Category Archives: Logistics

Digging into Logistics Sustainability

In our article on Solving the Sustainability of the Supply Chain is Systematically Strenuous and Surprisingly Serpentine, we noted that while there are easy two-word answers for reconfiguring the global supply chain for greater supply chain assurance and more sustainability at the 30,000 foot level, when you dig into the details, it’s not so easy as you have dozens of facets to get right to truly optimize sustainability across:

  • Support
  • Sales
  • Logistics
  • Procurement
  • Manufacturing
  • Materials

Logistics sustainability is much more involved than just “green transportation” and using “zero emission“*1 electric vehicles, because there’s a lot more to logistics than the plane, train, boat, or truck. There’s also the:

  • Packaging – is the packaging reusable, reclaimable, recyclable, or compostable; minimal?
  • Warehousing – are the warehouse operations sustainable?
  • Routing – is the routing designed to minimize unnecessary distance, handling, and environmental impact?

Let’s dive into each of these:

Packaging involves ensuring that the following are sustainable:

  • Materials as the only trace of us millions of years in the future — after the “right to be stupid” crowd manages to vote in the greedy, power-hungry, self-nominated populist con-artist candidate in enough first world countries*2 — will likely be microplastics*3 and plastic molecules which, even after millions of years, will never fully dissolve (and which are already so omnipresent that microplastics are even in all of our bodies now)
  • Manufacturing as the packaging needs to be manufactured just like the product
  • Logistics as the packaging has to be shipped to the product manufacturer
  • Packaging as the packaging needs to be packaged to be shipped to the product manufacturer

Warehousing involves ensuring that the following are sustainable:

  • Heating & Cooling since most warehouses are built super cheap (thin metal structures) and, thus, require ridiculous amount of carbon-based energy production*4 to heat or cool
  • Operations since warehouses use forklifts and robotic automation — which are not necessarily green, energy efficient, and/or well designed
  • Workforce since there needs to be a sufficient workforce and there needs to be training in place to make sure they workforce is suitably skilled for the job

Routing involves ensuring that the following are sustainable:

  • Transportation Modes as most international shipments are multi-modal (and involve at least two different means of transportation, and usually three)
  • Cross-Docking as shipments will need to be unloaded from ships and trains at ports and yards and loaded onto trucks and unloaded from big trucks onto smaller trucks at local depots
  • Leg-Routings as ships can’t disrupt whale schools, dolphin pods, or fish colonies (which might also be needed for food); planes shouldn’t fly low through wildlife/bird reserves; trains shouldn’t pollute the forests they run through; etc.

In other words, there’s a lot more to logistics sustainability than green transportation, which isn’t exactly green to begin with!

*“Green” vehicles aren’t anywhere close to zero emission when you consider all of the emissions created in the production of those electric vehicles and those battery packs! For example, as quoted on the MIT Climate Portal, building the 82 kWh lithium-ion battery found in a Tesla Model 3 creates between 2.5 and 16 metric tons of CO2 (exactly how much depends greatly on what energy source is used to do the heating). This intensive battery manufacturing means that building a new EV can produce around 80% more emissions than building a comparable gas-powered car. And then you have to consider all of the emissions produced by your energy provider to produce the electricity that recharges your battery pack every few hundred kilometers (or 0.6214 miles for you Americans). If your local power plant is still burning dirty coal, then you could be responsible for the creation of 950 grams of CO2 per kWH. So if you’re driving a new AWD Performance Tesla, you’re producing 77.9 kg of CO2 for every 567 km you drive. In comparison, if you’re driving a Toyota Yaris that gives you an average of 36 mpg, or 58 kpg, you’re burning 9.78 gallons and producing roughly 86.9 kg of CO2 for the same 567 km. In other words, you’re only about 10% more green on a per-tank basis driving that Tesla 3 if your local power provider burns dirty coal!

In other words, “green” transportation isn’t necessarily green if you don’t consider the energy product or the up-front production. If the battery production emits 16,000 kgs of CO2, all other vehicle production related emissions are equal, and you are using electricity produced from dirty coal to charge the battery, you don’t see the first drop of CO2 savings until you drive almost 1,780 tanks or 1,000,000 kms! And then you only see a 10% if, and only if, as stated above, the production of the remainder of the vehicle has about the same CO2 production as an average vehicle for its size.  (Which means, at the end of those warrantied 192,000 kms, that green Tesla won’t even be Carbon Neutral!  It won’t even be one fifth of the way!)

*2 greedy, power-hungry con-artists who will repeal all environmental laws, take away all our basic human rights, and even start wars that could not only end all wars but end us (assuming the AI they are using to replace us doesn’t end us first)

*3 after the last last satellite has plummeted back to earth (and burned up), the last skyscraper has crumbled, and the last pyramid has turned to dust, traces of certain microplastic molecules that do not occur naturally in nature will still be found in the soils and at the bottom of the ocean where there are no lifeforms to break them down

*4 even renewable energy such as solar, wind, and hydro has a carbon footprint as the panels need to be manufactured, the turbines need to be manufactured, and the dams need to be built and all that involves carbon production with today’s technology

Stepwise Logistics Management is Problem Plagued (LMI Part 3)

In our last article, we noted that Logistics Management, in addition to being costly and risky, is not an easy ordeal. You have a lot of steps to execute in an ordered fashion, which today typically requires at least five different loosely integrated (mostly standalone) modules in a big enterprise Operations Planning solution or, more typically, a number of standalone solutions which only support, at most, endpoint data integration where the outputs of one phase can be fed into another.

While this works, there are a number of issues with using separate systems for each step, including, but not limited to:

  • Inefficiency: entering and leaving multiple systems is timely, especially if 3 or 4 steps in you realize you made a mistake and have to go back to the beginning
  • Opaqueness: you only have visibility into the output of the previous step at any time; e.g. when a carrier asks if you can use a different truck size or pallet size, and you have no details on why you calculated a certain pallet and truck size as optimal, you have no idea and have to go back to the packaging system and do the calculations all over again;
  • Cost Bloat: due to limited visibility into data and models of other systems, each step has to introduce a safety margin, leading to ever increasing safety margins; e.g. the order adds a few extra units; the packaging adds a few extra boxes of units to create some give in the packing calculations; the quote adds an extra pallet or two to make sure enough space is quoted; the contract keeps this extra space; and so on … especially since there are usually different team members, each an expert in the different systems, doing each step
  • Hidden Risks: neither of these systems are good at identifying and tracking risks, and if not propagated to the TMS or a separate risk management system, they will stay buried until they materialize (with no mitigations ready to address them)
  • No Closed Loop Feedback: tracking, learning from, and adjusting future plans and predictions vs. actuals is the only way to improve transportation planning / logistics management

Not to mention the major issues present in most of the current piece-meal solutions being used.

  • Order Management solutions tend to be dependent on the MRP and very limited in terms of how far out they can accurately plan, then defaulting to (often) decades old forecasting models; they also can’t provide any insight into the packaging requirements
  • Package Management solutions depend on accurate inputs from the order management solution and the ERP/MRP, and can only compute packaging sizes, packages per standard pallet, and standard pallets per standard containers; no real issues here, but because they don’t connect to freight (quote) management systems, the users don’t often know the best package options to choose and the best configurations to consider
  • Quote Management solutions collect the quotes, allow comparisons, and allow some to be marked as contract (for a timeframe); no real issues here either, except the fact that because they aren’t a TMS, a buyer can’t understand the full cost associated with selecting a carrier or a lane for a particular shipment, and may make suboptimal decisions
  • Transportation Management Systems plan the transportation needs a few months out (at most; most traditional systems are very limited in how far ahead they can plan due to architecture, calculation requirements, constantly changing requirements as demand shifts and issues arise, and the need to regularly start the entire planning chain over again), create the orders, distribute them, collect the shipment notifications and estimated delivery dates, and maybe track updates; not bad, but not enough anymore
  • Financial Planning Systems are usually either modules of larger operational cash-flow planning solutions and limited in transportation specific cost planning, or sub-modules of TMS, and limited in overall financial planning and cost analysis capability

In other words, the logistics solutions created in the age of logistics (when logistics was also more predictable when natural disasters were few and far between, global pandemics were more theory than reality, global political stability was greater, and so on), while great at the time, are no longer sufficient for optimal supply chain management in the modern world.

What we need is a Total Logistics Management Solution.

A Brief Introduction to the Components of Logistics Management (LMI Part 2)

In our last article we noted that Logistics Management is something that many procurement professionals overlook because most larger organizations have a separate logistics department, but it’s something that they shouldn’t because they won’t understand the true cost, the true delivery times, or the true risk of their sourcing decisions, which may, because of this, turn out to be more costly, more risky, and considerably less efficient than they expect.

In addition to being costly and risky, Logistics Management is not an easy ordeal. In order to manage logistics effectively, you need to:

  1. determine what you need and when you need it
  2. determine how to package it and how much room the packaging takes, and this requires the organization to calculate
    1. how many packages you can get on a pallet
    2. how many pallets you can get in a truck / container / rail car
    3. how many trucks / containers / rail cars you need
  3. determine the viable lanes for shipping from the suppliers to your warehouses and get quotes
  4. select the providers and plan the transport
  5. accurately cost the orders, shipments, and tariffs to make sure you have enough cash on hand to meet your obligations when your invoices come due

This typically requires five different systems, and/or modules. Namely a(n):

OM/FS: Order Management/Forecasting System
This integrates with your MRP system, looks at the production plan, looks at the inventory level, and determines the order quantities needed by week for the next X weeks based on how far out the production plan goes (which, in most systems, typically isn’t that far out, maybe a few months) and then uses the forecasting capabilities to project out a few months ahead of the average transportation time. It will also allow a user to override plans and projections, override default suppliers and carriers if there are options, and calculate any ramifications. And any related functions the organization needs around order management and forecasting. (We’re not going to go deep on any particular capability in this article.)

PMS: Package Management System
Logistics management is not as simple as calculating an order and contracting a carrier. You have to know how much space you will need for the shipment, which will dictate how many trucks, rail cars, or containers. That will depend on how many packaged units you can fit in the space, and that’s often more than a simple volume calculation, as you have to fit parts to boxes, boxes to pallets, and pallets to containers/cars. This requires more sophisticated volume and weight calculations than one would expect, which are not easy to do in a spreadsheet. Plus, if you have multiple options, you have to figure out which is best to minimize your shipping requirements.

FQMS: Freight Quote Management System
Once you know what you need, where it’s coming from, where it’s going to, how it’s going to be packaged, what kind of transport you need, and how many units (trucks, rail cars, containers, etc.), you need to find, and contract, a carrier. But the first step is to get inclusive quotes (costs per mile, fuel surcharges, handling charges, etc.) from carriers, compare and analyze them, contract one or more carriers, and then mark their quotes as contract rates, and others as quotes, but not guarantees.

TMS: Transportation Management System
Once you’ve determined your shipping needs, selected a carrier, and contracted a quote, you need to manage the transportation. You need to provide all the appropriate information to the carrier, get the pickup dates and expected delivery dates, receive and track updates, manage any issues that arise or reroutings that need to be done, identify any delays that will cause production or customer delivery risks and determine resolutions, and so on.

FPS: Financial Planning System (Cash Flow Planning)
Finally, you need to track all of the current and projected costs, and changes, so that you can manage your cash-flow and have the necessary cash when the invoices come in.

In other words, Logistics Planning and Management is currently quite an involved process that requires quite a few modules and process steps to do (reasonably) well.

A Brief Introduction to the Importance of Logistics Management (LMI Part 1)

Logistics Management is something that many procurement professionals overlook because most larger organizations have a separate logistics department. Logistics should not be separated from the whole of supply chain operations management because not only can you not compute a total cost of acquisition (which is the minimum calculation you should do during sourcing) without a solid understanding of the true logistics cost, but underperforming logistics teams costs an organization much more than Procurement thinks (and way more than the Logistic Division’s estimate of getting a product from point A to point B).

Logistics represents a significant part of Cost of Goods Sold (COGS). It’s more than just the transportation costs quoted by the carriers in each multi-modal leg in the journey. (Truck to the outbound port, ocean freight to the inbound port, rail to the regional distribution center, truck to your warehouse.) For an average shipment, costs also include:

  • (special) packaging (sur)charges
  • fuel surcharges
  • surcharges
  • loading/unloading/cross-docking fees
  • interim storage/inventory fees
  • insurance
  • loss (damage or theft)
  • tariffs (dictated by route)
  • losses from unplanned delays
    (loss of sales due to stock-outs; losses from production downtime due to missing parts)
  • inventory fees due to overstock

And all of these costs are variable depending on:

  • the route
    determines legs, length of legs, costs for the leg, tariffs, etc.
  • the carrier
    determines rates, surcharges, risk/OTD expectation, etc.
  • the transportation timings
    determines intermediate inventory needs, risk of delay, risk of loss, etc.

And that’s just the cost considerations. You also have to consider delivery times, inaccurate estimates, improper performance measurements and lack of end-to-end visibility here can lead to:

  • part shortages
    which can cause production line slowdowns/shutdowns
  • stockouts
    which can lead to lost sales
  • inventory build-up
    if too many shipments come in too fast, and this drives up costs and can cause space constraints for other orders
  • unexpected cost increases
    if you have to expedite

And then there’s the risk factors. Depending on the route, and the carrier, you could have increased risk of:

  • natural disaster
  • geopolitical disruption
  • port slowdown or shutdown
  • provider bankruptcy
  • cost increase due to currency exchange fluctuations, new regulations coming into effect, etc.

In other words, you should not overlook the implications of logistics cost to serve and service levels when sourcing. You don’t necessarily have to lock in the contracts, but if you already have contracts locked in, only have a few options, or need to use certain routes or carriers to keep costs down, you will need to ensure that the suppliers, and locations, you select are congruent with any options you may be restricted to. And if you are unrestricted, then you should know the assumptions you are making when sourcing, capture them, and pass them on to the logistics team at order/fulfillment time to make sure that the logistics team is planning and contracting appropriately.

2030 is too late for Center-Led Procurement!

Especially since 2020 was too late! And organizations should have been there by then since center-led procurement was being discussed as the next generation model in the mid-2000s and, more importantly, as the futurists were predicting that the future of work, and companies, was remote and distributed last decade, every company should be “center-led” by now.

(Note that we mean “center-led” and not “centralized” where one central office handles all major procurement projects globally. We mean center-led where a centralized function determines the best procurement path for each category — which could be centralized, distributed, multi-level, or mixed — and provides guidance to all of the global teams and makes sure they build the right procurement — and supply chain — models up front.)

In fact, by now, all organizations should be working off of a virtual center-led model where the “center” is the Procurement A-Team, where the members could literally be spread out over the 6 continents to “locally” absorb the situations in each geography before making decisions and to always have someone available to answer questions on not just a follow-the-sun but follow-the-local-business hours model.

And while virtual / remote / distributed work still seems to be an entirely new thing that most companies didn’t think of before the pandemic and that most companies are trying to eliminate entirely now that the pandemic has been declared over (even though the next pandemic is just around the corner and, yet again, no one is prepared for it), those of us in IT and Supply Chain have been doing it for two decades (and the doctor has been primarily been working remote for the past 19 years — the tech has been there, and has worked, for two decades … and now that high speed is in just about every urban area globally, there’s no reason a hybrid/virtual model cannot work and work well).

The reality is that the pandemic not only brought global supply chains crashing down but brought to light the high risk embedded in them a few of us saw a decade ago, which went beyond the obvious risks of “all your eggs in one basket” (even though Don Quixote was published in 1605) and “The Bermuda Triangle“*1, but also included the risks of relatively centralized procurement where one team in one part of the globe made the all-our-eggs-in-the-China-basket and managed the relationship with one team at one factory in another part of the globe; so if either team got completely locked down with little remote/virtual support (and we saw some countries limit people to 1KM from their homes and China lock down entire cities and not even let people leave their apartments), the entire chain was shut down even beyond the worst case that some of us were envisioning a decade ago (and made our definitions of bad — which was factory goes out of business, shipping lane closes, or ship sinks — look good by comparison because, at least then, you could still go to work and travel to find a new factory, organize a new lane, or spin up the factory 24/7 until you remade the order).

However, with virtual center-led, you not only have a team that knows how to work distributed and remote, and who knows how to use that setup to better mitigate operational risks, but who also has a risk-mitigation mindset that any supply base should also be distributed and different locations remote from each other (two factories in the same town is not risk-mitigation; an earthquake destroys the roads, the entire town gets quarantined, or political borders shut and its effectively one cut-off source of supply) and will help the different parts of the organization design more risk-adverse, or at least risk-aware, supply chains — tapping into local expertise in each part of the world to make the best decision and allowing the organization to move management of the chain around as needed and local teams (because you’re not sourcing your Canadian snow-plow and igloo building services from India, for example) to always have remote access to guidance and best practices in snow-removal services RFP construction (and know how from Norway and Japan).

In other words, center-led procurement (of which you can find a lot of guidance on in the archives here and over on Spend Matters, especially since, now retired, Peter Smith of Spend Matters UK was a guru on this as well as sustainability) of the virtual kind is what you need to be doing now if you want to last until 2030.

 

*1 which, while statistically no more dangerous than any other part of the oceans, exemplifies the fact that even the biggest ships, with an entire year of your inventory on board, can sink, especially when oceanographers have finally realized [even though mathematicians working with wave models understood this concept decades ago] that rogue waves are not a once a in decade occurrence, but a DAILY occurrence on this planet, it’s just that the ocean is so big that the fraction ever covered by ships is so microscopic that the chances of any ship encountering a rogue wave are infinitesimal on a ship-by-ship basis)