Category Archives: Logistics

Three Great Tips for Optimizing the Distribution Network

A recent article in Logistics Management on Warehouse and DC Management: 6 Tips for Optimizing the Distribution Network provided a number of great tips for optimizing the distribution network and reducing logistics costs which are expected to quickly surpass the 2008 high (on the US Freight Index) as oil prices increase and availability of qualified truck drivers decrease. The following three tips are particularly pertinent.

  • Ask the Right Questions
    What are the perceived service level requirements? What impacts will changes in delivery lead-time have on revenues in a given market? What are the baseline operating expenses, inventory assets, and capital investments? How do these compare to alternative scenarios? Should the company home-source, near-source, or global-source? Remember, Supply Management must deliver value and balance costs and lead times against revenues and demand times in its redesign.
  • Use an Effective Network Modeling Tool
    Effectively modeling a network in home-grown spreadsheets and databases is impossible for an average enterprise with more than half a dozen locations and global sourcing requirements. Not only does an organization have to effectively model a network and proposed alternatives to identify the best network designs, but it needs to monitor what’s happening with the network, which is not possible if all the organization has is a simple spreadsheet or database tool.
  • Perform an Inventory Optimization Study
    While adding more Distribution Centers (DCs) may reduce transportation costs, it will also increase inventory costs, on average, as more inventory will generally be necessary to meet default stock levels. However, if not all distribution centers service locations with the same service level commitments, then inventory can often be varied to minimize carrying and holding costs. However, a careful analysis, supported by an appropriate toolset, will be required.

Logistics Improves on Both Sides of the Atlantic

West of the Atlantic, there are two big logistics bottlenecks. One is the US border with Canada (where documentary requirements make in-transit goods a cumbersome process). The other is the US border with Mexico, where there have been long standing conflicts over cross-border trucking. East of the Atlantic, you have EU security programs that are not compatible with US programs, and also make for bottlenecks.

In the last few weeks, progress has been made on two of the three big bottlenecks as the US reaches agreement with Mexico on cross-border trucking and agrees to mutual supply chain recognition with the EU (jocsailings.com).

As per the article in Logistics Management, on Wednesday, July 6, U.S. Transportation Secretary Ray LaHood and Mexico’s Secretaría de Comunicaciones y Transportes Dionisio Arturo Pèrez-Jàcome Friscione signed documents to resolve the long standing conflicts between the trucking industries of the two countries that resulted from the elimination of the pilot program for cross-border trucking in 2009 as part of the Omnibus Appropriations Act. (In response to the act, the Mexican government stated it would place tariffs on roughly 90 American agricultural and manufactured exports as payback. The tariffs amounted to $2.4 Billion of American goods.)

The agreement, focussed on a safety-first program, will lift these tariffs and provide opportunities to increase Mexico-bound US exports and create job opportunities. Furthermore, Mexico will provide recriprocal authority for US carriers to engage in cross-border long-haul operations in that country.

In addition, as per this article in JOC Sailings, the US and EU plan to implement mutual recognition of their supply chain security programs by the end of October. Specifically, mutual recognition between CBP’s C-TPAT and EU’s AEO program will occur, as per the joint statement between the European Commission and the US Department of Homeland Security. Once this is achieved, cargo will flow more smoothly between the US and the EU.

TMS Requires 100 Million, Does ERP Require 1 Billion?

A recent article over on Logistics Management that put[s] the spotlight on ERP had a great quote from Ben Pivar, Vice President and North American Supply Chain Lead for Capgemini regarding Transportation Management Systems (TMS) Pivar says that the economics of installing a TMS package on a client server, for example, doesn’t really work until you have nearly $100 million in freight spend and that’s why on-demand is so popular in that space.

SI has to agree. Unless a firm has tens of millions in freight spend, the costs of installation, maintenance, and usage tend to dwarf the benefits of using a TMS system. However, what’s even more important to note is that enterprise ERP (from a top vendor) is, on average, at least five, if not (usually) ten times, more expensive to install, integrate, maintain, and use than TMS. This would seem to indicate that the economics of traditional ERP don’t make sense unless your company has 1 Billion in spend, or at least 1 Billion in revenue. In other words, unless you’re a member of the Fortune 2000 or Global 3000, traditional end-to-end on-premise enterprise ERP is probably not for you. And it would appear that Oracle, one of the largest players, tends to agree. Why do you think it has advertisements stating it has 98% of the Fortune 500? It’s not just because the Fortune X, it’s target market, provide it with its biggest deals. It’s because Oracle also understands that unless a company has reached a critical mass, given the cost of the system, the company won’t get the advertised return (which is a key to keeping the company as a high-paying customer year after year).

However, every organization needs a good transaction store and data repository as analysis is key to supply management success. So what does this mean if you’re not one of the lucky ones? Don’t look at a a tradtional on-premise end-to-end ERP from a big boy. Look at either a newer, smaller, slimmed down offering from a smaller player, possibly based on an open-source solution (like Compiere), a suite from a provider that maintains its own transaction store, or a newer, slimmed down, SaaS offering from a traditional provider that can integrate with some BoB solutions in the cloud and offer an effective hybrid solution. Just don’t go for the billion-dollar solution, because your organization likely won’t get a return from the millions it will cost.