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Logistics Network Transformation

Logistics is an integral part of supply chain management and yet at many companies it has been relegated to simply maintaining the status quo. However, this mindset has recently been challenged as resources are stretched to their limits and businesses have found themselves unable to react to global events like the Suez Canal blockage. 

Logistics Network Today

Even though every industry and company evaluate their supply chain differently, they all depend on the same basic foundation, which must be reexamined. This foundation is utilizing their resources to ensure the right products go to the right door at the right time. It is important to recognize that even though the standards and regulations vary between life science, consumer product, and retail, these industries are being forced to reassess their current state and reimagine their logistics operations.   

Over time, industries have learned from and adopted each other’s standards and best practices. Improvements in serialization, tracking and tracing, and packaging cost reductions are important examples. Those advancements can guide logistics management and encourage a holistic view that uses all available resources, even those in other industries, instead of just what is being used currently. This is crucial moving forward as the logistics market is set to grow by $77.3 billion between 2021-2025. This growth is mainly due to the e-commerce industry and increasing globalization, which means forward thinking industries that create logistics capacity will vault themselves past their peers.  

How to Improve Your Logistics Network? 

Enhance and Optimize Forecasts  

Enhancing logistics requires the development and implementation of a proactive approach to forecasting. Forecasting is essential for providing insight into current and future demand thus allowing for a more accurate prediction of total expected capacity. When looking at total capacity, forecasting should incorporate hindsight with facts and unbiased intervention as well as the company’s future goals. Multiple departments must be included, and their perspectives should be included to create a transparent and accurate picture of expectations and current and future needs. In the end, this builds trust between the business units, creates buy in, and improves confidence in the forecasting projections. 

Accurate forecasting is especially important when businesses grow into multiple locations, and it is crucial to ensure that each department is ready for the expansion as well. When forecasting, it is important to monitor and incorporate capacity restrictions relating to people, resources, and time to ensure practicality and accuracy. Also, during expansion, businesses should look to leverage their service provider network to assist with creating and improving efficiencies. During these discussions, service providers can provide insight and guidance to assist with routing, negotiating rates with economies of scale, consolidating shipments, and reducing shipment frequency. 

More accurate forecasting is also useful when optimizing loads, which is critical for cost savings because shipping method and load size drive costs. To assist with optimizing loads, businesses should prioritize fast moving SKUs over slower moving ones to gain optimal market share and minimize the number of less than full truck loads being sent. This is best explained through the 80/20 inventory rule, which suggests 80% of profits should come from 20% of products. This highlights the importance of focusing on fast moving products when shipping.  Additionally, logistics costs are rising as “last mile” shipping grows in importance and the popularity of e-commerce and customers’ delivery expectations evolve. In total, 40% of logistics costs are associated with the “last mile” and analysis into the best shipping method is key to optimizing gross margin.  

Build A Relationship 

Improving logistics will take time and require a reset of expectations as guardrails are set and initial improvements take hold. A vital aspect of this rebuild is the development of a reliable and honest relationship between your company and its service providers (e.g., 3PL). It is important to build and maintain a strong relationship with service providers to create a collaborative environment which can help prevent unknowns from impacting logistics (e.g., shipping dates, capacity limits, etc.). Creating a transparent dialogue between the service provider and business influences many aspects of the business. By sharing realistic assumptions from both viewpoints around inputs, capacity, and future goals it is easier to assess the current situation and grow together for future expansion. Throughout the relationship cadence meetings should be conducted to ensure expectations are being met and address issues that have arisen and resolutions for addressing the issues from reoccurring in the future. Also, performance reviews are a successful way to communicate how successful the relationship is going and areas of improvement.   

What Next?

Logistics are considered a cost driver within organizations, so it is critical to prioritize enhancing your company’s current logistics strategy. Even though it is important to assess the capacity and capabilities within and outside your industry, to create an ideal strategy for your company, it is important to customize your plan to fit your company’s needs.   

When beginning your logistics network transformation, first look at your company from end-to-end and build an entire logistics picture. By starting there, you can see your company’s strengths and weaknesses regarding logistics, which also shows where resources can make the greatest impact. Revitalization of a generally overlooked piece of supply chain management takes commitment, resources, and time. When will you begin your logistics transformation?  

Contributions by Linda Plumley, Madeline Smith, Elizabeth McGuire, Robin Dolan 

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Tags: Logistics Consulting