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The Long and Short of Designing a Distribution Network

The Long and Short of Designing a Distribution Network

I’ve noticed a trend in recent years in that when businesses want to check their distribution networks or design a distribution network, they immediately jump into loads and loads of detail. Maybe it’s because the tools are out there to do it now, but I’d like to highlight other approaches that are less time-consuming and resource-hungry. Four Ways to Streamline Your Network Design I’ve been doing network design for all of 25 years. We did it all on spreadsheets in the early days because there were no specialist tools around. Now there are great tools, such as Supply Chain Guru and others. But let’s wind the clock back a bit and look at some of the simple ways that network design can work before focusing on the more complex models. 1. The Back-of-the-Envelope Approach There are some fairly simple back-of-the-envelope approaches that you could take. You could do these on a simple spreadsheet or even a whiteboard. Let’s imagine that you’re operating in Australia, which is rather awkward for distribution because most of the population lives on the east coast and about 7% lives way over on the west coast. People who are new to the country say, why can’t we just have one national warehouse? The problem is, it takes three or four days to traverse from coast to coast. For that reason, companies will usually establish one warehouse on the east coast and another on the west coast, depending, of course, on the service offer. Bring in the Whiteboard How would you do a rough check on a whiteboard? You might look at your existing costs with an east coast warehouse and then, very simply, you could compare the added cost for a west coast warehouse. You might ask the following questions: What’s the total amount of product we may have to move across the country?What’s the transport rate to move it?What’s the extra line haul or trunking cost? We need to factor all of that in when comparing what it costs to serve customers directly from the east coast. So you have to look at the line haul cost against the added cost of setting up a warehouse in the west. That’s a simple back-of-the-envelope approach. You don’t need to do a months-long study with specialist tools to work that one out. 2. Spreadsheet Models Some 20 years ago, we used to build some very complex...

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Why 3PL Relationships are Fraught—And How to Manage Them

Why 3PL Relationships are Fraught—And How to Manage Them

Third-party Logistics (3PL) companies are often accused of providing such poor service that their relationships with clients break down. In reality, though, there’s a host of reasons why 3PL relationships turn sour—and very often the blame can be laid at the door of the client. Let’s take a look at three typical client issues that can easily send a 3PL relationship off the rails. Fix These Issues to Improve Your 3PL Relationship 1.  Failure to Communicate When you go to the market for 3PL services, are you being clear about what your service expectations are? As you’re going through the RFP/RFT process, you need to ensure absolute clarity, so the bidding 3PLs understand the specific outcomes you seek from your logistics outsourcing. First and foremost, communication and clarity of expectations are very important. Make sure that you provide lots of detailed information about your products and customers so that the bidders have a full understanding of the operation to be outsourced. Right from the start, make sure that you state very clearly: The elements of your operation that are to be outsourcedWhat your expectations areHow you plan to measure the contractThe KPIs that you are going to use Be upfront about how you want the relationship to work, and I would suggest that you include a draft contract during the bidding process. What to Include in a Draft Contract The draft contract should set out: How you want to manage the relationship contractually and commercially,All of the KPIs that you expect to be measured,The targets that you want to achieve. Maybe you also want to think about some sort of gain share or bonus mechanism to negotiate into the contract. Perhaps you want to set some minimum targets that you want to be met. If the 3PL drops below those, it has to rectify the situation. If it consistently reaches above those targets or comes up with some improvement programmes to reduce costs, you might want to offer a bit of a bonus or a profit share. 2. Failure to Share Data Another major issue is that people don’t share data enough. When I see 3PL relationships going off the rails, 55% to 65% of the time it is because accurate data wasn’t being shared sufficiently from the outset. As an example, we are currently helping a couple of clients with 3PL issues, and I can tell you that...

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An 8-point Guide to Understanding Your Cost to Serve

An 8-point Guide to Understanding Your Cost to Serve

The concept of cost to serve is very simple but I am always amazed at how few businesses and supply chain managers really understand it. Let’s start with an uncomplicated example: Company A is in the business of distributing whiteboard markers. Among other colours, they have green ones and they have blue ones. If they are going to understand their cost to serve, they need to know the cost of shipping, for example, the green one to a customer. They operate in Australia, so they may have customers in Sydney, Darwin, Adelaide, and/or Melbourne. They also need to know the cost of shipping the blue one to a customer. Let’s say the blue one is not the same product as the green one but a much bigger item with different characteristics. In a nutshell: It’s understanding at a detailed level what is the cost of serving, or delivering, all of the different types of products to all of the different types of customers. Why Understanding Cost-to-Serve is so Important In my 20 plus years of experience in doing cost-to-serve analyses with clients, I have found that in 99% of cases at least 10% of their products and customers are not profitable. I can say that with extreme confidence because normally the number is above 20%. What does this mean? If you haven’t carried out an analysis of your cost to serve, probably at least 10% of your products and your customers are non-profitable. Let me, through my eight-step guide, show you how you can more easily see which products and customers are losing you money. Step #1 Have a look at your customer profile. Try to differentiate your customers in terms of, for example, location and service requirement. Everybody has customers who buy by the pallet-load or the truckload. Maybe you have customers who are based in the metro area and others who are in remote areas. Step #2 Do the same for your product profile. What are the characteristics there that make your products more costly to deliver? Maybe some products fall into the category of dangerous goods, maybe some need special packaging. Step #3 Look at your order profile. How many large orders and small orders do you have? I’ll let you into a secret here. The easiest way to save money in the supply chain is to encourage customers to order in bigger quantities. I know...

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Procurement vs. Purchasing: What’s the Difference?

Procurement vs. Purchasing: What’s the Difference?

The best way to understand the difference between procurement and purchasing in a business is to consider the process involved in buying a car, says Logistics Bureau’s procurement specialist, Trent Morris. Procurement First, Purchasing Follows Procurement: If you’re going to buy a new car, you usually decide what you want before you step out into the street. You consider, for example, the number of seats you want in the vehicle and whether you want a 4-wheel drive, a sedan, or an SUV. Then you start looking at all the manufacturers and what they have to offer. Once you have done that, you move into getting prices on the vehicles. The first part, where you are doing research into the industry, that’s procurement. It’s understanding how much you want to spend, the type of car you want, and how many seats you need. It’s looking at what’s available on the market, the different suppliers, what their products are like, whether it matches your needs—it is not actually buying the product. Purchasing: Once you know what you want, you go out and find what you want for the right price. But it’s not only the price. Sometimes it’s the service capability of the dealership. It could be the after-purchase service or the warranties that you are after. But all of those things become purchasing as opposed to procurement. Note: Sometimes in smaller businesses, procurement and purchasing might be the same thing. The Link between Procurement and Purchasing I would suggest that purchasing is a subset of procurement, in as much as procurement serves to guide the purchasing process. A purchasing manager or purchasing officer typically won’t buy anything unless the contract has been set up by procurement, so in that way procurement and purchasing are linked. Sometimes they are decentralised—an operations team may look after purchasing if they’re talking about widgets or something like that, but if you are talking about something more indirect, like travel, that may be governed by a centralised body. In a small business, usually, it’s going to be a senior person or a director saying, we’re going to buy our widgets from this supplier, and negotiate the supply and prices and so on, and then an admin person or someone in purchasing actually does the buying. Procurement typically has the authority on behalf of the business to engage with suppliers to make deals. The person who...

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Raising Productivity in Logistics Operations: The BHAG Approach

Raising Productivity in Logistics Operations: The BHAG Approach

Achieving business goals successfully is rather like working in a sports team. Some teams are really successful, some aren’t. Some have great coaches—and some just don’t seem to make it. So what makes the difference? Why do some businesses and organisations seem to achieve far more than others? As a consultant, I work with many businesses. Some just seem to get things done. They have an enormous number of projects going on and they achieve great goals, while others struggle and seem to spin their wheels all the time. The BHAG—the Big Hairy, Audacious Goal I recently attended a great presentation during which the presenter referred to a BHAG—a big hairy audacious goal. I think we’ve seen that in a lot of businesses. I am sure you know of companies where these goals are put up on notice boards, but often they just never seem to be achieved. The idea of a BHAG was conceived by James Collins and Jerry Porras in their book “Built to Last: Successful Habits of Visionary Companies”. The authors define a BHAG as a long-term goal that changes the very nature of a business’s existence. A BHAG, as they put it, “engages people, it reaches out and grabs them in the gut. It’s tangible, energising, highly focused, and people get it right away—it doesn’t need further explanation.” The person who gave the presentation I attended offered the example of a speech by late US President John F. Kennedy: “This nation should commit itself to achieving the goal, before the decade is out, of landing a man on the moon and getting him safely back to Earth.” That was a fantastic big, hairy, and audacious goal that galvanised the nation behind the whole lunar programme. How does all this fit with your situation and your business? One of the things that can go wrong when you set these big, hairy, audacious goals is that people don’t believe they are achievable. One of the causes of this is that we get set in paradigms. We’re used to things being difficult, we’re used to things being done in a certain way, and we don’t believe that the world can change or that our performance can lift significantly. A Compelling Reason to set a BHAG As I explain in a YouTube video on this subject, I recently saw a good example of how a BHAG can galvanise a workforce and...

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10 Proven Principles for Best Warehouse Design and Operation

10 Proven Principles for Best Warehouse Design and Operation

In this article, Logistics Bureau’s Mal Walker, who has spent decades exploring all aspects of warehousing, offers some valuable tips on warehouse design and operation. Over the years, Mal has come to appreciate that there is real science behind distribution centre design, operation, and flow management. He has delved deeply into it and identified ten principles for optimising warehouse performance. Let’s take a look at them one by one: 1) Minimal Touch of Goods We want to get as close as possible to zero handling of products in the warehouse. Unless it is fully automated, the average warehouse will involve seven or eight instances in which products are handled. That means that people actually pick something up and put it down seven to eight times, either manually or using MHE. If you can get that down to three or four times your warehouse performance will improve. 2)  One-Way Flow One-way flow is really important, not only that of the goods in the warehouse, but also of vehicles around the warehouse. One-way flow is a really good principle to apply during the design process because it allows you to plan your picking path through the warehouse as well as your replenishment paths. In terms of vehicles, in Australia, we run trucks generally in a clockwise direction around the warehouse. The reason for this is so that drivers can reverse on the right side if they have to back into a dock. In the United States and many other parts of the world, it’s the other way around—counter-clockwise. 3) Triadic Warehousing The vast majority of warehouses we see today are based on the triadic design—in other words, divided into three zones: Fast-moving productMedium-moving productSlow-moving product A warehouse that has no zones would be non-triadic. But we may have both triadic and non-triadic in the same warehouse due to the increasing reliance on automation. In the automated section of a warehouse, you don’t need to know where the stock is because the crane or the automatic storage and retrieval system will find it. But in the section that is operated manually, the correct placement of stock is critical. 4) Inventory Control Inventory control is about having the right amount of stock to meet customer demand. We have to track the movement of products because that drives the physical process in the warehouse.  It’s important to look at sales but also at the...

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