Magazine article Management Today

The Obstacle Race to Market

Magazine article Management Today

The Obstacle Race to Market

Article excerpt


Managers across the supply chain must be cajoled to trade autonomy for efficiency.

Perhaps appropriately, things are moving fast in the world of logistics, to the point even where logistics practitioners are in danger of biting off more than they can chew. For while no one doubts their talents when it comes to co-ordinating physical distribution, some of the latest trends in logistics call for skills more common in the diplomat than the warehouse manager. The task facing today's logistics professional is far less a question of brow-beating delivery drivers, far more a matter of cajoling competitors and suppliers into joining co-operative initiatives.

It's quite a change. For most of the last decade, logistics professionals have wrestled with a definition of their own identity and role. And, given licence to create the logistics function out of pieces carved from other departments, the empire builders have created an impressive edifice, stretching far beyond transport and distribution.

In a world where branding, marketing campaigns and product innovation offer increasingly slim competitive advantages, a slick logistics function certainly offers companies another means of competing; getting logistics right enables firms to take costs and working capital out of the supply chain while simultaneously upgrading their capability for generating customer satisfaction. Britain can rightfully pride itself on having taken a lead, for UK industry, especially in the automotive and retail chain sectors, has been particularly good at exploiting the potential of logistics. In contrast to the pipeline inventories of US retailers, which can exceed 100 days of supply, the best British retailers, notably Tesco and J Sainsbury, can boast pipeline inventories a third of this size.

As a result, the logistics function in Britain is no longer the poor relation it once was, although whether it is yet accorded the full importance that it deserves is debatable. Taking inbound and outbound logistics costs together, it is not difficult for these to total one third of a typical company's manufacturing costs; and whereas manufacturing costs are usually strictly monitored and managed, logistics costs enjoy a less rigorous scrutiny. One widely quoted example - of Unilever Foods Europe - illustrates the point nicely: until recently, the division used to spend [pounds]1 billion a year (or 9% of its turnover) on inbound and outbound logistics, yet allocated almost no one to monitoring or improving the process.

The concept of optimising the supply chain - with its concomitant refrain of optimising the big picture rather than just individual links - is the inspiration that has fuelled logistics professionals' ambitions. Step outside the boundaries of the individual organisation, runs the argument, and look at maximising the efficiency of the supply chain as a whole, something that might not happen if each business in the chain simply strove to run its own affairs at optimum efficiency. For, when each organisation regards itself as a stand-alone unit, demand uncertainty is buffered by inventory holdings in between each part of the chain, and decisions made in one part of the chain may impact adversely on costs - and efficiency - elsewhere.

Converts to this new way of operating first turned their thoughts to global sourcing - supply chain integration at a worldwide level - but most have since scaled back their ambitions as reality has struck. Supply chain integration at a pan-European level is already proving sufficiently taxing for most; though the theory is fine, it falls down in failing to recognise the desire of managers in different parts of the supply chain to run their own businesses and manage their own bottom line. Yet the logic behind the theory is impeccable: post-1992, it no longer makes sense for multi-nationals to view Europe as a collection of individual countries, each with their own manufacturing, selling, ware-housing and distribution functions. …

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