The ever growing economy across the globe has enabled manufacturing plants, warehouses, shops and end customers needing goods/services to emerge anywhere in the world. So far, logistics operators with B2B transactions have been able to effectively manage logistics cost because their logistics networks have not been too complicated. But, with a changing situation brought about by the broad market invasion of e-commerce or programmatic commerce, logistics-based competitions to respond to B2C business opportunity compel the operators to review their logistics networks.
In the process, some of them have been able to come up with the lowest logistics cost for certain routes while others are finding it a challenge to get the overall picture of the entire network impacting the transportation cost. Areas needed to be taken into consideration include not only transportation and care of goods in transit but also warehouses and inventory expense of each individual customer. Failing to see the big picture means an unfortunately missed opportunity to make use of their existing logistics network.
A failure to get the overall picture stems from the silo approach in the organizational structure where the organization regards transportation cost as a work unit. Hence, a work unit is in charge of transportation from factory to warehouse while another has responsibility specifically for the negotiation of transportation costs with transport contractors. In other words, inbound logistics management is separated from outbound logistics management, which results in poor and ineffective backhaul management, particularly when it comes to long-haul transport. In such a case, the unit manager would try to manage its cost while ignoring mutual reliance within the organization or supply chain altogether. In other words, he is unaware that his decision does have bearing on a cost increase of another unit within the organization.
Therefore, it is essential for a business operator to see the big picture as regards his own logistics network, i.e. to analyze the entire transport volume of every customer and the entire possible/feasible transport route from starting point to destination while taking into account the consequence or impact of his decision on the overall logistics cost. In this, three preliminary factors need to be considered in order to boost logistics network efficiency as follows:
1. Mode and Route Mix :
Logistics Manager must take into consideration and opt for the transport mode, namely by truck, rail or water, along with routes and points where traffic routes cross to ensure the most effective freight transport as regards transportation cost and delivery lead time, achieve a trade-off between both in- and out-bound logistics which includes effective coordination with suppliers and customers to also ensure effective backhaul management.
For example, truck transport via certain routes may prove more expensive that rail transport. Still, this can be less expensive if combined with a backhaul. In another instance, transport of small quantities of goods, despite higher cost, can be done faster with shorter lead time and at the same time reduce the volume of the customer’s inventory through increased transport frequency. Even a change in transport mode at certain points can cause higher product handling cost whereas transport of goods in bulk could reduce the overall cost, for example, in the case of a change in transport mode from by rail to by water. All these have to be considered in-depth and individually.
2. Warehouse and Distribution Center Network :
The Manager must take into account the number and location of the organization’s warehouse or distribution center as well as details such as the types of goods and how they must be cared for at every point. A common use of warehouse or distribution center for multiple types of goods or various customers can result in optimized asset utilization and also cost reduction.
3. Shipment Consolidation :
The manufacturer’s detailed analysis of and consideration for his production schedule enables shipment order as well as product shipment consolidation so that more than one type of products can be simultaneously shipped to one and the same customer (who has ordered two types of products).Besides, shipment consolidation means maximized resource utilization, be it distribution center, truck or worker who loads/unloads the truck. Furthermore, there is a chance of transportation cost reduction if logistics operators’ management is effective while management cost can partly be shouldered by multiple customers.
In addition, logistics operators have to take into consideration enormous amount of pertinent data. For instance, to ship goods made of metal in North America, they must collect data concerning freight, customer and transport (mode, route, volume per shipment) to ensure optimized freight distribution to all destinations while relying on Intelligent Data Analysis (IDA).
From the outset, Supply Chain Manager must convene all concerned parties in the process for joint analysis and common understanding of the business picture as well as the logistics network existing within the picture while all concerned parties must be able to define the locations of supplier, customer, manufacturing factory, warehouse and all distribution centers. Next, they must proceed to defining the cost affecting factors such as mode of transport, inventory and all loading/unloading tools and equipment along with the company’s limitations such as defined customer lead time obligations and production capacity of the upstream factory, among others. Besides, the operators should be alert there must be automatic verification process in place to check collected data for accuracy, for example, that the customer really requires that goods be sent ‘next day’, which could be different from the operator’s own assumption, while in fact the customer can instead opt for scheduled transport. Obviously, data accuracy has direct bearing on the analysis and decision-making in every process, thus, all the more crucial to have IT systems customized to the company’s unique internal processies. After the intelligent data is collected and analyzed, thus the IDA process completed, Supply Chain Manager must seek the logistics expert team’s analysis and creation of a mechanism to define and conduct a test on a suitable logistics network whereby variables can be changed and hypotheses can be formed in a series of scenarios so as to obtain the most suitable transport model.
Still, to achieve the goals mentioned above must rely on a joint collaboration, sharing of accurate and complete data supplied by all units within the supply chain plus, more importantly, experience, knowledge and specialized expertise in the area of logistics industry. These are challenges facing business operators who strive to build up their capability with the objective to introduce valuable solutions which would best respond to customer needs while themselves benefitting from decent gains and sustainable marketing competitiveness.
Compiled by BLOG.SCGLogistics
Reference and picture bcgperspectives.com, pixabay.com (account PeteLinforth)