called out for unconscionable behaviour in a Facebook campaign and are now in Chapter 11 bankruptcy.

The consequences for KV were dire but the principal applies to all companies everywhere.  The internet leaves you nowhere to hide if your price, service, fulfillment, social or ethical behaviour, environmental policies - whatever does not meet with acceptable standards you risk being found out and publicly called out by your customers or commentators.

If warehousing, logistics and supply chain 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 can the pharmaceutical industry learn about branding from the consumer goods industry?

In Australia, where drug advertising on TV is not allowed, the corporate branding of drug manufacturers is not all that strong in the general population.  Where advertising is allowed for over the counter medicines the branding is product focussed rather than manufacturer focussed.  This seems to me to be at least in part due to the industry practice of selling drug brands to other manufacturers or retiring them to a generic manufacturer once they are off patent.  The ongoing consolidation of manufacturers also means that manufacturer brands change or disappear every few years.  As a consequence