Organizational Sustentation 59: Warehouse Management

This warehouse frightens me … still
Has me tied up in knots …

Dave Matthews Band

And, as per our damnation post, if your warehouse doesn’t frighten you, obviously you haven’t taken a really good look at it. The warehouse is responsible for inventory, and inventory is very costly … even when it is well managed. Many studies of inventory (carrying) costs have estimated inventory costs to be 25% of the value of the average inventory level (or more). That’s huge!

But this is not the only reason the warehouse is a damnation. It is also a damnation because the warehouse controls:

  • product availability

    and can take their time unloading product, packing product, shipping product, etc.

  • the final quality check

    and if they get lax, and don’t independently test the spinach, your company could be blamed for the next salmonella outbreak that is actually the fault of your supplier

  • overhead costs

    inventory, operations, etc.

So what can you do? Let’s start with the obvious:

JiT (Just in Time) Inventory

The less excess inventory on hand, the less inventory carrying cost, the less inventory for the warehouse to lose or damage, and the less overhead cost to consider.

VMI (Vendor Managed Inventory)

Sometimes your vendor can manage inventory better than you can, and if their revenue is dependent on good management, they are very incented to manage it well.

But that’s just the start. You can also:

Get (a) Lean (assessment).

Identify the inefficiencies, and make sure something is done about them to keep efficiency up and overhead costs down. Make sure the organization is focused on lean transformation and continual process improvement.

Get external audits (on operations and inbound product).

Not only to keep the warehouse in check but to help them identify areas for improvement.

Get the Warehouse Training.

It’s not only Procurement that never has enough in the training budget, it’s the warehouse too. Management thinks that because it’s a manual job, it’s a low skill job and little training is required. Maybe, but considering that lean, six sigma, and kanban processes can greatly improve efficiency and minimize costs, it doesn’t hurt to make sure that the processes, and the labour implementing them, have all the knowledge they need to be as efficient and effective as possible.

One Hundred and Seventy Years Ago Today …

Marked the first publication of the Cambridge Chronicle, the oldest surviving American newspaper. This is a very long time for a publication to survive. A very long time. Especially when many publications in today’s internet age only last a few years. Even the Red Herring ceased print publication in 2007, less than fourteen years after it was founded. (There was a time when it was as popular, if not more so, than Wired, an internet age publication that actually survived the internet age, but which still is only 23 years old.)

Even the New York Times did not start until five years later (and celebrates it’s 165th birthday on September 18 of this year). This blog, while the second oldest surviving independent blog in the Supply Management space (at 10 years), is just a blip when compared to the Cambridge Chronicle. Let’s hope that digitization does not wipe these publications out because ad-sponsored journalism is not really journalism at all. (When even South Park knows the danger of ad-funded “journalism”, you know something is very, very wrong.)

Infrastructure Sustentation 12: Airlines

Airlines are sometimes the most unpredictable of the infrastructure damnations. Postal services failures can be overcome with private carriers. Road closures can be overcome with longer detours. Port closures can be overcome by routing to alternate ports and trucking for longer distances. But when airlines fail, especially when all airlines are unable to serve a region, what do you do. Send a zeppelin? (And when was the last time those great balls of fire just waiting for a spark were used?)

The reality is that airlines are subject to a host of threats that can shut them down at a moment’s notice including, but not limited to:

  • Environmental Hazards

    planes can’t fly through hurricanes, tornados, or tsunamis; they can’t fly when the air is filled with volcanic ash (that will choke up an engine); they can’t land on water or thin ice); etc.

  • Geopolitical

    embargoes, disputes, and wars can close down a zone for an extended period of time

  • Labour

    worker strikes can take an airline down for an extended length of time

And even if this doesn’t happen, there’s still the risk that:

  • AirFreight can skyrocket over night.

    It’s not only ocean freight that can increase 20% or 30% almost overnight, air freight can too (especially when fuel costs skyrocket)

So what can you do?

Minimize Dependence on Air Freight

Yes it’s nice to get things overnight, but with proper supply chain planning, do you really need things overnight? For the bulk of enterprise and consumer goods, the answer is no. And with ocean freight able to get things across the ocean in as little as 23 days, that should be fast enough for most needs.

Have a Backup Plan

Have a backup airline, a backup departure point, a backup arrival point, plans to rail/truck the cargo to backup departure and destination points, and worst-case ocean or land backup plans for at least part of the journey if airlines shut down in a region due to another volcanic eruption.

Get Your Own Cargo Jet (Fleet)

As long as planes can fly, you can have more control. This isn’t a solution for anyone who doesn’t do a lot of air freight, but if you do, just like building your own power plant may soon be a necessity, so may be controlling your own air fleet.

Economic Sustentation 04: Gen X, Gen Y, and Gen Z

Talent is supposed to be Procurement’s salvation, so why are:

  • Generation X, born between the early 1960s and the early 1980s,
  • Generation Y, born between the early 1980s and the early 2000s, and the
  • Generation Z, born between the early 2000s and the present day

an economic damnation? As was discussed in societal damnation 50 on talent, talent is required to keep your supply chains moving. People are required to enter the data to keep the information chain moving, to move the money to keep the financial chain moving, and to move the goods that keep the physical chain moving. And the majority of this talent is a workforce between the ages of 20 and 55, who will have been born between 1960 and 1995, and thus will primarily be composed of Generation X and the Generation Y Millennials, and, as Generation X begins to retire en-masse, Generation Z will begin to enter the workforce. So, not only is talent a damnation, its a damnation that comes in three different flavours.

Generation X

Generation X wants stability, fair pay, a great pension plan, flexible hours, time-off to help good causes, good healthcare, and career development.

It’s a tall order if you’re working for a multi-national organization with fixed benefit programs defined in the 1990s — focussed primarily on privately managed pensions, healthcare, and ten year old pay-scales. This is good for a small percentage of the workforce — but if they have kids or grand-kids, fixed 9 to 5 hours every day, no exception, doesn’t work. If the organization believes the best way to help the community is to just donate cash, and the workforce can’t volunteer their time as well, they’re out. And so on. And some of these requirements are at odds with:

Generation Y

Generation Y wants unique opportunities, work-life balance (and more vacation than the mandatory 2 weeks), social responsibility, and mentoring.

The organization probably has decent unique opportunities for those it feels can handle them, as well as some mentoring for people on the fast-track, but that’s it. Generation Y wants responsibility and trust, and wants the mentoring and education so that it will be worth of the responsibility and trust.

Generation Z

The beginnings of generation Z are just beginning high-school. And whereas Generation Y grew up in the information age, Generation Z is growing up in the communication age where not only is technology ubiquitous, but communication technology is ubiquitous and just about every Generation Z is growing up with a smartphone were they can call, text, and e-mail 24/7. And while we don’t know what they will want from a job perspective, we do know that they will want to be connected to their friends and colleagues 24/7 — just not necessarily for work purposes.

So how do you balance all of these competing requirements? You adapt. And you focus on commitment, not fixed hours. Results, not process. Team, not silos.

And then understand the costs of what your employees are asking for vs. the opportunity costs of not offering a few extra benefits to your employees. For example, how much does an extra week of vacation cost versus the results a top Procurement Pro can bring through additional organization cost savings. Does it really matter if the employee works 9 to 5, especially if they need to negotiate with a supplier half a world away at 11 pm. How much does better healthcare really cost? And what about an extra week to allow your employees to volunteer for good causes? The energy and pride could inspire them to work even harder and achieve even more lofty goals when they return to work.

The reality is, most of what talent will ask for costs very little relative to the value that talent can bring your organization. Especially when a top employee can push a hard 3% savings straight to the bottom line on 10M, 100M, or even 1B of spend. And if we didn’t have the situation where only 1 in 7 American adults were competent in math (as per societal damnation 45 on lack of math competency), the math would be obvious. Give in to every reasonable request, make them happy, and realize savings of 3X to 30X their total fully burdened cost.