Monday, April 09, 2007

How to Remain Lean in Logistics

How to Remain Lean in Logistics

By T. D. Clark
In order to avoid the average 7.96 percent increase in logistics costs that the average process industry company has been hit with over the past two years, a new Aberdeen Group report suggests aping the ways of Best in Class companies.

The new Aberdeen Group report "Supply Chain Cost-Cutting Strategies: How Top Process Industry Performers Take Radically Different Actions” involved 74 process industry companies including those in the chemicals, pharmaceuticals, food and beverage, oil and gas, and pulp and paper sectors.

“Although three-quarters of all process industry companies are focusing on supply chain transformation, we found that Best in Class companies are strikingly ahead of their peers in achieving their transformation goals,” says Beth Enslow, Aberdeen SVP of Enterprise Research and author of the report. “They are four times more likely than their lower-performing peers to have established a centralized supply chain management organization and to have achieved data and process visibility across their supply chain, enabled by their higher adoption rate of technology.”

Other key highlights from the study:

• Best in Class companies have a 2.5x to 9x advantage in key performance improvements, including advancements over the past two years in the following:

o Forecast accuracy,
o Perfect order percentages and
o Manufacturing and logistics costs.

• Best in Class companies are twice as likely to have the following:

o Logistics costs as a percentage of sales of 6 percent or less,
o A perfect order percentage of 91 percent or better, and
o A product family-level forecast accuracy of 71 percent or better.

What does it mean to be “Best in Class” in logistics?

Well, if you’re the Defense Logistics Agency (DLA), it means forking over some $250 million to Accenture to provide business systems integration, systems engineering and application management services. Under a new contract, Accenture will work with DLA to deliver new capabilities that focus on providing more efficient, effective and reliable supply-chain support to the military services and America’s warfighters, according to the recent announcement. Accenture will continue to modernize DLA’s multiple logistics systems into a single, integrated end-to-end system, extending business functions based on leading practices and replacing legacy software systems with commercial-off-the-shelf (COTS) software.

While “a single, integrated end-to-end system” is a phrase that has more than likely worn out its welcome, it makes perfect sense when applied directly to logistics where deep visibility is critical. Maybe that’s why everyone was so excited about the potential of radio frequency identification (RFID). Heck, some of us are still excited by RFID’s possibilities and its role in logistics.

Take a recent Forbes piece entitled “RFID and the Search for Perfect Logistics”, for instance. Penned by AMR Research analyst John Fontanella, the first passage speaks volumes:

While working with a client to define specifications for a new warehouse management system, a member of the manufacturing team, new to the world of distribution, asked us a simple but thought-provoking question: "Why don't logistics processes perform at the same high-quality standards that my production lines do?"

Fontanella argues that a wide range of literacy skills, job aptitudes and experience in the workforce prevents the consistency needed to operate at very high levels of performance. “Manufacturing learned this lesson long ago, having spent the last 20 years automating its assembly lines and, in the process, stretching performance to what was before unimaginable levels,” according to Fontanella who claims that there is no reason why logistics should lag.

RFID, in combination with other technologies, can provide the quantum leaps needed in execution performance, says Fontanella. But for this to become a reality, the right combination of companies need to come together to form a scalable, replicable and cost-effective RFID/logistics strategy — something that still hasn’t happened yet.

If the right RFID solution existed, would your company consider investing in it to enable a leaner logistics operation?

Check back in with the blog tomorrow for the latest issue of the IMT newsletter, in which we further delve into how Lean can be applied throughout the entire supply chain.

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