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 - #3

3. Products not set up correctly in the business system

Your staff may have all the information they need and an efficient process flow but if the stock they receive has no purchase order in the system or new items have arrived that have not been set up in the business system, then they will not be able to receive the stock and it will sit on your dock taking up valuable space and getting in the way of normal business.

The fix to this is easy, and simply requires some basic business disciplines.  Sometimes administration staff have no awareness of the downstream impacts on the warehouse of their actions.  Engaging the administration staff with the warehouse staff by tours and live examples of the problems will go a long way to enhancing understanding and prompting corrective action.  

New procedures may be required to ensure that new products are signed off by the warehouse manager before they can be ordered.  If stock arrives with no purchase order then get the warehouse to send it back to the supplier.  This will usually create the sort of drama that ensures compliance by both the supplier and the purchasing staff in future.

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.

21 mistakes adding cost and killing productivity in your warehouse - #1

Too many deliveries kills productivity &
adds cost to your warehouse operation

#1. Too many inbound          deliveries

We are all for more frequent deliveries of inventory as this is one of the key strategies to reduce overall inventory levels and free up capital for more productive investments.  However it is possible to take this too far.  Each receipt costs money in labour, dock and equipment utilisation, and depending on your put-away strategies , too frequent deliveries of the same item can fragment storage of the same item to many locations in your warehouse wasting lots of space.  

Frequent deliveries can result from poor inventory planning leading to chronic stock-outs, back-orders and frequent re-ordering.  Buy to order strategies may appear to be efficient but can actually add cost by churning the receiving process.  Buy to order is great when you apply it to the slow selling long tail of your product range, it is not such a good idea for more frequently sold items.

One of the measures of churn is called stock turns.  You can calculate your stock turns very simply by taking your total sales and dividing by your average inventory on hand.  So for example if you have sales of $10M per year and an average inventory holding of $1M then your stock turns are 10.  Another way to think of this, is in terms of how many days or weeks of inventory you are holding.  In this example 52 weeks in a year / 10 turns equals and average inventory holding of 5.2 weeks.  

Whether your number is good or not can really only be determined by comparison against others in your industry, as each industry will have its own set of constraints that will impact the stock turns.  If your stock turns are in the 20-30 range then you are doing pretty well, anything over 30 is excellent, but if it’s over 50 then you are most likely churning!  You should measure your stock turns as a fundamental business KPI, generally the higher the number the better.  Detailed analysis by product groups and items will show you where you need to focus your attention.

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.

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 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 Yellow Pages misunderstand the internet 2

Just a quick update on my earlier post about how the Yellow Pages would not give me a free listing that most likely no-one would see anyway.  I recently found that possibly the easiest way to get onto the first page of Google in the search rankings is to submit a Google Places page.  This took a few weeks whilst I waited from my postcard from Google to confirm my listing. Here is the result:

So even if I had paid for a fancy Yellow Pages ad, would they have got me listed on the first page of the search engines?  Clearly not.

So as I said before, the Yellow Pages do not understand the internet.  Fortunately Google do.

OK, I am not an SEO expert, but 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.

A New Focus

I have been hard at work over the last few days reworking the Logistics Help website to make it more relevant to what I am working on now, and also putting up a personal branded website.  I have focussed the Logistics Help business on the small to medium business market, which I think is somewhat under-served by logistics expertise.  I have also launched a new blog to follow my progress on the Rapid WMS project.  The aim of this blog is to tell the story of the development of an idea and, hopefully, at the end of the process have an inspiring story to tell as well as having made a difference.

I am targeting the areas where I think I can contribute most to the world.   I still have plenty to contribute in my industry specialty of Healthcare Logistics having spent a large part of my career working with a number of major companies in this industry.  I also want to fill a gap that I see in almost every warehouse I walk into, which is a both a lack of WMS technology and a lack of good warehouse practice.

It will be an interesting journey!

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 if your logistics is already the best? (Part III)

How might rising fuel and energy costs
impact your supply chain? 

We live in turbulent times. Exactly how turbulent we will only be able to judge with hindsight.  The internet is changing everything more rapidly than anyone can keep up with.  

Climate change is boiling us slowly, like the proverbial frog in the pan on the stove who doesn't realise he needs to jump out until it is too late and he is half cooked.

We have also forgotten about the resource shortages that put a lid on the economy just before the GFC in 2008.  Remember when crude oil peaked at over $140 per barrel and the fuel price reached $1.80 per litre?  Well that may look cheap a few years from now if the CSIRO's dire prediction of $8.00 per litre by 2018 comes true, (page 10). The impact of this will flow throughout the global economy.  Jeff Rubin wrote about this in his book "Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization".  Jeff Rubin also speaks about it on YouTube for the non-readers.

"How might $8.00 per litre fuel impact your supply chain?"

The set of changes that are inevitably going to be forced upon us by the climate change and the associated mitigation strategies such as carbon taxes, energy efficiency, alternative fuels and energy sources are collected under the banner of Green Supply Chain (see the white papers section of our website).

There are things you can and should be doing now to get your organisation into a low carbon mindset so that you will be prepared better than most as the heat literally gets turned up on your supply chain.  My thesis is that the impact of this will force you to innovate and consider strategies that you might currently reject.  

Taking a further 25% out of the costs of a currently maxed-out efficient supply chain by collaborating with your competitors may well be a business saving strategy. You and your logistics sharing partners maintain your supplier of choice status; whilst others are driving around half empty trucks paying $8.00 per litre for diesel.

I will be speaking on the subject of Green Supply Chain at the upcoming Smart Conference in June this year.



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 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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Passion and Brilliance - a restless tagline

I must confess I am not much of a marketer, if I was then I suppose more people would be reading this blog!  As a result of my continual experimentation   I keep changing my tagline.  A tagline should define what you do and how you do it in a way that is intuitively clear and obvious to everyone.  I can think of at least six that I have tried over the last year.  Here are a few for your personal amusement.

1. enabling value in your supply chain
2. realising value in your supply chain
3. realising value through brilliant supply chain
4. your unfair advantage in supply chain
5. brilliant supply chain
6. passion & brilliance
7. The warehouse improvement specialists*
8. The warehouse performance improvement specialists*
9. Helping you create a High Performance Warehouse**
10. Helping you create High Performance Logistics***

The first three sound like typical corporate nonsense.  Four was too clever and obscure, several people commented to me that they did not understand what it meant. Five is nice enough but bland.  Six is where I am now.  Two words that, hopefully, everyone will understand and also want.

Passion & brilliance is what I want from any professional that I work with, or who is doing work for me.  It is what I aim to bring to any work that I do for clients or in any context.  It is restless because it is never satisfied.  There is always more to do, or a new way to do it better.

Passion & brilliance is what allows me to develop multi-order picking functionality for SAP Business One (SAP B1) for one of my clients when SAP B1 does not even have warehouse location control.

Passion & brilliance is what allowed me to do warehouse design, project management, SAP Advanced Warehouse Management implementation, go live support and then five months of hands on warehouse management for a new warehouse for one of my clients.

Passion & brilliance is no accident but what comes from over 20 years' of experience in logistics management as an operational manager and consultant.  In the end I just love what I do.  I have developed into a career that ideally suits my personality and temperament.  

I have now set myself the challenge of building my own business and improving the productivity and efficiency of logistics for Australian businesses, not for profits and government organisations as widely as I can.  It will be my privilege to serve you also.

As always, my warmest regards to you.

P.S.  I had great amusement after posting this to see a very similar tagline to reject number 4 in use by the MHLC conference in the U.S.  Is it really an unfair advantage if everyone can do it?

*P.P.S. New taglines number 7 and 8.  Update to this post after changing my tagline again.  No I have not abandoned passion and brilliance in my work.  I just decided to try a new tag that more narrowly reflected my increasing focus on warehousing and all its associated aspects.  No promises that it will not change again next week.

**P.P.P.S.
New tagline number 9. No.8 lasted a few months but as my business thinking and marketing skills develop I find myself finally doing one of the first things I learned about business, but did not believe at the time.  That is to narrow your focus on a particular target market.  This allows you to focus on and market to a particular group of customers.  

So the new tagline defines what I do, which is to serve customers with warehouses.  Specifically my market is small to medium warehouses which includes the neglected mid-sized distribution business and warehouse operations of larger service businesses.

The new tagline is simple and clear and also ties in with a theme that I am building around "High Performance Warehousing".  I hope this is my last update on this post for at least for a year or two!

***PPPPS
New tagline number 10. Surely this is it now! I broadened the line slightly to open up the focus to all of logistics and not just warehousing.  After all this is Logistics Help not Warehouse Help.  I had to widen the tagline to suit the services I am offering to support the three pillars of High Performance Logistics, Inventory Planning, Warehousing and Freight.  It's also slightly shorter which is always a good thing.

BTW I saw another "unfair advantage" tagline on ad for an IT company whilst walking through the airport this week.  Maybe I didn't recognise brilliance when I saw it.

Obviously I cannot give you good marketing advice but 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.

Time for a new approach to Warehouse Management Systems

Smaller warehouses need a WMS too! 

It has always stunned me how Warehouse Management Systems (WMS) and the associated technology has failed to trickle down to medium and smaller businesses in the same way that other software and technology has.

At the high end these systems are quite stunning in their scope and functionality.  Modern WMS have extraordinary control over warehouse operations and have extended their functions further up and down the supply chain to provide control from inbound shipments through to delivery and return from customers.

This is great but where are the low end systems with basic functionality that will provide 80% of the benefit for 20% of the price?  Where are the systems aimed specifically at small to medium warehouses?  Mostly in this space you have higher end systems trying to compete and price more affordably, but they can never get cheap enough and they are too costly and complex to implement.  In addition to this the whole scale and approach of their IT support model adds more cost to the implementation and makes the cost of ownership prohibitive.

As one IT business development professional said to me recently 

"...the lower end of the WMS market is 

under-served."  

Quite a massive understatement from what I can see.  Many quite substantial distribution businesses have still not implemented a WMS and the lower end businesses have to wait too long to get a decent return on their WMS investment and so it gets put in the someday maybe basket (nod to GTD followers).

WMS technology needs to
get more affordable

A new lower cost model for software, hardware and implementation services and support are needed if this technology is going to live up to its potential to radically improve the productivity of the tens of thousands of medium and smaller distribution operations not just in Australia but around the world.

I have decided to stick my neck out and build that low cost WMS implementation model.  I have started my search for software and already have one promising prospect.  Now I am on a mission and you can follow the journey on the Rapid-WMS Blog.  Watch this space!

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.

January 2013 Heatwave wakes us up to the impact of Climate Change

The current record breaking heatwave sweeping across Australia driven by a stalled wet season is another symptom of Global Climate Change.  It really makes those old articles denying climate change and predicting catastrophe from the carbon tax look completely out of touch with reality.  This particular piece of Ostrich like thinking from Viscount Monckton from early 2011, now looks particularly silly given our record heatwave in January 2013.