LTD Management
Logistics & Supply Chain Management Consulting Global Solutions That Work

LOGISTICS DESIGN CHALLENGES

World Wide Shipping June 2002
By THOMAS CRAIG
President LTD Management
www.ltdmgmt.com

Imagine you could take a blank sheet of paper and design how your logistics process should operate, both as to service to customers and the cost to perform that service. Design the best supply chain. Tailor it to meet the needs of each customer. What would it look like? What would it include? What would it exclude?

The concept is easy. The first order is not dealing with the freight companies you use or what warehouse management system you use. The reality, and first step, is to look at your company. This is where the challenges begin.

ORIGIN OF ORGANIZATIONS. Companies are built from the inside out. No matter what their roots are, from manufacturing to sales to R&D to whatever, they build internally in an attempt to satisfy an external customer market. The company wants to sell its product or service, yet designs itself by its own needs rather than the needs of the customers it is trying to satisfy. To compound it, they build their corporate structure in very traditional and very function-focused ways. Companies do not build "backwards", from their customers inward to how they should satisfy these customers. Instead they build internally and then reach outward toward customers.

HORIZONTAL VERSUS VERTICAL. Logistics is a process that crosses many functional responsibilities. Logistics is not the purview of one department amid a mass of other company departments aligned in a vertical organization structure. As a process, logistics is a horizontal activity that involves many departments. It is a flat structure in a vertical organization.

Company structures are the first challenge to an effective logistics process. A multi-function activity is trying to succeed in a series of vertical tower of responsibilities. Each tower can be a fiefdom and has its own set of responsibilities and its own goals and objectives. And many of the responsibilities and goals are internal; they are not focused on bettering the total product and service for the company's customers.

CORPORATE CULTURE. Companies develop, from the top down, a focus, a culture. Often there is a functional mind-set, not a process view. A company may be sales focused or stress manufacturing. They may be cost-conscious. The mind-set also identifies where power resides within the organization, either real or perceived.

The culture can effect on management views logistics. A cost-center view emphasizes reducing costs for transportation and other logistics activities. Or it must get customer orders shipped within 24 hours of receipt. Or whatever the culture translates the logistics activity to be.

IDENTIFYING LOGISTICS COSTS. An argument can be made that, with all the internal challenges, the accounting for logistics costs may be the biggest hurdle. Companies are competing in a global world with international sourcing, customers and competitors. Companies are competing and operating now in non-traditional ways with the e-commerce and the internet. Supply chain management has evolved from a paradigm to a way of doing business for many industries. And yet, companies are still using an accounting process that dates back to the Model A.

Logistics costs', even from a functional, non-process view, are not truly defined and captured in an easy way for executives to understand and use. Certain costs, such as freight, appear on the profit and loss statement. Other costs, such as inventory, appear on the balance sheet. Now, the purpose of logistics, which is a service, to deliver each customer's order on time, accurate and complete, is not measured in the financial activity at all. Add in the multi-departmental involvement in logistics, and the result is that the total cost of logistics to a company is not measured. Nor is the competitive advantage, revenue-enhancing benefits of a leading-edge logistics process identified and captured. Trade-offs of inventory and transit time are missed. Improvement in the cycle time for customer orders, from his issuing to delivering, are not tracked in the accounting system.

SUPPLY CHAIN COMPLEXITY. No other group has as broad a geographic scope and diversity to manage as does logistics. From Hong Kong to Hoboken, from Paris, KY to Paris, France and more is the breadth and scope of the supply chain. It involves moving finished products or parts from suppliers throughout the world into company facilities located throughout the U.S. and the world, all done to meet the needs of customers throughout North America and the globe.

WHAT TO DO. After recognizing the internal issues, you must then work on dealing with them. Consider these actions to improve the logistics position within the company and develop positive support:

*Take responsibility. Take ownership of the logistics process. Note we say the process, not just the logistics function. Those are your customers to service and to tailor individual solutions to giving them a service that provides a competitive advantage for your company. Know what each customer expects from your company. Understand what other company functions are critical to this success and work with them. Use formal or informal teamwork., whatever works. But make it happen. Be the leader, not a follower. Be proactive, not reactive.
*Pitch what you do. Never pass up a chance to explain what logistics is. Be ready, have presentations available, to explain what logistics is and how important it is to the company success. Use words the rest of the company knows and uses. Cost per hundredweight, for example, may mean nothing to others in the firm. Then talk about cost per SKU and product category or other ways that reflect how your company may be organized and its culture.
*Break the organization mind-set. Work to show logistics as a cross-functional process. Talk about logistics beyond the organizational boundaries that exist in the company. Show how it goes beyond functional mind-sets. It is more than the sum of its parts. And show that to each part, to purchasing, sales, manufacturing, accounting and others. Show it to top management. Better yet, prove it to top management.
*Have both the strategic and tactical views. Make sure what logistics does is consistent with and supports the company's strategy and mission. Make sure that can be demonstrated with the way logistics operates. Where there are strengths, show that. Make them even stronger. Where they are weaknesses, correct them. Support the dual customers you have, external and internal. Show management you are positioning logistics, both for the "today" and for where the company wants to go. Think outside the box. Think outside just the logistics function.
*Use systems. Information is necessary for logistics success. This is true within the logistics function and for the logistics process. Use information to manage the logistics process. Set standards and use exceptions so you focus on the key needs for success. Remember, though, systems are a means to an end, not the end itself.
*Measure. Identify key factors in the logistics process, both for logistics success and what top management wants. Then measure them. Track them. Report them.
*Collaborate. Supply chain success, across multi-functions, requires collaboration. That, in turn, means taking that internal collaboration, and making it external. Work with Sales so that you have a real and mutual working relationship with customers. Work with Sourcing so that you have a good relationship with suppliers. This recognizes the complexity of what you are doing and the scope.
*Get buy-in from the top management. Logistics success means that the company has a competitive advantage. It means that customers like to do business with you and want to do business with you. This then takes the customer relationship beyond the traditional price-volume discussion. As you get successes, make sure top management understands what you are doing and want to do. Get their attention and support as early into the effort as you can-and keep it.

Supply chain success is not easy; but it is worth the effort. Go for it!