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...
Read More10 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...
Read MoreHow to Deliver Customer Satisfaction and Service at the Lowest Cost
In this article we will look at the topic of customer service: getting it right in your business, understanding the implications for your distribution network, and how you can extract more value—and get more cost—out of your business. Do you have challenges in your business around customer service? What should the service be? Are you over-servicing, under-servicing? Three Critical Customer Service Steps When it comes to customer service, there are three things you need to think about: 1) Genuinely understand what your customers want. Most businesses fall into the trap of thinking they know what that is, rather than actually knowing. 2) Map out a well-defined customer service offer. Without that, customers have nothing to hold you accountable to and you’ve no way to design your service around your customers. 3) Optimise your distribution network to deliver on your customer service offer. Those three things must be in place to genuinely satisfy what a customer wants with the optimal amount of resources. Let’s look at each of these three steps in turn. Understanding What Customers Value Most businesses fall into the habit of thinking they know what customers want. We need to try to penetrate that. So, for example, if a sales rep asks them, customers will say, “I want a good level of service, I want a competitive price, and I want a strong relationship with the business.” This is pretty useless information, to be honest. You’ve really got to penetrate what the customer values. To do that we use a technique called conjoint analysis. What conjoint analysis does is give a forced value to what customers genuinely expect, because that allows you to prioritise what resources you apply to servicing those customers. Matt Stedman, a senior Logistics Bureau staff member who has spent years working with the various aspects of customer service and the cost to the business, gives the following example of conjoint analysis:. “A customer may say, ‘Hey, we want great levels of service.’ But what they are really saying is, “what we want is great reliability—we want consistency’.” We have found that customers value reliability and good relationships with management and sales staff over price and speed of service. Think about the different suppliers you deal with in your business or even your personal life. Do you go to suppliers where you’re treated well, the relationship is good, and the service is reliable? I...
Read More12 Smart Ways to Reduce Your Freight Costs
ARTICLE SUMMARY A common conundrum for companies is how to reduce their freight costs, which due to a recovery in demand following the Covid-19 pandemic have skyrocketed. Putting a lid on escalating freight costs has now become more important than ever. There are a number of smart ways to achieve this goal. Here, in brief, are 12 of them: Define your freight profileRecalibrate your speed of deliveriesMaximise your carrier capacityConsolidate non-urgent shipmentsJoin forces with other shippersSite your distribution centres cleverlyLook beyond local carriersChoose the right serviceNegotiate for off-peak timesReduce your dunnageMinimise LTL shipmentsMake an in-depth cost analysis This article takes an in-depth look at each of these points and offers advice on how to meet the significant challenge of reducing freight costs. One of the most common questions I get asked is, How can I reduce my freight costs? In answering this question I start by highlighting the wrong way to go about it. The first thing people try to do is attack the rate itself—the dollars per ton, the dollars per pallet, whatever it is that you are paying. Let’s say you are paying $30 per pallet for delivery and you try to get $29 or $28. That’s really not the way to go about it because you need to realise that freight transport is a very low margin activity and if you’re trying to reduce the price, you’re not going to get very far. Instead, it’s often better to try and reduce the cost to the freight company of shipping your products, so that they can lower their price to you. A Dozen Possibilities to Cut Freight Costs Now let us look at some of the right ways to reduce your freight costs. I also go over some of this ground in a Supply Chain Secrets YouTube video, which I invite you to watch. 1) Define Your Freight Profile Are you paying a ton rate or a pallet rate appropriate to your freight profile? For example, if you are paying an hourly rate for deliveries, is that necessarily going to create the right behaviour in the transport company to get your deliveries done efficiently? So think about the rate structure, whether it is per ton, per pallet, per carton, and try to ascertain if it it’s the one most suitable for your freight profile. If not, it could be worth renegotiating the structure. 2) Recalibrate your Speed...
Read More3 Common Inventory Management ‘Sins’—And How to Avoid Them
ARTICLE SUMMARY Three rules are really important in inventory management. If you don’t get them right, you won’t be able to do a lot of other things. They are: 1) Observe ABC Classification It has long been shown that 20 percent of lines account for 80 percent of revenue and margin. These are the A-lines and should be prioritised in the warehouse. The B-lines and C-lines contribute less to revenue so they should not be treated in the same way as the A-lines. 2) Forecast Demand If you fail to forecast demand, you face the following potential risks: Running out of stockExcess inventoryObsolescence expenseHidden costs. 3) Draft an Inventory Policy If you don’t have an inventory policy: 1) You won’t get consensus 2) Cause and effect will be hard to pin down 3) Systems can’t be set up 4) Comparisons will be impossible. Three rules are really important in inventory management. If you don’t get them right, you won’t be able to do a lot of other things. They are foundations in a way. Let’s examine each one in turn, likening it to commandment that shall free you from inventory-management sin. Commandment #1: Thou Shalt Observe ABC Classification It has long been shown that 20 percent of lines account for 80 percent of revenue and margin. In a Supply Chain Secrets YouTube video, Kieran Hogan says he has been in the industry pretty much his entire working life and hasn’t seen any place yet where this rule—or something close to it— doesn’t apply. An example from a company that turned to Kieran for help in cutting its costs and streamlining its warehousing operations will aid in illustrating this maxim. Let’s call it Company Z. Company Z has a total of 7,029 lines with a turnover of about $51 million (see diagram above). We can break these down as follows: 1) A-lines—Turnover $41m (80 percent of total turnover). Number of lines 1,125. Percentage of lines 16% 2) B-lines—Turnover $7.69m (15 percent of total). Number of lines 1,825. Percentage of lines 26% 3) C-lines—Turnover $2.5m (5 percent of total). Number of lines 4,052. Percentage of lines 58%. As we work down the lines we see an ever-decreasing contribution to revenue. So if you want to know where to go, where the effort belongs, it’s obviously the A lines. Let’s look at an example. Imagine you are a racehorse owner and have...
Read MoreImprove your Warehouse Productivity Through Product Slotting
ARTICLE SUMMARY Product slotting can significantly improve warehouse productivity—and reduce labour costs by up to 30 percent. Simply put, product slotting is about putting the right product in the right place so you can pick it in the most efficient way. In other words, you put the fastest moving products closest to the packing and dispatch area to minimise the movement of people in the warehouse. How to do this? To start with, find out which products are picked the most and place them as close as possible to where dispatch is situated. It is important not only to think horizontally but to think vertically as well. So, slow-moving products go up on the top shelves because it takes longer to get them, while faster-moving products come down on the bottom shelves. Doing it right can save you 15 to 30% in warehouse labour costs. One of the key things you can do in your warehouse to improve the productivity of your staff as far as picking and packing go is to institute a system of product slotting. How Supermarkets Slot Products You may well ask: “What the hell is product slotting?” To answer this question, let me give you an analogy. When you walk into a supermarket you will invariably find that the fast-moving products—such as milk, and eggs, and bread—are stocked at the back of the store. Why do the stores do that? It’s because they want you to walk through the entire store, seeing all these other products that you might buy. On the way through you may pick up a packet of biscuits or a chocolate, and by the time you leave you’re laden with goods you didn’t intend to buy. In effect, retail stores slot their products (understandably) in a way that is optimal for sales, not ergonomics. How Warehouses Slot Products The supermarket example above represents the exact opposite of what you should do in your warehouse. Here, you put the fastest-moving products closest to the packing and dispatch area to minimise the movement of warehouse staff. You want to lay out your warehouse so your picker’s travel the least distance. Simply put, warehouse product slotting is about putting the right product in the right place so you can pick it in the most efficient way. Here’s another way to look at it. Imagine the warehouse as a big box. On one side...
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