Rage against the Supply Chain Environment

On one of our projects, we hit a problem.

The project brief was to identify transport cost savings and to provide an outline roadmap for our client to achieve these savings in a timely manner.

In the Full Truck Load (FTL) area, we were able to demonstrate that migrating to a dedicated fleet would reduce operating costs by about 24%, with an inbuilt capacity surplus of about 25% – i.e., the flexibility to handle most seasonal and unanticipated demand peaks without extra vehicles.

We hadn’t been over ambitious in scheduling fleet operations. Conservative travel speeds and load/unload times were used, and we ‘baked in’ extra human resources to ensure that drivers would not be expected to spend excessive time behind the wheel.

We were surprised, therefore, when the client’s diligent logistics manager rejected our model as over ambitious and unrealistic.

We listened, and as we had plenty of savings, we were happy to tweak our models to make them even more conservative. (This doesn’t mean that our savings target was changed, merely that the numbers put into next year’s budget would be a little less aggressive.)

However, it never seemed to be enough for the logistics manager, who kept asking for more ‘buffer’ to be built in. If we had put all his constraints into the model, we would only be looking at 3% savings – so not even worth the effort of making the change.

We then realized the problem… and that it was something that we had seen before.

The logistics manager only knew today’s environment – and could not comprehend anything changing. He could not envisage a situation in which we could:

Dictate the exact trailer design we wanted.
Mandate that a truck turns up at the DC on time and that its load would always be waiting – ready to go.
Convince distributors to unload and ‘give back’ our trucks within a time-window.
Achieve end-to end operating disciplines by getting all stakeholders to buy-in to a win-win scenario.

In a nutshell, his experience had taught him to ‘expect the worst’. Where we saw a cost reduction opportunity, he just saw a heightened risk of failure. A lot of logistics managers see the world this way. Their lot has been to:

Work in a high-stress environment where change is perceived as near impossible.
Be the ‘end-of-line’ scapegoat for any up-stream department that has not met its targets.

As an aside…

We notice that because of the socio-economic environment in most South-East Asian countries, very few Logistics Managers (at decision making level) have come up from the shopfloor.

The problem is that the logistics function is one in which the best learning is experiential. Those who have been ‘parachuted’ in from other functions inevitably lack the required depth. Faced with a steep learning curve, they will often rely on suppliers to tell them ‘How things work’. The result is that ‘myths’ become perceived wisdom that persists for years. A few examples:

“High cube containers cannot operate in East Malaysia.”
“Regulations forbid the use of a single prime mover with multiple trailers.”
“It isn’t safe to use racking more than 8m high.”
“Distributors don’t mind holding high levels of inventory as they can ‘buy low and sell high.”
“We can’t trust our customers, so our drivers have to wait while they open every box and check every item “

Now, drop these Logistics Managers into a high-stress, time-critical environment where even their superiors have rarely had exposure to good logistics practices, and you have a recipe for ‘more of the same’.

Our logistics manager eventually came around, but it took us a lot of extra effort (and cost… time is money for us consultants!).

So, what’s our message?

It’s that because of the embedded inertia and short-term thinking within parts of the logistics sector, too few people within organizations’ logistics function are equipped and capable to look beyond what exists today.

As a result, there is enormous untapped potential for cost reduction, service level uplift and deeper market penetration.

In three recent projects we were easily able to demonstrate that:

A fashion retailer could double their deliveries to replenish every store every day – and still reduce transport costs by 10%
An FMCG manufacturer could reduce DC operating costs by 38% while becoming more agile and lifting pandemic protection.
An automotive manufacturer could increase factory warehouse capacity 2.3 times, closing 3 external facilities, thus simplifying the entire operation.

Such transformational impact shouldn’t really be achievable…but they frequently are.

It’s an uphill struggle, but well worthwhile. Three pointers to achieve this sort of big win:

Rage against lazy, convention wisdom on how your supply chain environment cannot be changed.
Worry about the details (and repercussions) of what you are trying to achieve – so you cover all bases and don’t get caught out.
Enroll your bosses, your peers and your staff. You will need all the help you can get.

Good luck!