I was once asked by my CEO—literally in an elevator—“Jay, what is logistics?”
My answer was, “Sir, you put lots of dots on the map. Suppliers, dealers, customers. Our job is to connect those dots in the most efficient, effective manner.”
Logistics connects a preceding process with the following process: It is the marriage of the physical movement of material with the flow of cash and information. The process starts with a trigger to move goods and ends with their final delivery. It includes the flow of raw materials for production, work-in progress (WIP), and the deliveries of finished goods to customers.
There is seldom any room for error and is always remembered for its last delivery. Logisticians are expected to make it through any global phenomenon, be it a Japanese earthquake, an Icelandic volcano, or civil unrest in the Middle East—everything is supposed to move seamlessly and invisible, as shown in the shipments process figure (Figure 10.1).
Figure 10.1 Shipments process
The ability to deliver what is needed, when it is needed, and with the required quality is a competitive advantage for any business that can solve this equation. The ideal logistics process continually optimizes inventory, responds to changes in the marketplace, and delivers what is needed, when it is needed, and in the desired quality.
Quality, Cost, and Delivery
Logistics covers processes including conveyance, handling, storage, and information flow and is explained in the following graphic below:
Many shortsighted companies see logistics as a cost: freight, warehousing, and trade. They fail to understand the inherent risk of poor performance or the tremendous opportunities yielded by performing well. People often think it’s easy to shave a nickel off of an air freight rate, but fail to understand that it’s also about speed, reliability, quality, and reducing the risk of an on-time/defect-free delivery. Successful logistics programs are built upon a foundation of network design, process optimization, and cost management.
The house of logistics has three pillars.
The three pillars work together to provide the basis for how a business’s logistic strategy is actually executed: cost management, process optimization, and network design. When executed properly, trade flows, cost are contained, and operational excellence achieved. Conversely, if these are not executed properly then trade issues can prevent crossing borders, cash can be lost, and the entire enterprise is jeopardized.
Case Study 10.1
The following case study illustrates how logistics is tied directly to cash as well as how it affects quality, cost, and delivery. A side note before starting: The name “Big Bowl” came from an Asian Fusion restaurant outside of Minneapolis. A very dear friend, Mr. Robert Muir, coined the name, and we all thought it was very applicable to the subject at hand.
Project Big Bowl
Building a Distinct Competitive Advantage from Asia to the World
Background
A crashing economy coupled with mass globalization and increased regulatory requirements for enhanced security made flows from Asia to the United States exceedingly difficult in 2009. Factories and suppliers were holding inventory to build full container loads for cost. Working capital (inventory and payables problems) abounded, as no one was really managing the supply chain. Visibility of shipments was limited until the container arrived at the plant.
In addition, vessel sailings were infrequent, and if sailings were missed, a minimum one-week delay would be incurred. Trade compliance was difficult as there were limited data on the multiple filers in each container with bond issues with U.S. Customs for overages and shortages. The chart below shows the high degree of variability inherent within the process.
Other Facts
•The U.S. government implemented an anti-terrorist program called Importer Security Filing (ISF) that required that 12 new data fields be completed 48 hours prior to any shipment departing for the United States, which we were incapable of providing.
•International transportation costs were in a continual state of turmoil from fuel prices, inflation/deflation, bankruptcies, labor stoppages, regional conflicts, and natural disasters.
The days of loading containers on the side streets of Hong Kong were over, but we were still routinely doing it.
Project Objectives
Design one transportation management solution to improve velocity and reduce cost that provided:
•Management of daily flows across all regions and businesses
•Reduction of cycle time through enhanced end-to-end visibility and management to customers
•Optimization of movement to maximize speed while minimizing costs
•Compliance with all regulations
•Increased flexibility through reduction of handoffs, routing optimization, and consolidations.
Results
Big Bowl became a global supply chain management solution that improved velocity and reduced cost. It transformed 97 supply chains in 12 months by coordinating flows and information from sourcing, materials management, plant operations and distribution, as illustrated.
Savings
•2011 working capital was $4.3 million/Cumulative 2009–2011 amounted to $15.5 million
•No impact from disasters such as the Fukushima earthquake and tsunami.
Factory or Supplier
•Created centralized booking via a control tower process that provided visibility from booking to delivery with projected arrival dates
•Validated all documents to ensure customs compliance
•Simplified and delivered a single platform for order status.
•Minimized dwell time at origin ports
•Selected the shortest transit base on all carriers.
Destination Transport
•De-consolidated 40-foot marine containers to consolidate multiple shipments into 53-foot road trailers
•Developed flexibility to expedite and/or defer inventory
•Provided visibility of the final mile with actual proof of deliveries (POD).
Final Thoughts on Logistics
There is seldom any room for error in logistics—no matter how good you are, you will always be remembered for your last delivery. Logisticians are expected to make it through any global phenomenon—be it a Japanese or California earthquake or even an Icelandic Volcano—invisibly.
I’ll leave you with a mantra I learned as a young man: Keep cars moving, promote efficiency, and maintain quality.