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Describes an approach to warehousing designed to maximize the use of manpower, facilities, and equipment, and looks at new techniques developed by fifty companies around the world
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Roy L. Harmon, coauthor of Reinventing the Factory (The Free Press, 1990) and author of Reinventing the Factory II (The Free Press, 1992), founded Andersen Consulting's factory productivity practice and provides advice to its clients throughout the world.Excerpt. © Reprinted by permission. All rights reserved.:
Goldmine of Opportunities
Visionary executives have the power to rationalize costs and lead times in their logistics networks radically. In fact, pursuit of gargantuan improvements in the production pipeline has become a way of life for all major producers. Reduction goals of 90 percent of pipeline inventories and lead times are now relatively common, especially among the most dynamic industry leaders. Nor must customer service, product value, or quality of life be sacrificed on the altar of productivity. In fact, quite the contrary is true! Magnificent strides in adopting the best productivity methods has proved that magnificent strides can be made simultaneously in productivity improvement and in customer and employee benefits, and vice-versa. Goal-setting is a vital milestone on the trip into the twenty-first-century logistics world. Executive management, determined to excel and willing to support every action required to turn goals into self-fulfilling prophecies, must initially set new goals far above those of the past. Recent laudable achievements fall in the range of the following improvement percentages.
* 50% customer service lead time
* 50% space occupied by warehouse and distribution facilities
* 25% personnel costs
* 50% inventory investment in the logistics and production pipelines
* 25% logistics transaction (receipts and issues, for example) processing costs
* 75% better inventory record accuracy
* 75% fewer damaged and defective goods
Unfortunately, hampered by seemingly insurmountable barriers such as demand seasonality, inaccurate forecasts, and vendors convinced that they must have long lead times, progress in overall distribution improvement has been less dynamic than in the production operation logistics network. Dogmatic acceptance of the conditions that dictate modes of operation only perpetuates inefficient operations, the costs of which are passed on to the consumer.
Lest North Americans unduly chastise themselves for not having previously seen such mammoth opportunities, they should remember that their distribution and retail operations are still the best in the world, far surpassing those of the Japanese and Europeans, for example, in terms of distribution costs added to consumer prices. Nor should countries lagging behind North America be discouraged that their starting point is behind that of the American model. Their improvement potential is for that reason all the greater.
The keys to success in logistics management are no different from those already found in the production arena. It is vital to understand that no single magic bullets (quality programs or employee empowerment, for example) can transform a logistics network from merely state-of-the-art system to truly superior status. Hard work and attention to myriad details cannot be avoided. In fact, the siren song of employee involvement has led some executives and managers to believe that everyone else in the company will do everything necessary. Nothing could be farther from reality. Mike Budd, President of the Northridge Manufacturing Group of Harman International Industries, Inc., has said that he appreciates the need for employee empowerment but also believes it necessary to find a perfect balance between the consensus of small groups and dictatorial management. The author concurs. It is folly for management to abdicate its responsibility for knowing what is most important for the company and leading its march into the future. No army advance should be permitted to become an uncontrolled, undirected, fragmented, multidirectional movement. This, however, would be the consequence of empowering each platoon to decide its own direction! The result would be chaotic. No less is true of a company's assault on progress barriers.
In lieu of magic bullets, there is a finite list of the components of a superior logistics network. The first milestone on the journey to superior status is the successful formulation of a vision of future logistics. The vision will guide preparation of route maps for the sundry activities necessary to achieve it. That there is a crying need for improvement is not in doubt, for, as Duncan wrote, "To a great extent, the very fate of humanity depends on people's ability to effectively manage resources, time and energy -- all of which seems in too short supply."
EXECUTIVE SUMMARY: KICKING SACRED COWS
Reader beware! The author delights in kicking everyone's sacred cows. In many cases, the cow-kicking shock treatment is tongue-in-cheek, intended to shock the executive-timber mover-shakers into challenging the dogma of the near and distant past by opening splendid new vistas of opportunity to their fertile minds. The author has no corner on vision or imagination. Most executives will be able to cast apocalyptic predictions of future logistics that are far superior to those of the author. However, to do so requires a mindset in which sacred cows are not permitted to be barriers to progress.
Often the author purposely ignores some logistics environments that occur in less than 100 percent of the various types of logistics businesses. It is easy to do so, in light of the extreme number of products moving through the distribution and production channels. He does not attempt to qualify every strong position with a face-saving statement that the concept might not apply in such-and-such a situation. The purpose here is to avoid the somewhat wishy-washy approach of saying that there are no absolutes, that every single element of distribution operations and systems is subject to a variety of approaches, or that there is always an extremely complex network of circumstances which, considered jointly, determines the "optimum" solution. It is no accident that the author's absolute suggestions are often based on a simplistic view of the world of distribution logistics. Contrary to some authorities on simple and complex problems and environments,3 the author, like Batten, views anything held to be complex to be simply a large collection of simple elements. The daily challenge at which all superior executives are (and must be) adept is reducing complex issues to their simple components, thus making simple solutions practical.
In many other cases the author strongly believes in seemingly impossible new scenarios that will be completely unrealistic in the eyes of many. Perhaps many have strong, valid reasons for their opposing beliefs, based on unique aspects of their own unique business environments, which the author may not have experienced. The author has great respect for the wisdom of his readers. Based on their own environments, most will be able to apply their own judgments as to which sacred cows are valid and which are not. Others of lesser flexibility might be inclined to toss out the baby with the bath water, rejecting any notion of deviation from existing dogma, and therefore ignoring the entire book's body of work. It is to be hoped that the tide of change will eventually lead those inflexible few to believe in the malleability of our environments. For only through the kind of major metamorphosis that transforms and eliminates environmental restrictions can epic breakthroughs be expected. Thus, the reality of the future vision depends on the executive's commitment to it and his willingness to do his own cow-kicking. True executives (leaders and cow-kickers) are easy to distinguish from managers. As Gardner writes, "Leaders and leader/ managers distinguish themselves from the general run of managers-They think longer term -- beyond the day's crisis, beyond the quarterly report, beyond the horizon.
Vision is the precursor of business strategy. Attaining the far-reaching limits of opportunity requires that the vision embody ful-fillment of seemingly impossible dreams.
A LOGISTICS VISION
Every business needs a farsighted vision of its operations, facilities, equipment, and products extending decades and even centuries into the future. As Kotter says: "With no vision and strategy to provide constraints around the planning process or to guide it, every eventuality deserves a plan. Under these circumstances, contingency planning can go on forever -- without ever providing a clear sense of direction that firms so desperately need today." No company is exempt from the myopia that tends to cast its future vision in terms of the present and past environment and only recent trends. Still, all businesses operate with myriad inefficiencies based on roadblocks that their markets and suppliers, and their own organizations and facilities, place in the way of traffic on the super-highway to superior operations, services, and products. Forming a logistics vision requires a unique frame of mind. Executives must hypothesize numerous seemingly impossible scenarios to be able to begin to see their ideal business emerge from the mists that past experience has placed between them and the utopian situation that will eventually predominate. Here is a sampling of just a few of these impossible scenarios:
1. Suppliers will cut their response time drastically and will deliver perfect quality, precisely on schedule.
2. Customers at all levels of the logistics network will routinely share reasonably accurate short- and intermediate-term projections of their needs (schedule) with their suppliers via electronic data interchange. They will update the information as quickly as changes become necessary. This will radically reduce wild and unexpected demand swings.
3. Seasonal peaks and those within a week or month will be radically reduced since to do so is in the economic interest of everyone in the production, distribution, and consumer supply and demand chain.
4. Rote business practices and government-imposed reporting requirements that drown businesses in a veritable ocean of costly paperwork and systems can and will be replaced by practical, low-cost, fail-safe methods for achieving the same ends.
One factor, more than any other, will radically change the logistics mission for the better. This factor is the blossoming of production facility clusters in the center of regional market areas. The present outmoded logistics model primarily transports materials, components, and finished products from their production sources to market. Since the sources are often hundreds of miles from their markets, the model demands significant expenditures in transport and logistics facilities. State-of-the-art producers already know that better modes of transportation and warehousing are only temporary patches on a defective industrial infrastructure. They have seen persistent notions of economies of scale lead many companies to build giant single-location production facilities, remote from many suppliers and from large segments of regional, national, and international markets. The best suppliers, however, have seen that the break-even point for production facilities can be far less than dreamed. Therefore, building small, focused production facilities in the midst of market concentrations, thus reducing transportation and warehousing facilities between producers and their markets, is entirely practical. My colleague Leroy Peterson reminded me, at this juncture, to mention again the absurdity of multiplant producers' far-flung networks of production facilities.8 Many such companies' networks permit materials and components to crisscross continents and oceans, putting thousands of transport miles into final products' costs even before the cost of transportation to market is incurred. Slashing these exorbitant logistics costs in the supply network is every bit as important as in distribution.
Although the exact same economies apply, few producers have expanded their production supply visions and strategies to encompass the scenario of suppliers (vendors and each supplier's own factory network) who also build new facilities in the vicinity of their regional factories. As these visionary dreams increasingly become reality, vast numbers of trucks will disappear from the highways, and ships in the world's sea lanes will be reduced to those carrying primary raw materials, fuels, and agricultural products, for there is no enduring, economically justifiable rationale for any country or regional groups of countries to import manufactured goods. The author has seen that identical small, focused factories can produce with equal productivity in any two countries of the world. The primary difference in their costs is not man-hours worked, but the cost of those hours. Therefore, as fast as living standards of all countries are raised to equivalent levels, people of newly developed nations will be able to afford the products they produce, and the need to export to richer countries will plunge.
New, world class distribution logistics will require management to adopt stringent new twenty-first-century ideals as the basis of their visionary targets for systems, transportation, and warehousing operations. The logistic network ideals to which every company should aspire include the following:
1. Real-time electronic transmission to suppliers of retail customer (or original equipment manufacturer) consumption as it occurs. The purpose of the transmission is to trigger lightning-fast replenishment of the inventory consumed. In ideal circumstances, the supplier will immediately pick the replenishment from stock and load it on a truck for same-day delivery.
2. Electronic transmission of projected customer demand as far into the future as the customer is able to provide. The inventory consumption transmission can only trigger replenishment picking and delivery if an earlier forecast transmission caused the supply network to make the item consumed available at the end of the pipeline of factories and warehouses. The demand-forecast transmission does not trigger immediate delivery. It controls the valves that meter the flow of material and goods through the pipeline. In other words, it must release production at the start of the pipeline, timed to meet actual consumption at the end of the pipeline.
3. In combination, the consumption and demand-forecast transmissions are also used to schedule and control transport from the pipeline head, a basic material producing plant, through all subsequent production stages in both vendor and company factories, through distribution facilities, and into the customer's inventory.
4. The utilization of truck fleets (and their drivers) in every stage of the pipeline will be optimized to the extent practical within the constraints of the end customer's projected demand. Thus, tractors and trailers will be virtually in perpetual motion. Delays while awaiting loading and unloading will be slashed to the bare minimum. Not only will outbound trucks be loaded to maximum practical weight and cubic volume limits, but they will also return as fully loaded as practical. Consequently, the depreciation component of transportation cost and return on capital invested in tractors and trailers will be at near optimum levels.
5. The logistics network calendar of operations will be geared to maximum utilization of the facility and equipment investment, thus minimizing capital requirements. Operation of faci...
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