Finding, evaluating and engaging suppliers of goods and services is central to Myriad Trading’s business model. Most often we see at first hand examples of sourcing and procurement casualties. To the extent that we work with clients to remedy supply anomalies allows additional opportunities to look beyond the process of value restoration and review client sourcing and procurement practices.
Reviews are conducted under strict confidentiality guidelines and where domestic and Global sourcing best practice, cost and supply quality is reviewed against client Key Performance Indicators.
Global sourcing is most effective when centralised procurement strategy obtains economies of scale through corporation wide standardisation and benchmarking.
Global sourcing and procurement has advantages and disadvantages and Myriad reviews report both sides optioning exposures and opportunities of extant and alternative practices.
On one level – Consolidation of supply orders across enterprise elements and to the extent available, industry elements – affords economies of scale via longer production runs and related efficiencies.
Separately, where multiple sku’s and or suppliers are involved; across multiple orders, consolidation of logistics elements obtains optimal cost and cycle time efficiency. In some cases industry consolidation or similar non-competing and complimentary categories of goods may be optioned to obtain increased efficiencies.
Source to Settlement measurement and improvement represent useful business opportunities for focusing process efficiency. Benchmarking of best practice process elements and comparison with proprietary practices often reveals competitive profiles displaying both opportunities and liabilities. Asset utilisation and related functionality are also accessed through cycle time analysis.
Stock turns measurement is arguably the most commonly used cycle count activity. Equally, stock turns aggregated across all sku’s and all locations may provide false readings of acceptable performance. Analysis of stock turns by SKU by location provides a more accurate profile of inventory performance and otherwise identifies and or confirms procurement, supply and deployment practices.
Logistics efficiency and effectiveness is material to the successful execution of sourcing/procurement strategy. Best practice benchmarking of logistics cost and performance is central to the achievement of optimal operational effectiveness and efficiency.
Logistics Operations Reference Models are structured to use benchmarks of cost and performance for comparison with predetermined Key Performance Indicators as ongoing measurements of supply chain efficiency.
Business models that demonstrate efficient, effective logistics performance invariably provide better returns and or competitive advantage than those that rely solely on product innovation or marketing strategy for commercial success.
Location and Site Selection
Globalisation of Supply has seen significant change in traditional approaches to inventory management and consequently the role and location of warehousing in the task of servicing customer requirements.
Australian business models are significantly influenced by the geographic spread of domestic markets and subject to sourcing, reasonably long lead times. In turn these and other factors, including response time to customer orders – affect decisions about the location and size of warehousing.
Whilst deciding on the general policy of warehouse location(s) a further decision as to specific site location of a State or Regional warehouse is required. Subject to volumes, nature of goods and any specific handling requirements; warehouse site selection will take into consideration:
Proximity to freight hubs (Sea/Rail/Road), metropolitan and regional customer locations, rent/buy options (usually policy driven), current and future demand projections, zoning constraints, government incentives and more.
Inherent in the planning of any capital works are the decisions relating to the use for which the asset or capital works is being undertaken. Importantly and particularly in the case of warehousing, consultation that includes all of the legal, commercial and environmental imperatives should also include architectural, engineering and material handling systems integrator inputs.
Basic warehouse design will cover storage capacity and types, access and exits, security, heat light and power, communications, materials handling and amenities. More advanced facilities will involve greater sophistication of the basic elements advancing conceptually from warehouse to Distribution Centre.
Myriad benchmarks extant capacities for;
Receipts: FCL container unpacks, cross dock, put away, system updates and out turn reporting.
Storage: Racked by type, other, retrieval and replenishment and consolidation
Order processing: fulfilment, replenishment, consolidation, system updates, palletisation, despatch and
Together with overall resource utilisation and capacity at peak periods.
Separately; process element performance is reviewed for; receipts flows, damage, discrepancies: storage optimisation: Order processing: cycle time, stock outs, backorders, picking errors, substitution errors, responsiveness, customer interface (internal and external customers) and returns management.
A lease is a long term agreement to rent equipment, land, buildings, or any other asset. In return for most-but not all-of the benefits of ownership, the user (lessee) makes periodic payments to the owner of the asset (lessor). The lease payment covers the original cost of the equipment or other asset and provides the lessor a profit.
There are three major kinds of leases: the financial lease, the operating lease, and the sale and leaseback.
Financial leases are most common by far. A financial lease is usually written for a term not to exceed the economic life of the equipment.
Operating lease, or “maintenance lease,” can usually be cancelled under conditions spelled out in the lease agreement. Maintenance of the asset is usually the responsibility of the owner (lessor). Computer equipment is often leased under this kind of lease.
Sale and leaseback is similar to the financial lease. The owner of an asset sells it to another party and simultaneously leases it back to use it for a specified term. This arrangement lets you free the money tied up in an asset for use elsewhere. You’ll find that buildings are often leased this way.
Advantages of Leasing Equipment
The obvious advantage to leasing is acquiring the use of an asset without making a large initial cash outlay. Compared to a loan arrangement to purchase the same equipment, a lease usually
- requires no down payment, while a loan often requires a down payment (circa 25%);
- Requires no restriction on a company’s financial operations, while loans often do;
- Spreads payments over a longer period (which means they’ll be lower) than loans permit; and
- Provides protections against the risk of equipment obsolescence, since the lessee can get rid of the equipment at the end of the lease.
There may also tax benefits in leasing. Lease payments are deductible as operating expenses if the arrangement is a true lease. Ownership, however, usually has greater tax advantages through depreciation. Naturally, income and resulting tax liability eligibility is required to take advantage of those two benefits.
Leasing has the further advantage that the leasing firm has acquired considerable knowledge about the kinds of equipment it leases. Thus, it can provide expert technical advice based on experience with the leased equipment.
Finally, there is one further advantage of leasing; in the event of bankruptcy, claims of the lessor to the assets of a firm are more restricted than those of general creditors.
Disadvantages of Leasing
Leasing usually costs more because certain tax advantages that go with ownership of an asset do not apply. Leasing may not, however, cost more if advantage can not be taken of those benefits because of insufficient or ineligible tax liability.
Obviously, economic value of the asset is lost at the end of the lease term, because the asset is not owned. Lessees have been known to grossly underestimate the salvage value of an asset. If they had known this value from the outset, they might have decided to buy instead of lease.
Further, a lease is a long-term legal obligation. Usually lease agreement cannot be cancelled. So, if an operation that used leased equipment, were to end payment in most circumstances, would be unchanged had the equipment be used for the full term of the lease.
Cost Analysis of Lease v. Loan/Purchase
Costs of the lease versus purchase can be analysed through discounted cash flow analysis. This analysis compares the cost of each alternative by considering: the timing of the payments, tax benefits, and the interest rate on a loan, the lease rate, and other financial arrangements.
To make the analysis certain assumptions must be made about the economic life of the asset, salvage value, and depreciation.
A straight cash purchase using a firm’s existing funds will almost always be more expensive than the lease or loan/buy options because of the loss of use of the funds. Besides, most small firms don’t have the large amounts of cash needed for major capital asset acquisitions in the first place.
To evaluate a lease first find the net cash outlay (not cash flow) in each year of the lease term.
Find these amounts by subtracting the tax savings from the lease payment. This calculation gives the net cash outlay for each year of the leases.
Each year’s net cash outlay must next be discounted to take into account the time value of money. This discounting gives the present value of each of the amounts.
The present value of an amount of money is the sum to invest today at a stated rate of interest to have that amount of money at a specified future date. Fortunately there are tables which provide the discount factors for present value calculations.
Evaluation of the borrow/buy option is a little more complicated because of the tax benefits that go with ownership, loan interest deductions, and depreciation.
As noted earlier, the salvage value is one of the advantages of ownership. It must be considered in making the comparison. Naturally, it is possible that salvage costs for real asset could be very high or be next to nothing. Salvage value assumptions need to be made carefully.
Third-party logistics providers (3PL) service customers with outsourced (or “third party”) logistics services for part, or all of their supply chain management functions. Third party logistics providers typically specialize in integrated operation, warehousing and transportation services that can be scaled and customized to customers’ needs based on market conditions and the demands and delivery service requirements for their products and materials. Often, these services go beyond logistics and included value-added services related to the production or procurement of goods, i.e., services that integrate parts of the supply chain. Then the provider is called third-party supply chain management provider (3PSCM) or supply chain management service provider (SCMSP). Third Party Logistics System is a process which targets a particular activity in the management such as materials supply, storage, transport etc..
Types of 3PL providers
Third-party logistics providers include freight forwarders, courier companies, as well as other companies integrating & offering subcontracted logistics and transportation services:
- Conventional 3PL Provider: this is the most basic form of a 3PL provider. They perform activities such as, pick and pack, warehousing and distribution.
- Enhanced 3PL: this type of 3PL provider will offer their customers advanced value-added services such as: tracking and tracing, cross-docking, specific packaging, or providing a unique security system. A solid IT foundation and a focus on economies of scale and scope will enable this type of 3PL provider to perform these types of tasks.
- Contract 3PL: this type of 3PL provider comes in at the request of the customer and essentially takes over complete control of the company’s logistics activities. The 3PL provider improves the logistics dramatically, but does not develop a new service. The customer base for this type of 3PL provider is typically quite small.
- Integrated 3PL: this is the highest level that a 3PL provider can attain with respect to its processes and activities. This occurs when the 3PL provider integrates itself with the customer and takes over their entire logistics function. These providers will have few customers, but will perform extensive and detailed tasks for them.
Organizations optioning outsourcing part or all of their supply chain operations through 3PL providers will use Service Level Agreements (SLA’s) to facilitate agreement between the parties. Regular service reviews will be a feature of initial 3PL implementation.
3PL providers usually take a core service competence, such as freight forwarding, Courier, Contract Warehousing etc. and aspire to servicing additional customer supply chain operations with varying degrees of success.
Successful 3PL operators understand their core competencies and the relative significance of them in customer service profiles. Most importantly #PL providers bring skills and experience that address:
- Process efficiency
- System (organization level) efficiency and
- Technology efficiency
Co – ordination of Supply Chain operations
Advancements in technology and the associated increases in supply chain visibility and inter-company communications have given rise to a relatively new model for third-party logistics operations – the “non-asset based logistics provider.” Non-asset based providers perform functions such as consultation on packaging and transportation, freight quoting, financial settlement, auditing, tracking, customer service and issue resolution. However, they do not employ any truck drivers or warehouse personnel, and they don’t own any physical freight distribution assets of their own – no trucks, no storage trailers, no pallets, and no warehousing. A non-assets based provider consists of a team of domain experts with accumulated freight industry expertise and information technology assets. They fill a role similar to freight agents or brokers, but maintain a significantly greater degree of “hands on” involvement in the transportation of products.
Direct shipping (Drop shipping) is a supply chain management technique in which the vendors do not keep goods in stock, but instead transfers customer orders and shipment details to either the manufacturer or a wholesaler, who then ships the goods directly to the customer.
Direct shipping can benefits a small retailer who typically sells in small quantities to the general public, receives a single large order for a product. Rather than route the shipment through the retail store, the retailer may arrange for the goods to be shipped directly to the customer. Direct shipping is also very common with big ticket items like steel buildings where the retailer will take a deposit and have the building shipped direct to the buyer’s building site from the supplier’s manufacturing facility.
Many sellers on online auction sites, such as eBay, also direct ship. Often, a seller will list an item as new and ship the item directly from the retailer or wholesaler to the highest bidder. The seller profits from the difference between the winning bid and the wholesale price, minus any selling and merchant fees from the auction site.
International Direct Ship
International Direct ship services have increased in recent years though enabling technologies such as e-procurement and the growing role that the internet plays in commerce.
Asia-based suppliers have increasingly been able to compete with same-country distributors due to improving logistics for small packets and easing of trade barriers.
Two significant benefits of direct shipping are the elimination of upfront inventory and a positive cash-flow cycle. A positive cash flow cycle occurs because the seller is paid when the purchase is made. The seller usually pays the wholesaler using a credit card or credit terms. Therefore, there is a period of time in which the seller has the customer’s money, but has not yet paid the wholesaler.
Direct shipping also eliminates some duplication of effort, since only one warehouse will pick, pack and ship the product. This approach can reduce total inventory management and shipping costs. These cost reductions can subsequently reduce the price to the consumer.
Over time and with changing market conditions considerable choice is afforded to organisations servicing diverse markets. In Australia legacy distribution models have survived changed State and Commonwealth laws and regulations, narrow, broad and standard gauge railway systems that pre-empted decentralised distribution methods.
Exports, imports and domestically produced goods were virtually obliged to be processed within the state or territory of origin or arrival. Following substantial deregulation after World War II and the enterprise of road hauliers, movement of commerce between states increased and with the momentum of buoyant economic conditions, options in relation to where goods were stored and distributed, increased.
To the present and with most barriers to interstate and for that matter international commerce removed together with labour force mobility and significant enabling technology – choices relating to distribution strategies hinge around service levels and competitive advantage.
Organisations where resources permit, model cost and efficiency ahead of other considerations – in determining distribution strategy. Retailers in recent years have changed from more centralised models to Regional deployment of their Distribution Centres and as time passes and with transport efficiencies (Mass Management etc.) and burgeoning real estate cost – larger quasi – centralised model are appearing.
For other enterprises centralised and decentralised models have varying appeal. The increasing trend to initiatives like just in time and auto replenishment of basic product lines, has seen a trend towards smaller more frequent orders and as a consequence a proliferation of disintermediation of supply chain elements. Resulting in greater centralisation of distribution resources.
Wholesaling is defined as the sale of goods or merchandise to retailers; to industrial, commercial, institutional, or other professional business users; or to other wholesalers and related subordinated services. In general, it is the sale of goods to anyone other than a standard consumer.
According to the United Nations Statistics Division, “wholesale” is the resale (sale without transformation) of new and used goods to retailers, industrial, commercial, institutional or professional users, or other wholesalers, or involves acting as an agent or broker in buying merchandise for, or selling merchandise.
Wholesalers frequently physically assemble sort and grade goods in large lots, break bulk, repack and redistribute in smaller lots. While wholesalers of most products usually operate from independent premises, wholesale marketing for foodstuffs can take place at specific wholesale markets where all traders are congregated.
Traditionally, wholesalers were closer to the markets they supplied than the source from which they got the products.
However, with the advent of the internet and e-procurement there are an increasing number of wholesalers located nearer manufacturing bases in China, Taiwan, and Southeast Asia. Where enabling technologies and efficient effective supply chains use initiatives like Direct Shipping of customer orders that compete effectively with local sourced suppliers.
In the banking industry “wholesale” usually refers to wholesale banking, providing tailored services to large customers, in contrast with retail banking, providing standardized services to large numbers of smaller customers.
Retailers conventionally sell to the end-user. Retailers are part of an integrated system called the supply chain. A retailer purchases goods or products in large quantities from manufacturers directly or through a wholesaler, and then sells smaller quantities to the consumer for a profit. Retailing can be done in either fixed locations like stores or markets, door-to-door or by delivery. Retailing includes subordinated services, such as delivery. The term “retailer” is also applied where a service provider services the needs of a large number of individuals, such as a public.
Retail outlet (shops) traditionally lined residential streets, and relatively recently aggregated in shopping centres malls and arcades. Retail shopping generally refers to the act of buying products. Sometimes this is done to obtain necessities such as food and clothing; sometimes it is done as a recreational activity. Recreational shopping often involves window shopping (just looking, not buying) and browsing and does not always result in a purchase. Retail shopping centres of larger proportions include a wide range of retail categories including food, clothing, home wares, entertainment, banking etc. together with ‘free’ parking to encourage people traffic.
Supplies to retail businesses figure significantly (>80%) of non-industrial freight transactions involve retail business. Strip shopping centres generally are seen as less efficient delivery points although many large and often regional shopping centres are regarded as having less than optimum receipting and despatch facilities at peak and seasonal times.
Online shopping or online retailing is a form of electronic commerce which allows consumers to directly buy goods or services from a seller over the Internet using a web browser. Alternative names are: e-shop, e-store, Internet shop, web-shop, web-store, online store, and virtual store. An online shop evokes the physical analogy of buying products or services at a bricks-and-mortar retailer or shopping center; the process is called business-to-consumer (B2C) online shopping.
In the case where a business buys from another business, the process is called business-to-business (B2B) online shopping. The largest of these online retailing corporations are eBay and Amazon.com, both based in the United States.
Consumers find a product of interest by visiting the website of the retailer directly or by searching among alternative vendors using a shopping search engine.
Prepayment of transactions using secure payment technology together with fast door to door delivery of customer orders has seen internet retail commerce explode in terms of order numbers, frequency and service reliability. Bricks and mortar retailers who initially resisted this avenue of retailing – invariably as a measure of self-protection – are increasingly enthusiastic adopters of internet commerce.
Consumers often buy a product only to learn after using it that they would prefer not to keep their purchase. Although the product may be in perfect working condition, some consumers may realize, after purchase, that it does not match with their preferences well enough to justify keeping it. For example, it is estimated that as much as 19% of all electronics purchases are returned to the store even though there is no defect (Lawton 2008). Catalogue retailers have return rates as high as 35%. This has a substantive impact on profitability because the returned units do not have the same value as when they were sold as new. In fact, it is estimated that the U.S. electronics industry spent $13.8 billion to repackage, restock, and resell returned products (Lawton 2008). Across all industries it is estimated that the annual value of returned goods in the United States is $60 billion with an additional $40 billion spent on managing returns in reverse logistics processes (Enright 2003). Thus, there is an obvious value in developing strategies to manage these consumer returns properly.
There was a time when customers rarely returned a product purchase unless it didn’t work. All suppliers had to do was tighten quality control and they reduced returns. Today, however, the returns are made for more subjective reasons and supported by consumer friendly legislation and stores policies, adding cost to the entire supply chain for manufacturers, distributors, and retailers. Many manufacturers report a significant impact on corporate bottom lines.
Developing a comprehensive and cost effective approach to handling returns is a daunting challenge that reaches well beyond the operational level. A well-conceived and implemented returns management plan can be a vital strategic asset. It is no longer just a necessary burden factored into the cost of quality (COQ), but can be a source of competitive differentiation, customer-retention and improved profits.
Successful business models are centred on creating value (from innovation, technology etc.) through first pass commercial transactions. Subsequent processes including Rework, Recalls and Returns are mostly conventionally structured for regulatory compliance and ‘the cost of doing business’.
Goods return at all levels of the value chain represent cost and service issues for manufacturers, wholesalers, distributors and retailers. The most impact is in the channels between retailers and suppliers to retailers.
Myriad addresses the issues through its focus on asset value restoration and capturing value. Building sustainable competitive advantage through better solutions sees returns management solutions developed from the ground up and client specific:
- Agreed restoration of value
- Centralised Acquisition strategy
- Technology enhanced logistics
- Rework, Remarket, Disposal
- Activity reporting
Procurement is the acquisition of goods, services or works from an external source. It is favorable that the goods, services or works are appropriate and that they are procured at the best possible cost to meet the needs of the purchaser in terms of quality and quantity, time, and location. Corporations and public bodies often define processes intended to promote fair and open competition for their business while minimizing exposure to fraud and collusion.
Almost all purchasing decisions include factors such as delivery and handling, marginal benefit, and price fluctuations. Procurement generally involves making buying decisions under conditions of scarcity. If good data is available, it is good practice to make use of economic analysis methods such as cost-benefit analysis or cost-utility analysis.
An important distinction made between analyses without risk and those with risk. Where risk is involved, either in the costs or the benefits, the concept of expected value may be employed.
Based on the consumption purposes of the acquired goods and services, procurement activities are often split into two distinct categories. The first category being direct, production-related procurement and the second being indirect, non-production-related procurement.
Direct procurement occurs in manufacturing settings only. It encompasses all items that are part of finished products, such as raw material, components and parts. Direct procurement, which is the focus in supply chain management, directly affects the production process of manufacturing firms. In contrast, Indirect procurement activities concern “operating resources” that a company purchases to enable its operations. It comprises a wide variety of goods and services, from standardized low value items like office supplies and machine lubricants to complex and costly products and services; like heavy equipment and consulting services.
Logistics is the management of the flow of resources between the point of origin and the point of destination in order to meet some requirements, for example, of customers or corporations. The resources managed in logistics can include physical items, such as food, materials, equipment, liquids, and staff, as well as abstract items, such as time, information, particles, and energy. The logistics of physical items usually involves the integration of information flow, material handling, production, packaging, inventory, transportation, warehousing, and often security. The complexity of logistics can be modeled, analyzed, visualized, and optimized by dedicated simulation software. The minimization of the use of resources is a common motivation.
In military science, maintaining one’s supply lines while disrupting those of the enemy is a crucial—some would say the most crucial—element of military strategy, since an armed force without resources and transportation is defenseless. The defeat of the British in the American War of Independence and the defeat of the Axis in the African theatre of World War II are attributed to logistical failures. The historical leaders Hannibal Barca, Alexander the Great, and the Duke of Wellington are considered to have been logistical geniuses.
Militaries have a significant need for logistics solutions and so have developed advanced implementations. Integrated Logistics Support (ILS) is a discipline used in military industries to ensure an easily supportable system with a robust customer service (logistic) concept at the lowest cost and in line with (often high) reliability, availability, maintainability, and other requirements, as defined for the project.
In military logistics, logistics officers manage how and when to move resources to the places they are needed.
Supply chain management in military logistics often deals with a number of variables in predicting cost, deterioration, consumption, and future demand. The United States Armed Forces’ categorical supply classification was developed in such a way that categories of supply with similar consumption variables are grouped together for planning purposes. For instance, peacetime consumption of ammunition and fuel will be considerably lower than wartime consumption of these items, whereas other classes of supply such as subsistence and clothing have a relatively consistent consumption rate regardless of war or peace.
Some classes of supply have a linear demand relationship: as more troops are added, more supply items are needed; or as more equipment is used, more fuel and ammunition are consumed. Other classes of supply must consider a third variable besides usage and quantity: time. As equipment ages, more and more repair parts are needed over time, even when usage and quantity stays consistent. By recording and analyzing these trends over time and applying them to future scenarios, the US Armed Forces can accurately supply troops with the items necessary at the precise moment they are needed. History has shown that good logistical planning creates a lean and efficient fighting force. The lack thereof can lead to a clunky, slow, and ill-equipped force with too much or too little supply.
One definition of business logistics speaks of “having the right item in the right quantity at the right time at the right place for the right price in the right condition to the right customer”. As the science of process, business logistics incorporates all industry sectors. Logistics work aims to manage the fruition of project life cycles, supply chains, and resultant efficiencies.
Logistics as a business concept evolved in the 1950s due to the increasing complexity of supplying businesses with materials and shipping out products in an increasingly globalized supply chain, leading to a call for experts called “supply chain logisticians”.
In business, logistics may have either an internal focus (inbound logistics) or an external focus (outbound logistics), covering the flow and storage of materials from point of origin to point of consumption (see supply-chain management). The main functions of a qualified logistician include inventory management, purchasing, transportation, warehousing, consultation, and the organizing and planning of these activities. Logisticians combine a professional knowledge of each of these functions to coordinate resources in an organization.
There are two fundamentally different forms of logistics: one optimizes a steady flow of material through a network of transport links and storage nodes, while the other coordinates a sequence of resources to carry out some project.
The term production logistics describes logistic processes within an industry. Production logistics aims to ensure that each machine and workstation receives the right product in the right quantity and quality at the right time. The concern is not the transportation itself, but to streamline and control the flow through value-adding processes and to eliminate non–value-adding processes. Production logistics can operate in existing as well as new plants. Manufacturing in an existing plant is a constantly changing process. Machines are exchanged and new ones added, which gives the opportunity to improve the production logistics system accordingly. Production logistics provides the means to achieve customer response and capital efficiency.
Production logistics becomes more important with decreasing batch sizes. In many industries (e.g., mobile phones), the short-term goal is a batch size of one, allowing even a single customer’s demand to be fulfilled efficiently. Track and tracing, which is an essential part of production logistics due to product safety and reliability issues, is also gaining importance, especially in the automotive and medical industries.
Logistics is that part of the supply chain that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customer and legal requirements. A professional working in the field of logistics management is called a logistician.
- Materials management
- Channel management
- Distribution (or physical distribution)
- Supply-chain management
- Warehouse management systems and warehouse control systems
Although there is some overlap in functionality, warehouse management systems (WMS) can differ significantly from warehouse control systems (WCS). Simply put, a WMS plans a weekly activity forecast based on such factors as statistics and trends, whereas a WCS acts like a floor supervisor, working in real time to get the job done by the most effective means. For instance, a WMS can tell the system that it is going to need five of stock-keeping unit (SKU) A and five of SKU B hours in advance, but by the time it acts, other considerations may have come into play or there could be a logjam on a conveyor. A WCS can prevent that problem by working in real time and adapting to the situation by making a last-minute decision based on current activity and operational status. Working synergistically, WMS and WCS can resolve these issues and maximize efficiency for companies that rely on the effective operation of their warehouse or distribution center.
Logistics automation is the application of computer software and/or automated machinery to improve the efficiency of logistics operations. Typically this refers to operations within a warehouse or distribution center, with broader tasks undertaken by supply chain management systems and enterprise resource planning systems.
Logistics outsourcing involves a relationship between a company and an LSP (logistic service provider), which, compared with basic logistics services, has more customized offerings, encompasses a broad number of service activities, is characterized by a long-term orientation, and thus has a strategic nature.
3PL – Third-party logistics
Third-party logistics (3PL) involves using external organizations to execute logistics activities that have traditionally been performed within an organization itself. According to this definition, third-party logistics includes any form of outsourcing of logistics activities previously performed in house. For example, if a company with its own warehousing facilities decides to employ external transportation, this would be an example of third-party logistics. Logistics is an emerging business area in many countries.
4PL – Fourth-party logistics
The concept of a fourth-party logistics (4PL) provider was first defined by Andersen Consulting (now Accenture) as an integrator that assembles the resources, capabilities, and technology of its own organization and other organizations to design, build, and run comprehensive supply chain solutions. Whereas a third-party logistics (3PL) service provider targets a single function, a 4PL targets management of the entire process. Some have described a 4PL as a general contractor that manages other 3PLs, truckers, forwarders, custom house agents, and others, essentially taking responsibility of a complete process for the customer.
Benchmarking is the process of comparing one’s business processes and performance metrics to industry bests or best practices from other industries. Dimensions typically measured are quality, time and cost. In the process of best practice benchmarking, management identifies the best firms in their industry, or in another industry where similar processes exist, and compares the results and processes of those studied (the “targets”) to one’s own results and processes. In this way, they learn how well the targets perform and, more importantly, the business processes that explain why these firms are successful.
Benchmarking is used to measure performance using a specific indicator (cost per unit of measure, productivity per unit of measure, cycle time of x per unit of measure or defects per unit of measure) resulting in a metric of performance that is then compared to others.
Benchmarking may be internal between entities within a single organization, or – subject to confidentiality restrictions – external between competing entities.
Also referred to as “best practice benchmarking” or “process benchmarking”, this process is used in management and particularly strategic management, in which organizations evaluate various aspects of their processes in relation to best practice companies’ processes, usually within a peer group defined for the purposes of comparison. This then allows organizations to develop plans on how to make improvements or adapt specific best practices, usually with the aim of increasing some aspect of performance. Benchmarking may be a one-off event, but is often treated as a continuous process in which organizations continually seek to improve their practices.
There is no single benchmarking process that has been universally adopted. The wide appeal and acceptance of benchmarking has led to the emergence of benchmarking methodologies. Robert Camp (who wrote one of the earliest books on benchmarking in 1989) developed a 12-stage approach to benchmarking.
The 12 stage methodology consists of:
- Select subject
- Define the process
- Identify potential partners
- Identify data sources
- Collect data and select partners
- Determine the gap
- Establish process differences
- Target future performance
- Adjust goal
- Review and recalibrate
The following is an example of a typical benchmarking methodology:
- Identify problem areas: Because benchmarking can be applied to any business process or function, a range of research techniques may be required. They include informal conversations with customers, employees, or suppliers; exploratory research techniques such as focus groups; or in-depth marketing research, quantitative research, surveys, questionnaires, re-engineering analysis, process mapping, quality control variance reports, financial ratio analysis, or simply reviewing cycle times or other performance indicators. Before embarking on comparison with other organizations it is essential to know the organization’s function and processes; base lining performance provides a point against which improvement effort can be measured.
- Identify other industries that have similar processes: For instance, if one were interested in improving hand-offs in addiction treatment one would identify other fields that also have hand-off challenges. These could include air traffic control, cell phone switching between towers, transfer of patients from surgery to recovery rooms.
- Identify organizations that are leaders in these areas: Look for the very best in any industry and in any country. Consult customers, suppliers, financial analysts, trade associations, and magazines to determine which companies are worthy of study.
- Survey companies for measures and practices: Companies target specific business processes using detailed surveys of measures and practices used to identify business process alternatives and leading companies. Surveys are typically masked to protect confidential data by neutral associations and consultants.
- Visit the “best practice” companies to identify leading edge practices: Companies typically agree to mutually exchange information beneficial to all parties in a benchmarking group and share the results within the group.
- Implement new and improved business practices: Take the leading edge practices and develop implementation plans which include identification of specific opportunities, funding the project and selling the ideas to the organization for the purpose of gaining demonstrated value from the process.
The technique initially used to compare existing corporate strategies with a view to achieving the best possible performance in new situations (see above), has recently been extended to the comparison of technical products. This process is usually referred to as “technical benchmarking” or “product benchmarking”. Its use is well-developed within the automotive industry (“automotive benchmarking”), where it is vital to design products that match precise user expectations, at minimal cost, by applying the best technologies available worldwide. Data is obtained by fully disassembling existing cars and their systems. Such analyses were initially carried out in-house by car makers and their suppliers. However, as these analyses are expensive, they are increasingly being outsourced to companies who specialize in this area. Outsourcing has enabled a drastic decrease in costs for each company (by cost sharing) and the development of efficient tools (standards, software).
Benchmarking can be internal (comparing performance between different groups or teams within an organization) or external (comparing performance with companies in a specific industry or across industries). Within these broader categories, there are three specific types of benchmarking:
- Process benchmarking,
- Performance benchmarking and
- strategic benchmarking.
These can be further detailed as follows:
- Process benchmarking – the initiating firm focuses its observation and investigation of business processes with a goal of identifying and observing the best practices from one or more benchmark firms. Activity analysis will be required where the objective is to benchmark cost and efficiency; increasingly applied to back-office processes where outsourcing may be a consideration.
- Financial benchmarking – performing a financial analysis and comparing the results in an effort to assess your overall competitiveness and productivity.
- Benchmarking from an investor perspective- extending the benchmarking universe to also compare to peer companies that can be considered alternative investment opportunities from the perspective of an investor.
- Benchmarking in the public sector – functions as a tool for improvement and innovation in public administration, where state organizations invest efforts and resources to achieve quality, efficiency and effectiveness of the services they provide.
- Performance benchmarking – allows the initiator firm to assess their competitive position by comparing products and services with those of target firms.
- Product benchmarking – the process of designing new products or upgrades to current ones. This process can sometimes involve reverse engineering which is taking apart competitors’ products to find strengths and weaknesses.
- Strategic benchmarking – involves observing how others compete. This type is usually not industry specific, meaning it is best to look at other industries.
- Functional benchmarking – a company will focus its benchmarking on a single function to improve the operation of that particular function. Complex functions such as Human Resources, Finance and Accounting and Information and Communication Technology are unlikely to be directly comparable in cost and efficiency terms and may need to be disaggregated into processes to make valid comparison.
- Best-in-class benchmarking – involves studying the leading competitor or the company that best carries out a specific function.
- Operational benchmarking – embraces everything from staffing and productivity to office flow and analysis of procedures performed.
- Energy benchmarking – process of collecting, analysing and relating energy performance data of comparable activities with the purpose of evaluating and comparing performance between or within entities. Entities can include processes, buildings or companies.