By Simon Hilton, Marketing Consultant at Spotchemi a.s.
All good business people know that an inventory strategy should always focus on keeping costs low, keeping customers satisfied and having access to more product easily, should the need arise. Time spent on constructing a master business strategy is wasted if you do not convert it into profitable results, and all too often the weak link is in the supply chain.
So with this in mind, please take a look at our top tips for managing logistics.
Always keep in mind the 80/20 rule. This idea was first founded by the Italian economist Vilfredo Pareto, and states that typically 80% of your output comes from 20% of your input, your core business. This means that you need to stay on top of what’s selling best to best manage inventory.
Concentrate on making your top selling products work effectively for you, ensuring that you have sufficient in hand to deal with unforeseen circumstances. Calculate the amount of product you have in terms of weeks of sales, and pre-think contingency plans for surprise orders ahead of time.
Keep a bare minimum of stock for your slow moving products, as investing heavily in these ties up space, cash and manpower. If you already know that you have too much of a certain material then be prepared to cut your losses now. Create a plan to get the stock off your hands by selling at sale price.
Develop relationships with suppliers so you can work together for mutual gains. This forms a key part of looking after your inventory control, as sharing the oversight of supplies of high movers can avoid shortages that will damage your main flow of income.
See your suppliers as business partners, so that they can share ideas on consumer trends and advise you ahead of time of third party problems or outside influences.
Tighter bonding with suppliers can enable you to set up tracking systems, measure accuracy rates, offer performance based incentive schemes and foster greater understanding so that they understand the level of accuracy and speed that you demand.
Having a closer relationship with your suppliers will also allow you to have a better understanding of their position, giving you bargaining power
Inadequate performance measurement is a surefire way to not knowing what is going on. One of the biggest factors with logistics is that by nature everything is far away, unlike site management, so without effectively measuring results of where things are and when, you have no way to track the success of this vital part of the operation.
This makes improving the system impossible.
A good example of a lack of effective measurement happened in 1988, when the US Navy ran one of the most expensive projects of all time to improve supply chain operations. Later analysis by the Government Accountability Office (GOA) noted that there was “no marked improvement in the Navy’s day-to-day operations”.
This was largely due to the fact that any change would have been impossible to measure. There were no metrics in place to allow any before and after comparison.
Organisations must identify the critical information they need, in order to know how well their supply chain is doing. There is a balance to be found between too little data and too much, so KPIs or key performance indicators should represent the happy medium. These ‘measuring sticks’ are a handful of metrics that cover what an enterprise really needs to know: no more and no less. The challenge is to pick the right indicators, as KPIs should be motivating, inspiring and achievable. So choose KPIs which employees can understand and see the relevance of.
Similarly choose KPIs which employees can affect and know how to affect them, and this will help ensure that they are monitored and reported consciously.
Other metrics can include the following: Cycle time metrics (e.g., production cycle time and cash-to-cash cycle); Cost metrics (e.g. cost per shipment or cost per warehouse pick) and Service metrics (delivery in full and on time).
Invest in People
In some organisations staff cannot accomplish supply chain tasks properly for lack of training and their knowledge gaps have a known, negative impact on productivity and profitability.
To avoid this, your business needs a long term vision for investing in people. Especially in a world where supply chain performance can make a major competitive difference. Frequently, the logistics team is not seen as central to the success of the company. A chemicals trading company invests wisely in recruiting and training the best chemical engineers, salesmen and IT support, but does not focus fully on delivery to customers.
A company that does not invest in making working conditions, training opportunities and career prospects appealing for its supply chain roles will under-perform and therefore lose competitiveness.
Poor Asset Utilisation
The right resources in the right place at the right time – ideally, that’s how every supply chain works. As market demands and business needs may change rapidly, asset utilisation also needs to be flexible, and this includes warehousing, vehicles, systems, workforce and inventory, as well as distribution hubs and networks. Too many organisations let their supply chains fossilise and nuture a culture of “well that’s how we’ve always done it”. When they need to be constantly checking the efficiency of the service they are supplying. New technology may help, but effective solutions are often to be found in rethinking and re-articulating links in the supply chain to build in agility. Toyota gained a strong competitive advantage over rival GM in the 1980’s automobile market by avoiding the need to manufacture every part with new robot technology. Instead they operated low-tech manufacturing and supply chain techniques, but in a streamlined way to better use existing assets.
Taking care of these five factors will ensure that your logistics run smoothly, but doing well across the board can be tough for several reasons, not least because it requires clear thinking over the whole process. Be aware that while people may be experts in optimising their own functional area of a supply chain, they tend not to look at the entire process, end-to-end. Nobody thinks to join up the dots.
This may lead to ignoring smaller changes in one area that may appear unimportant on their own, but that may enable larger positive changes elsewhere. Conversely, a change made to achieve local improvement in one department may translate into an overall degradation in performance. Inventory levels are a classic example. Accounting may want to save money by reducing inventory to near zero. However, that may then mean that production cannot react quickly enough to fulfill customer demand.
As many logistics managers will tell you, when it comes to logistics it is important to keep it real and practical. A clever combination of visionary ideas and actual movement of product can create a dynamic environment for your business. An example of this kind of practical thinking was seen at IBM in 1993. That was the year that Lou Gerstner stepped in to solve the IT vendor’s problems declaring “the last thing IBM needs right now is a vision”. Instead he focused the company on effective direction and execution. He knew that supply chains too need both good strategy and practical focus. Often businesses are champions at strategising, but weak on actually making their supply chain work.
Hopefully your firm can find this middle ground to allow an easy flow of business, freeing up your time, so that you can do what you do best.
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