The pressures of the global economy make it critical for businesses to focus on value-added activities such as eliminating waste, being innovative, developing new products, and managing their supply chain. Logistics planning is an essential part of all of these activities.
Logistics planning basically means managing the movement and storage of goods, services and information from their point of origin to their final destination. Giving careful attention to your logistics activities can reduce your overall production costs and allow your company to react faster to changes in the marketplace.
What does it involve?
Planning your logistics efficiently involves organizing flows of material, inventory, information and money.
Material:
- Inbound logistics: This process involves handling the flow and storage of the raw materials that are transported to the business and needed for production
- Internal logistics: Through this process, a company handles the movement of raw materials and finished goods within the business. Internal logistics also includes shipping and receiving functions
- Outbound logistics: This term refers to the transportation of finished goods from the business. It includes packaging, handling and shipping functions
Inventory
This function involves moving raw materials, work in progress, and finished goods.
Information
This process involves circulating information among employees, managers, clients, suppliers and partners.
Money
This function includes managing business-to-supplier and customer-to-business cash flows.
Reverse logistics
Materials, inventory, information and money can also move in the opposite direction. These flows are handled through a process known as reverse logistics. Functions covered by reverse logistics include:
- handling customer returns to the company
- removing overstocked inventory or outdated merchandise
- recycling, refurbishing, redistributing or safely disposing of used materials.
The goal of reverse logistics is to maximize the value of goods that are no longer part of the business-to-consumer chain. Reverse logistics is becoming increasingly important as environmental regulations become more stringent, and as the benefits of projecting a green image increase. Some companies now specialize in providing reverse logistics services to businesses.
Agility through logistics planning
Whether you manage your logistics yourself, or you outsource part or all of the job to a third-party logistics provider, the goal is to improve your agility - the speed at which your business can respond to changes in consumers' desires and in the business environment.
Industry Canada offers a toolkit for logistics and supply-chain management. The kit outlines some of the main cost categories of logistics and supply-chain management, and it provides data to help users benchmark their logistics performance for their particular industry.
You can begin to make your business more agile by examining the different aspects of logistics planning, and seeing where you can implement changes. Then you can use the principles of operational efficiency to reduce waste wherever possible. You may wish to hire an external consultant to review your business processes from a fresh perspective.
Here are the main areas to look at when you review your logistics.
Transportation
Transportation links your business to suppliers and customers. It has a definite impact on your cost of doing business and on your ability to deliver efficiently. Remember that the more slowly supplies are delivered, the more inventory you have to keep on hand.
Reducing transport costs means taking into account many indirect and hidden costs, such as expenses related to clerical staff and customs.
Inventory
Strategically reducing inventory can save you money on warehousing costs. That can increase your cash flow and allow you to be more responsive to any change in client demand, because you don't have a surplus of supplies or finished goods.
Charting the movement of raw and finished goods within your company can help you decide where to make changes to your inventory.
- Purchasing: The quantities of supplies and parts you purchase affects the amount of warehousing space you need and your transportation costs. How far away are your strategic suppliers? Can you cut transportation costs by purchasing from closer suppliers? Compare the warehousing costs you incur to keep raw materials on hand with the money you would save by making larger, less frequent orders from suppliers or by using a slower transportation method. Would a change in this balance reduce your costs?
- Demand: Planning your purchase to reflect the buying patterns of your customers and vendors can help you maintain control over your inventory. Can you integrate your demand forecasts more closely through production planning?
If you are interested in reducing inventory, you may want to consider value-added production methods, which may reduce waste in raw materials by up to 50%; in work-in-progress by up to 80%; and in finished goods by up to 70%. BDC Consulting can help you implement any of the following tools.
- Just-in-time production: Supplies are ordered when needed and goods are produced when the customer requires them
- Operational efficiency: This process aims to reduce waste and can include a variety of approaches, including operations mapping, value-stream mapping (VSM), SMED (Single-Minute Exchange of Die) and Kanban, or Kaizen, etc.
- Six Sigma: This approach to improving processes aims to make business performance predictable and defect free. It is based on 2 strategies: improving existing business processes, and creating new product or process designs
Warehousing
Warehousing refers to the amount of building space you need to stock supplies and finished goods. The space you need depends on the inventory you carry; therefore, reducing inventory can result in real savings on a range of expenses, including costs related to:
- real estate, facilities and utilities
- personnel and administration
- security
- tracking and organizing of goods and materials
- handling and transportation
- disposal of outdated inventory
Inventory handling
Within the warehouse, how materials are handled can have a significant impact on costs. What is the distance between your warehousing and production areas? If your business and warehouse are far apart, or even at different sites, this will definitely affect your handling costs and production scheduling.
Review where goods are stored, and how far and how often you have to move them. Can you improve the procedures you use for receiving supplies, packing orders or finding the goods you need?
You may wish to consider an internal identification system, such as bar-coding technology or radio frequency identification, to reduce location and retrieval errors.
Packaging costs vary greatly depending on the type of transportation used. Air carriers require little packaging, but to ensure safe shipment by water or rail, you need to invest in a significant amount of packaging.
Information technology
Your information technology (IT) must be efficient to satisfy the speed requirements of today's global market. Increasing your use of IT can help keep logistics costs down and shorten production lead times. This is extremely important to remaining competitive, because slow technology requires you to increase your inventory to compensate for longer delivery times.
Research available software to see whether it could improve your efficiency. The following are the most popular forms of technology in this area.
- Supply Chain Planning Management systems help you plan and manage various aspects of your business related to logistics functions, including the following:
- warehouse management
- inventory management
- demand planning
- transportation management
- import/export management
- yard management
Enterprise Resources Planning software integrates data from various areas of your business. It is made up of different modules that interact to make your planning functions more efficient. Modules can cover manufacturing, supply chain, financials, customer relationship management, human resources, warehouse management and decision support.
Costs
Ultimately, logistics planning means evaluating where you can cut costs without affecting the efficiency of your business and customer service. One way to do so is to look at your cash-to-cash cycle. The goal is to reduce the amount of time between the point at the beginning of the cycle when you spent money on operating costs and raw materials, and the point at end when you receive money from clients.
