The 12 Principles of High Performance Warehousing - 2. Design your processes around value chains

Design your warehouse processes around the streams of value delivery for your business

Part 2 of a series on the 12 Principles of High Performance Warehousing.  The eBook can be downloaded for free by joining the High Performance Warehouse Network on the Logistics Help website.

A new online strategy could mean a change from case pick to unit pick
requiring a new and additional warehouse strategy

The current reality of global supply chain and the corresponding variety of distribution channels is illustrated in the universal model of supply chain.  Whilst this is a simplified diagram the important point is that any agent in the supply chain could be located anywhere in the world.  The myriad variations and possibilities create a growing number of possible distribution channels and value chains for any of participants.

Whereas a company may have gone for years with just a single distribution channel; for example; supply to a small selection of manufacturers or wholesalers in a local market.  Now they may now have developed their own brands for selling to retail stores and direct to customers in multiple markets.  Now they may sell to manufacturers  and wholesalers all over the world.  Each of these markets and distribution channels represents a different value chain  with a unique set of customer requirements, ordering patterns, shipping methods and consequently requiring a unique mode of operations within the warehouse to support them.

Some of the common distribution channels with differing warehousing requirements are:

• manufacturer to wholesaler, 
• manufacturer to retailer
• manufacturer direct to business customer
• manufacturer direct to home customer
• wholesale to retail,
• wholesale to business
• retail DC to retail store replenishment,
• trade supply store to contract tradesman
• trade supply store to large business 
• trade supply store online direct to tradesman or business
• trade supply store to retail customer
• retail store to walk in customer
• retail store online direct to home customer
• pure-play online retailer

Whilst having some things in common, each of these channels will be different and will also vary depending on the industry context, countries and businesses strategy.  Each variation will need a different approach to warehouse design and operation to best support the particular value chain.

Top tips for process design around value chains

• Identify your value chains.  What product/service/ distribution channel combinations do you have?  Do they require specific support and configuration in your warehouse?
• Speed and accuracy must be built into the process design.  Bolting a small order process onto a warehouse operation designed for bulk case and pallet picking will work in the short term for the start-up of a new online channel, but will crack under the pressure of volume; becoming costly and unable to meet service expectations.
• If you are serious in developing a new distribution channel then the warehouse process must be specifically designed to suit.
• Process design should take full advantage of available technology for greatest productivity.  The technology must suit the order and inventory profiles and generate a return on investment for the expected business volume.  (More on this later).
• The process must be optimised for the entire value chain and not just the warehouse.  Inbound logistics, ordering methods, customer service, delivery, billing and customer experience of the product and service must all be considered. The warehouse can be a key supporter in all of these from maintenance of stock availability, delivery or customer pickup experience, service support, installation through to the returns process and recycling of products at the end of life.
• The more your value chain can be integrated with your customer’s streams of value creation the more you will develop unchallengeable value delivery to your customers.  This approach can make it very hard for your competitors to replace you in the market and usually takes price competition out of the equation.  
• The classic example of this is Vendor Managed Inventory (VMI) where the small additional service you provide is highly valued by the customer who keeps buying your product because of the service.

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The 12 Principles of High Performance Warehousing: 1. Align business & warehouse strategy

Align your warehousing strategy with your business strategy to accelerate your overall business performance

This is part 1 of the promised series on the 12 Principles of High Performance Warehousing that I first presented at the 7th ELSC in Mumbai in September 2013.  These ideas are the core that I will expand upon in my book to be released later this year.

Before we get to the warehouse we should consider if you even need one, what it should look like and should you run it yourself or outsource it to someone else.

Supply chains are constantly evolving and have undergone dramatic changes over the last 20 years in particular as the pace of globalisation and technology has created truly global supply chains.  The internet has brought transparency and visibility of product and pricing and the means for individuals to purchase globally and for businesses to sell their products globally.  This trend will undoubtedly continue to affect the nature of the logistics and warehousing operations within increasingly fragmented and personal supply chains.  The diagram on the next page illustrates a simplified model of modern supply chains.

So where does your business fit?  Is your business about generic manufacturing for others or do you have a brand with unique products and services?   The brand originators are now the power players in commerce.  Having a unique value that cannot be replicated by others they can control their own destiny now because there is no need for an intermediary between them and the customer.  A brand and a customer relationship is now all powerful, increasingly relegating wholesale and retail to the role of physical distribution and price taking rather than making.

Are you in wholesale or retail stores?  Transparency and the personalisation of supply chain are currently waging war on traditional wholesale and retail.  Although conventional retail is still very significant, much of the value add of retail can now be done online with better product advice, wider range (limitless in fact) and lower prices.  That retail will be fundamentally re-shaped over the coming years, is inevitable.  Similarly wholesale is under pressure; with razor thin margins, only those with large volume are profitable.  Some wholesalers are moving into 3PL services to leverage their logistics expertise with manufacturers who now seek a more direct relationship with their customers.  3PL services have the added attraction of eliminating inventory carrying cost and risk.

Another wholesale strategy is to source their own branded products.  If they cannot tie up an exclusive distribution agreement with a big brand manufacturer, then they can build their own brand by sourcing from the generic manufacturers and marketing to their existing customer base.  Whilst this can be a very effective strategy, it may also put them in competition with the core brands that support them.  This may damage key supplier relationships and the potential impact of this must be considered.

Universal model of supply chain

Your business strategy will determine where you fit in the supply chain and consequently what type of warehouse you will need. Manufacturers typically require bulk warehouses suitable for storing and shipping large amounts of a limited range of SKUs.  A wholesaler requires a warehouse that can manage a very large range of SKUs in much smaller quantities required by retailers.  A pure-play online retailer may carry very little stock, relying on rapid replenishment from wholesalers and a network of direct ship orders from network partners.   Depending on what business you are in and where in the supply chain you fit.  Some retailers barely have a warehouse and instead run a large cross docking operation with carefully scheduled supplier deliveries in one side and a sophisticated conveyor sortation system to sort inbound deliveries to outbound transport by store. 

If you do have a warehouse then how big should it be and where should you put it?  Given the substantial capital investment required to build a warehouse this is a very important question.  This can be done at a high level with a spreadsheet cost analysis of various options.  A more sophisticated solution is to use special mapping & route optimisation software such as CAST or simulation software such as Supply Chain Guru.  Supply Chain Guru is an all in one design tool that optimises supply chains based on data and constraints and can also run simulations to review the impact of various strategies on the design over time.  Use of these software tools can give you a high degree of confidence in your warehouse location and sizing and technology decisions.

The final question is whether you should run your own warehouse or outsource it.  The only real answer to this question is that whatever choice you make, you commit yourself to managing a positive outcome for your business.  By that I mean that whether most similar companies in your industry outsource or run their own warehouses there will always be successful and not so successful examples of each type of solution.  Both options require real work to make them successful.  If you outsource and forget, you will likely come to regret the decision as high costs and/or poor service will creep up on you until you find the outcome intolerable.

The main reasons to outsource are:

1. To reduce operating costs and increase profit
2. Create a more scalable platform for growing your business
3. Eliminate a non-core business activity to allow you to focus on growing your         business.

You need to watch out for:

• Cost structures that you do not understand or that will not reduce your logistics cost/unit as you increase your sales.  You need to understand your current costs and the impact of any particular outsourcing arrangement on your business as you expect it to change over time.
• Lack of visibility of activity and service level performance.
• Lack of responsiveness to your business needs.  Does the logistics provider understand your industry and have demonstrated experience in similar businesses?

Remember that:

• Once you outsource it is expensive and difficult to go back to doing it yourself. This almost never happens.  As a consultant I can tell you that there are far more outsourcing projects than insourcing projects.
• It is better to outsource than to do it yourself badly. 
• It is usually cheaper to do it yourself well than to outsource.  Following the 12 Principles of High Performance Warehousing will ensure that you do it yourself well.

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The building blocks of the supply chain

Universal model of supply chain

The front end of the supply chain that we are all familiar with stands on the shoulders of the long established building blocks of primary production, raw material and component manufacturing.

It is worth noting that everything we consume comes from just two primary sources, (apart from the air we breathe and the freely available materials around us).  That is mining and agriculture.  We grow it or we dig it up*.

Most food production is unique in requiring little if any additional processing before it can be consumed.  This is why there is an emerging trend of farmer direct to consumer food supply as people look for quality and a unique story in their food supply.

Next comes the raw material producers who turn raw food into processed food,  cotton and wool into thread, crude oil into food and plastics, metals into sheet, rod and billet forms, minerals into chemicals and so on until we have the raw materials for the component manufacturers.  Unlike agricultural products, consumers have little use for theses basic raw materials.

The component manufacturers turn thread into cloth, metal sheet into Colourbond roofing, rod into nuts and bolts etc.  There may of course be many links in the component supplier chain with ever increasingly elaborate transformation up until you get a computer chip or an electric motor, or pharmaceutical ingredient.  At some point in the supply chain the components are put together into a finished product which is ready for consumption or use by the end user.  

At any point in this component manufacturing supply chain there are likely to be wholesalers and distributors and of course when this happens there is an opportunity for short circuiting the middle man and going direct to the customer.  An example of this is when large construction companies buy fasteners direct from manufacturers in China instead of sourcing from local distributors.

This concludes my overview of the modern supply chain.  For those who have not thought through what goes into the end result of being able to walk into an Apple store and buy a new iPhone, I hope this was useful.  Without doubt, supply chain is an amazing and complex human endeavour that involves a significant part of the workforce and impacts all of us.

*As with everything there are a few particular exceptions, notably in the medical field where there are human derived raw materials such as blood and organ donation which in one sense could be thought of as a variant of agriculture as it is grown but would not be put into this category.

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 is the internet doing to the supply chain?

Universal supply chain model

We all know that the internet has had a huge impact on our lives but we seldom give much thought to what this is doing to business relationships and the supply chain.

Traditionally the distribution of products from agriculture and manufacturing would be aggregated by wholesalers who distributed in bulk to retailers who sold goods in suitable package sizes to customers who then have their own micro supply chain to end users within their family or business site.

Manufacturers, wholesalers and farmers did not usually sell direct to the public consumer because they had significant barriers to doing so:

1. They have no relationship with the customer.
2. They could have little market penetration due to limited number of distribution sites.  One or two warehouses full of pallet racking in an industrial park does not make for a pleasing customer experience.
3. They were set up for bulk distribution not the small package supply typical of retail stores.

There have always been odd exceptions to these rules.  We have all stopped at roadside produce stalls next to the farm whilst on a country drive.  Manufacturers often have a seconds outlet attached to the factory or warehouse that sells direct to the public, but that was about it.  So what has the internet done that has changed this?

The internet has eliminated barriers 1 and 2.  The internet allows potentially deep connection and relationship between a manufacturer, or any vendor at any point in the supply chain, and the customer of their products (barrier 1).   This is way beyond anything that an old style mail order catalogue could achieve.  The advent of social media is just extending this connection even further and making it more personal.  

The internet also eliminates the need for physical retail store network.  We no longer need the retailer to explain the product to us.  Now when we walk into a retail store we usually know more than the retailer about the product we want to buy, all they need to do is show it to us and ring up the sale.  If all we are doing is going to the retail store to pick up the products we have already decided to buy, then we may as well have them shipped out to us.  Barrier 2 is now gone.  If retail is going to survive then it needs to have new reasons for existing in addition to physical distribution and product advice.

The third barrier is not impacted by the internet and is the hardest, and usually the last one addressed.  That is the organisational changes required to perform small order distribution direct to customer.  For a manufacturer, wholesaler or agricultural producer this means a fundamental change in business operations, marketing and sales that extends throughout the organisation.  Way beyond simply setting up a website and putting up product information and a shopping cart.  It means going from having only a handful of customers who buy in bulk to many thousands, tens or hundreds of thousands of customers who buy in single units and retail packs.  This means customer service, and sales support, individual marketing strategies, credit card payments, all those customer accounts and interactions when things go wrong. It is a fundamental change in business practice, and if you are not ready for it, you will fail.

The addition of an online D2C channel for a retailer would seem to be a smaller step.  After all they already have the customer relationship and the product range, all they need is a website and a distribution infrastructure.  However the number of large retailers who have been slow to embrace this strategy would indicate that this may be a bigger mental hurdle than a physical or business one.

An online sales strategy also requires a significant change in warehousing infrastructure and technology.  Bulk distribution requires pallet racking, and forklifts and stock pickers to pick pallets and cases.  A single order can have hundreds of lines and fill a semi trailer.  By contrast in a typical direct to customer business 20-30% of your orders will have a single line and ship in a post pack.  This requires a change in warehouse layout, picking methods and technology and freight arrangements.  Failure to invest in the correct warehouse processes and systems to support an online eCommerce based business will result in very high cost per transaction  This will result in either an unprofitable business or an over-priced one that will fail to gain traction in the market.

Although the organisational and operational changes required to run a successful direct to customer online business are not simple, they are not new.  They are really a re-use of existing business systems and strategies in a new context and are achievable by any business that sets its course in this direction.

In the universal supply chain diagram I have highlighted four online Direct To Customer (D2C) channels in use today in addition to the traditional customer pick up channel from the retailer.  So it is now possible for anyone to go direct to the customer.  When you combine this with the rise of contract manufacturing you have a powerful combination - isn't that right Mr Kogan?

I have described here what is possible and happening now in the supply chain. However deciding to go direct to your customers will dramatically change your business model and will of course have an impact on your current downstream distribution channels.  If you are a manufacturer then what will your retailers think if you start shipping direct and how could this damage your business in other ways?  

The classic conundrum here is when the retailers service and support for your products is intimately tied to their distribution of your products.  If you go direct, would you put your retailers (and your product support model) out of business?  Would your retailers (and wholesalers for that matter) find alternative sources of supply to their customers? (remember you may not yet have a well established relationship with your customers).  

You must expect that if you decide to compete against your upstream or downstream supply chain partners that this will have an impact on them and they will develop a competitive response.

For this reason traditional retail still works very well in a lot of industries.  This will likely change as the market gets more used to paying for services that they used to get for free.  We will come to understand that when the cost of support is no longer built into the price of the product, we will have to do it ourselves or pay for it when we need it.  Increasingly we get product knowledge and support much better from online resources or by asking friends.  This is not only free but much better.

We are still in the early stages of online commerce and the impact of the internet on the supply chain, new business models are being developed all the time and there is still a lot of room for innovation and change.  We live in interesting times!

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.

Now anyone can be a manufacturer

Universal model of supply chain

Manufacturing is now a commodity service in many industries.  So many industries have sent their manufacturing into low labour cost countries such as China and throughout South East Asia that these countries have grown their own manufacturing expertise.  These factories are geared to produce goods and can and will produce them for anyone.

So the brand originator does not even have to do their own manufacturing.  They can contract this out to someone else who is great at making things but not so good at innovating new products or selling them into overseas markets (otherwise they would be a brand).  

Of course some of these manufacturers can and do develop their own branded products.  We are currently witnessing the rise of global Chinese brands in the same we we have seen the rise of Japanese brands through the sixties and seventies and Korean brands in the and nineties and noughties.

It works both ways and if the brand originator is also a manufacturer then they can also choose to manufacturer generic versions of their product so they don't lose out entirely when the generic competition comes along.  They can sell the generic versions themselves at a lower price point under a different brand or to someone else who puts their label on the product.

All of these sources of manufactured goods has exploded the range of generic products with someone's brand on them.  My new Agora smartphone from Kogan was made in a factory in China or Korea or somewhere.  All Kogan did was agree on a price and send the manufacturer some artwork.  Now anyone can do this, you can do this if you want to!, just go to alibaba.com.

In the supply chain model we see the flows of generic products from both contract manufacturers and brand originators to wholesalers and retailers who source their own branded products to sell into their existing markets.  This is seen everyday in the supermarket chains all over the world who have their own branded peanut butter alongside the premium brand.  You can only do this if you have a brand you can leverage or are prepared to do the very hard work of building your own brand like Mr Kogan.

Although this can be a very powerful strategy it is also a strategy that is now open to everyone.  This was brought home to me recently when I spotted the same LED head torch that I bought from Anaconda for $45 on display at Kathmandu for $120.  I am glad it happened this way around!  This is however a great example of the power and value of a brand.  Kathmandu is a premium brand and can charge a premium for their products because of the trust and loyalty it has built up with its customers.  Anaconda is a discount store.

Contract and generic manufacturing has had a huge impact on the supply chain and has helped to make goods cheaper and more readily available.  It has also suffered the same fate as any other easily accessible business strategy, it has diminished in value.  This reinforces the power of the consumer who has wide choice and availability, but it also reinforces the power of the branded product originator who stands out with the unique and desired product.

Next we will look at the product flows in more detail and see how the internet is shaking things up with new customer channels and what this might mean in future.

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.

The most powerful agent in the supply chain?

Universal supply chain model

There is a lot of talk now about how the customer is the most important person in the supply chain.  This is true, but this was not always the case.  For much of history the manufacturer was the most important agent in the supply chain.  After all if there are no goods to supply, there is no supply chain and the customer must make do without.

Through the first half of the 20th century this was the case as manufacturing capacity was developing and demand outstripped supply.  Once TV advertising kicked in through the second half of the century demand was accelerated and manufacturing flourished.  Late in the century manufacturing became more efficient and more globalised as it was sent to low labour cost countries.

Now we have a glut of capacity and product choice because manufacturing is relatively easy and abundant.  Short of Armageddon this situation is unlikely to change, and will probably gain momentum as new technology changes manufacturing in ways we now only dream of.  Unfortunately for manufacturers their trade has been commoditised and what counts now is the ability to originate and develop a unique product and brand.  It no longer even matters whether you manufacture your own products.  You simply need to ensure that your product is supplied to the customer in the way that they expect.  Your customers no longer care about your supply chain, only that their product is delivered on time and that it works.

Uniqueness and design (plus good marketing) is what will bring in the customers like moths to an lamp on a moonless night.  Your raving fans are nearly compelled to buy and will drag along a crowd with them. So much for customer power.  Apple is of course the supreme example at the moment but there are many other brand originators with massive market power in their particular niche (Chanel, Porsche, Rolex, Sony, Harley Davidson etc.).

The brand originators define, create and dominate markets.  This is what makes them powerful.  They are followed by branded imitators and then by generic products at lower price points.  If the imitator creates their own unique brand and product they may also do very well if the market can be grown.  After all there is plenty of room for more than one car or computer manufacturer.  Android has done very well against Apple.  

Unfortunately the generic product, however good, is only a copy of the original.  The generic says - "buy me, I'm just like the leading products only cheaper".  This strategy works well but is the start of a race to the bottom with ever lower margins.  

Over time almost everything becomes a commodity, even the branded products.  Once your product or service is a commodity it gets very hard to earn a living.  If you work for a company who is a brand originator (the bright yellow box in my diagram) then good for you.  If you are anywhere else in the supply chain then expect your business to be under constant financial pressure and to be managed accordingly.

There is lots more to explore in the modern supply chain.  Tomorrow I will look at how generic and contract manufacturing has made everyone a manufacturer.

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.

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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How can I improve my supply chain? (Strategy)

How are your logistics and supply chain operations performing now? 

If like many organisations your operations are a collection of old processes, with poorly integrated systems; then imagine what opportunities you have if you take advantage of some of the current technology and enhanced processes to significantly improve the performance of your organisation!

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

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

Logistics consulting is free!

In 1979 Philip Crosby published his seminal book Quality is Free to break the perception in America at the time that adding quality to manufactured goods was a costly and unnecessary expense. Crosby helped to redefine what quality meant and helped to launch the revolution in quality management that is now an accepted part of almost every aspect of business operations now.

Former CEO of Avis, Robert Townsend said that a business consultant was someone who borrows your watch and tells you what time it is and then walks