The key to successfully managing logistics comes from a well thought out strategy on how companies will reach the consumer base. Logistics & Inventory Management is a very critical supporting function on how these activities will be executed. Recent studies show that nearly 50% of businesses surveyed continue to see logistics as a nonstrategic business function, while the other 50% are investing in developing logistics as a competitive advantage.
Companies today are faced with considerably more design complexity in their supply chain, thus logistics and inventory management best practices have evolved into a leading differentiator that sets them apart from competition. High consumer demand and increasing service level standards are forcing many companies to re-evaluate their core competencies and refocus their resources on servicing the end consumer at a higher degree. This means having the right amount of inventory in the right place at the right time to continuously fulfill your customer’s demand; which puts a tremendous amount of pressure on the logistics network to carry out these tasks each day.
To make the logistics and inventory management functions more agile while maintaining stability, companies often struggle with a common challenge: Where do we start, how do we know we are making the right decisions, and how will we know it worked?
What is Logistics & Inventory Management?
The dictionary defines logistics as the detailed coordination of a complex operation involving many people, facilities, or supplies. Although this definition is true, logistics has taken on a new meaning in today’s digital world. Logistics can alternatively be explained as the detailed coordination of information, physical, and financial flows to and from trading partners and consumers. Each contains their own set of supporting activities and personnel to carry out those activities, but one cannot function without the other.
Inventory management is certainly a function of logistics but the influencers impacting inventory extend beyond the logistics network. Inventory requires a capital investment to build and stock finished goods. However, inventory is essential as the time a consumer is willing to wait for a product may be much less than the time it takes to manufacture the product and then ship the product to the customer need location. Inventory management considers a number of complex variables including; risk, lead time, cost, location, transport, and service levels.
1) System Thinking: Where do we start?
Many companies have made a product, and sold it once or in low volume, but the real challenge is repeating that cycle, and to do this successfully systems and processes must be established. Through multidisciplinary activities across multiple functions such as manufacturing, sourcing, and logistics companies must continue to innovate and invest in process improvement and technology to keep up with the speed of which information and product is expected to move in the increasingly fast-paced global economy. Look to establish your systems manually before bringing on software to do so, this will help define your software needs.
A high demand for streamlined information flows to communicate faster and more efficiently with upstream and downstream partners in the supply chain has birthed a digital era where companies are integrating information systems with supply partners across the globe. Demand volatility and forecast error play a significant role in balancing the inventory levels of a product category, which is why companies look to implement an executive sales & operations planning (S&OP) program to align key stakeholders and to identify drivers and constraints that have an overall effect on supply chain decisions.
2) Supply Chain Partnering: How will we know we are making the right decisions?
Companies who openly embrace change and innovation understand that doing everything themselves is not always the best use of their time or resources to achieve their goals. Look to develop partnerships with solution providers, IT service providers, and suppliers to create a world class and agile supply chain. Partnering with other companies who specialize in their field will likely add more value, expedite results, offer lower costs, support innovation, and add to the bottom line.
All companies have a core competency, look to identify what that core competency is and this will offer guidance as to what type of partnerships would be most beneficial, ultimately leading to the right decision. Keep in mind that the partnerships should enhance the company’s ability to focus and grow their core competency to win additional business or gain a competitive edge over competition.
3) Business Process Improvements: How will we know it worked?
Managing the complexity of today’s information, physical and financial flows take on a whole new meaning for business processes. Companies continuously struggle to effectively synchronize end-to-end business processes, due to the lack of visibility and understanding in what information is needed when and where. Information systems such as ERP systems are often said to solve all problems, however the information is only as good as the operators managing it.
Value stream map the key business processes that need to be improved and look for gaps or inefficiencies in the process or data. Understand where human interaction comes into the process, to ensure an operator is not the bottleneck or potential gap. Operators need to take days off so ensure one person is not the only person that can perform a particular task. These actions will help eliminate waste and nonvalue added activities that you might not have known were being done. As a result, value stream mapping your processes will help make sound decisions when it comes to what changes need to be made and eliminated. Measure the changes to validate that the new process is more efficient than the old one. Also keep in mind solution 1 & 2 as they can support improving your business and processes.
Although there are additional solutions to consider, these three solutions put an emphasis on early indicators companies should be monitoring and continuously improving on to strengthen logistics and inventory management activities. Be sure to outline desired results and ensure measurable targets are set to drive the right decisions across the organization. We hope the above solutions provide you with actionable steps you can take towards improving logistics and inventory management with your organization.