Another day and another conversation about logistics and talking to people who are curious about what is ‘logistics and supply chain management’ how it all works. So, in the name of efficiency, here is the 101 of what is L&SCM.
It starts with an idea, you need to come up with something to sell. Stimulate customer demand. If you are a pizza shop it means selling pizzas, clothing - you'll need a shirt, imports - you need to sell something then get it delivered. The point is … make the sale, that’s step one.
Now, let’s fast forward past the point where you have gone through testing the product, refining, finding initial customers and in general – validating that you have a business worth putting money into. Moving on to the part of the process where you need to operate a supply chain.
Below are two, terribly made, info-graphics which give a visual outline of what the supply chain cycle looks like for pizza and t-shirts.
At this point, if you have kept reading after looking at the info-graphics, it’s important to realize that there is a difference between logistics and supply chain. Just like was covered a couple of days ago. Let's quickly review logistics is the mechanics of how a single entity (like a warehouse, a shop, a transport company, AKA: node) coordinates itself (processes). In any operation, there will be multiple nodes working together to accomplish the desired outcome, in this scenario we are talking about the delivery of product to a customer. All of these nodes, combined and working together, are called a supply chain. Coordinating this network is called supply chain management.
L&SCM becomes a lot easier to understand when you understand the process and the players involved.
So, using a chess metaphor, here are the key players and elements of any supply chain. The configuration of these elements vary between organizations. Some supply chains will have more suppliers and fewer transport companies while some will have the opposite. It at really depends on what you're dealing with. But the basic players are fundamentally the same, the concept of what they are trying to do is simple as well as scalable...
The game pieces
1. An idea (the Pawns): you’ve come up with something, like a new t-shirt design.
- Why are ideas the pawns? Because they are interchangeable and not things to be stubborn about, it takes many ideas to achieve victory.
2. Marketing & Research (the Knight): you tell your friends, run a basic Facebook and Google ad campaign and work out that people want your idea, and that it's different enough for them to want and to buy.
- Why the knight? Because marketing and proper research can help you see around corners.
3. Sales & Orders (the Opponent): someone goes to your store (physical or online) and buys one of your shirts for money, now you have the task of delivering it.
- Why are orders the opponent? Because you need an opponent to have a game and just like in Chess, whatever the opponent does you need to pre-empt or react accordingly. Plus logisticians and salespeople never really see eye to eye.
4. Production (the Rook): you make the shirt, in this scenario we are ignoring bulk ordering concepts.
- Why the rook? Because you’ll find that production is a sequence which can only move in a single sequential direction.
5. Shipping (the Bishop): you get it from where you manufactured it (China), closer to your local market in Australia.
- Why the bishop? Because there are many ways to get something delivered such as via a: ship, plane, car, truck, drone, pipe, train.
6. Storage (the Chessboard): because you want to deliver a quality product, you get the shirt delivered to your house, and then check that it’s up to spec for the customer.
- Why? Storage holds all the pieces, without a board you don’t have anything to play with (no inventory to use).
7. Delivery (the Queen): you have the shirt, the customer order and now you must get it to the customer, this part of the process is often called the last mile of delivery. You put it into a bag and someone like AusPost takes it to the customer. Your customer is happy, you are happy, your supply chain has functioned correctly.
- Why is delivery the Queen? Because the last mile is the most flexible, it has almost unlimited power and if it falls in the game, you are in a lot of trouble.
Something went wrong (resetting the board)
The customer doesn’t want the shirt anymore, the stock is damaged, or has reached the end of life for the product. You need to get it from the customer back to your storage location and do something with it or you need to tell your customer what they can do with the item. This is called, reverse logistics. In chess, this would be a pawn getting to the other end of the board and being swapped out for something new.
Analysis (the Player)
You know what the pieces are, you know which direction they move in, now you need to play the game. Analyzing what’s going on with all the pieces on the board and keeping track of details like:
- Inventory: managing this is very important, Dick Smith went out of business because they had too many batteries in stock, you likely will have the same issue if you don't manage your inventory. Keeping track of inventory also means you know which promises or offers you can make to customers. Plus will help you know financially – how much money you have invested in the stock (Don't do a Dick Smith).
If we want to keep on with the chess metaphor this (analysis) is like the making sure your chess board doesn’t expand too far and wide. The more opponents you have the harder your pieces are going to have to work. Though to win you need to expand your team in order to combat the enemy and win… please note that in this metaphor I have removed the traditional size constraint of the board. But besides that small detail … I think the metaphor is generally going quite well.
- Performance: if you put something on a truck but then don’t know if it got to your customer - unless they call and complain - your life will be very stressful. Having reports on deliveries and tracking what’s going on for orders (how they performed), will help keep your customers happy and help you sleep easier in the night.
Again, the chess link would be your performance stats, if you played a game – a seemingly perfect game – but never kept score. Who would know what you’re capable of doing?
The most consistent theme here, is information and visibility. This impacts you by being able to monitor what’s going on, and manage elements, like communicating details to a customer or being able to make better plans – like when a load is to be picked up. This can also help with things like sustainability and transparency, if you know how everything works and where it has come from/what has been done to it along the way. You can create a unique proposition for customers.
Strategy (the King)
If cash flow is king. Then supply chain strategy is how to keep the king fed, fat and not dead. The key to do that is to keep the king’s people happy, that means keeping your customers (orders/opponents) from attacking you… and as per the metaphor which we now have to stick to because it’s almost the end of the piece and I no longer have a choice. The biggest impact on keeping the king alive is time and what you want to do with it.
- How quickly does the product need to get to the customer?
- How much of that product?
- How frequent are the orders?
- What sort of promise has been made to the customer?
These are some of the basic questions to ask when looking at supply chain strategy and when they are answered, this information helps define a supply chains ability to deliver an order. If you can keep it up it will set your operation apart from the competition, in this case it would be other chess players trying to sell the same product as you are.
Strategy is the specialty of a good logistician or supply chain manager (the title pretty much depends on their LinkedIn...) whether they are delivering a Rolls Royce, Office Chairs or a Dishwasher.
Rolls Royce: pull strategy, meaning you sell a car then make it for delivery.
You create a brand and make people want your product, i.e. a Rolls Royce, then when someone buys it you configure what they want and deliver it to the customer.
Office chairs: push, meaning you buy stock (often in anticipation of a forecasted quantity) then sell.
Given the pointlessness of importing a single office chair (or shirt) from China. It makes sense to buy a bunch of office chairs, a full container load for example, then when you have stock. You push those chairs to customers and take care of the last mile accordingly.
Lastly, there are dishwashers, drop shipping. This is where you make the sale but outsource the delivery of the actual product.
Think of an eBay store, they might be advertising a Kmart dishwasher, but because you went to eBay and looked for the item, found this one, a drop-shipper has put themselves into the equation. When done well it means a drop shipper makes money because they have zero physical inventory and none of the associated costs. The customer gets access to products. Sure you could have gone to Kmart online and found that same dishwasher but because you're so used to and happy with the eBay experience, you went through that(drop shipper) to do it. You have a chair, Kmart sold a dishwasher, eBay made some money, the drop-shipper made money, everyone is happy.
The bad part of this is when people charge prices which are… crap. Over the top. Charging more for the exact same product then if you were to look around a little bit. This happens all the time and my point is, if you have the time, look around.
Look at it this way, supply chain and the chosen strategy is not just something you do once, a supply chain is designed to be repeated many times over. If not enough emphasis is put on the strategy you become susceptible to operating blindly and letting the game control you. With a basic understanding of how a supply chain works you can learn what’s going on and take control.