UNDERSTANDING THE TERMINOLOGY | INVENTORY
WAREHOUSE & DISTRIBUTION | CUSTOMER SERVICE

Understanding the Terminology

Logistics Management Relates to all the internal processes and systems involved in the movement of materials and products from source to customers and the information relating these flows. Is concerned with accuracy, productivity, cost control and order accuracy and response time. Main focus has been on integration, bringing all the functions such as purchasing, inventory management, warehousing and distribution, freight management and customer order processing under single function control. Management of information flows and integration of logistics databases has been a big challenge

Supply Chain Management is the next step in development. Focuses on the total organisation from source to final customer. The main difference to logistics management is the focus on the development of partnerships with the other companies involved in your supply chain to achieve improvement in the efficiency and quality of the supply chain for the customer. A lot of attention has been directed to developing relationships with suppliers. Whilst this is very important, it is important to include partnership development with other businesses such as transport operators, customs agents, freight forwarders and distributors. Integration of information between partners and information sharing is a critical development requirement. Another requirement is to achieve total inventory visibility along the supply chain and to provide complete order/consignment traceability and reporting.

Value Chain Management has developed from supply chain management. It is based on the premise that all activity in the supply chain should add value to the product in the eyes of the customer. Looked at another way any activity or process step that does not add value for the customer is an expense that is unnecessary. Value chain analysis involves examining every process step in the chain and identifying whether it adds value. Those steps that fail to add value are removed or discontinued. Usually one finds that non-value adding process steps have been impose for internal control purposes. It is usually possible to remove them without adverse effect

The key elements of your supply/value chain comprise Inventory, Warehousing & Distribution all supporting Customer service.

Inventory

Inventory is often the biggest capital investment in your company. It is there to provide a service to customers and therefore essential. The critical factors are to have the right products, i.e. the ones that customers expect you to have, and to have the right quantities - too little can lose orders and customers, too much can escalate costs.

There are some basic universal truths about inventory

• It is necessary to meet customer demand
  
• It is high risk - can become obsolete very quickly
  
• Inventory costs a lot to keep, its annual holding cost can be as high as 25% of its purchase or manufactured cost
  
• Inventory must earn a realistic return on investment. Banks pay 4% on deposits- what is your inventory earning?
  
• Inventory is subject to the 80/20 rule. 20% of total inventory products normally earn 80% of sales.
  
• Conversely 80% of inventory items earn 20% of sales
  
• Probably 50% of products earn less than 5% of sales
  
• Many companies have up to 30% of their total stock in the obsolete or obsolescent group. Management of this is vital to profitability
  
• Accurate, real time information about inventory can replace the need to hold as much real inventory
  
• Speed of flow through the supply chain can reduce inventory levels. Intensive management of lead times is required
  
• Supplier reliability and quality of service can reduce inventory levels - less need for safety stock

Warehouse and Distribution

Most companies involved in marketing products have a warehouse/s. some will be company operated, and some operated by third parties. It is also possible to utilise public warehousing to accommodate peaks in distribution activity.

Your warehousing is critical to good supply chain performance. It provides the essential customer interface in processing the customer's order and delivering customer satisfaction through accurate and timely order fulfilment.

Warehousing is a high cost business activity. Good management and logistics expertise are required to achieve the required performance standards at an affordable cost.

Some thoughts

• Warehouses are dangerous places, the mix of moving equipment and people create high risk situations. Good OHS (occupational health & safety) management is essential. Severe penalties can be imposed on companies and managers who fail to provide a safe working environment
  
• Productivity improvement is a critical element of cost control
  
• Up to 60% of operator time is spent moving from location to location within the warehouse
  
• Most forklift trucks make one way loaded journeys and return empty
  
• 4 metre wide aisles between pallet racks equal 33% floor space utilisation
  
• Space utilisation is maximised by matching storage equipment to the product/unit load profile
  
• Product accessibility is dependent on storage type
  
• Good warehouse planning and control requires a viable warehouse management system (WMS)
  
• Real time radio frequency data capture through RF scanning systems reduce manual data entry and increase processing speeds
  
• Paperless picking systems improve order accuracy and stock record accuracy
  
• Cyclic stock counting based on product activity improves inventory accuracy

Customer Service

Your company's customer service is the foundation of good supply chain management. The first step in the development of a supply chain is to identify the real service needs of the customer, from the customer's perspective, not the suppliers! This is a market research task and should be done as a formal market research project. Once the customer needs are identified and verified the supply chain planner can start to devise the systems and processes that will deliver the required services.

More thoughts

• Good customer service is regarded by the customer as a given
  
• Reports of bad customer service travel quickly over a wide area, usually being exaggerated as the story is told
  
• Customer expectations change over time, constant research and review is required
  
• Customer service can be a competitive weapon, provide a service not available elsewhere
  
• Not all customers are the same, different customer types have differing service needs
  
• Customised service is a major development in the early 2000s
  
• Customer service is everyone's responsibility, even people not directly in contact with customers
  
• Good customer service comes from a corporate culture which has to be led and demonstrated from the top of the organisation
  
• Service achievement should be a prerequisite for promotion and monetary reward

Contact us to find out how BFG Consulting Group can help to improve your business.