Finding opportunities in logistics

Stack of wooden pallets. One pallet nearLogistics sometimes means different things to different companies, which we once made the mistake of pointing out at a trucking convention (see Lessons Learned # 2 – Don’t put down your audience). Since that time logistics has arguably become even further complicated by the common use of the slightly fancier term, supply chain management (SCM). Some argue that logistics is a sub-component of SCM and that SCM is more comprehensive in nature, others think the opposite. To avoid alienating another generation of transportation managers we won’t spend time trying to differentiate the two. Instead we will concentrate on logistics as a function. For simplicity we define logistics as the “management of material movement in the right quantity, at the right place, and at the right time”. Logistics involves the inbound movement of material and supplies, and the outbound movement of product. Organizations either use their own trucks, or outside carriers, or combinations of those two to move all of this material around. So the basic questions in this area as far as opportunity goes are can you reduce transportation costs or can you improve service reliability?

Logistics is a complex thing to manage. It’s a cross-functional management process that intertwines with many different functional areas in terms of communication as well as supply and demand timing. It’s further complicated by the nature of supply chain decisions, which are often trade-offs with conflicting functional objectives (e.g. large purchase quantities versus small inventory levels). The key functional disciplines involved in managing logistics include:

  • Order management and fulfillment
  • Inventory management
  • Procurement and supplier management
  • Warehousing and material handling
  • Customer service

The hunt for opportunity is often most effective when you start with an analysis of service results and carefully follow the service problems back to their possible sources. It’s also useful to “staple yourself to an order”** and follow an actual order through the entire flow, identifying where and when and why orders stall or go off-schedule. Both of these approaches, one starting from the end and the other from the beginning, tend to lead you to similar root causes.

** Staple Yourself to an Order is an excellent HBR article about order cycle management, written by Benson Shaprio, et al.