Ellery's Essays

A Letter from the Pale Blue Dot to Voyager One

Dear Voyager One,

I read from the National Aeronautics & Space Administration (NASA) website that on November 18, 2026, you would be 25.902 billion kilometres from Earth.

It’s significant in that you’ll be at a point where you’d be one light-day from Earth or the distance a beam of light travels in twenty-four (24) hours.

It took you forty-nine (49) years and two (2) months to get to where you are at now and for us Earthlings, for you to survive in outer space for that long, that’s a feat.

Forty-nine (49) years is quite long by our human standards, but relative to the multi-billion year timeline of the universe, it isn’t.

On one hand, a lot has happened in the last 49 years. On the other hand, we haven’t changed that much.

The Internet and the devices that run it very much dominate our lives. You could call it that Earth is in the Information Age. We are into data and crunching it into information we could benefit from.

The Internet, otherwise known as the worldwide web, had connected just about everyone. People could access information for just about anything, never mind if much of it is debatable as truth. We communicate with the Internet via devices like smartphones, tablets, and personal laptop computers. And we consume most of our waking times on these devices.

There is an ongoing race among nations and business firms to conquer the technology of artificial intelligence or AI, for short. Industrial giants had been building data centres, box-like buildings housing myriads of computing hardware. Software companies had been creating AI agents to solve complex math problems, generate lifelike avatars, write literary works, paint artistic masterpieces, and diagnose medical illnesses.

And because of AI, machines had been getting, supposedly, better. There are cars, trucks, ships, and even aircraft that could fly without human operators or pilots. Drones had gradually been augmenting, if not replacing, military and commercial transportation. Manufacturing operations had been continuously introducing robots into their production lines. Seaports had been getting dock loading & unloading equipment which won’t need humans to operate. Warehouses had been using automatic guided vehicles (AGVs) to put away & retrieve merchandise. In homes, some families had already automated their homes with Internet-enabled air-conditioners, refrigerators, washing machines & dryers, microwave ovens, robotic vacuum cleaners, and dishwashers.

We also had been using a lot of what we call “apps.” ‘Apps’ are shortcuts for ‘applications.’ They are software programs we install into our mobile devices. These apps range from search engines to virtual notebooks, schedules, and appointment calendars. They include subscriptions to news organisations, entertainment channels, and music libraries. Unlike in 1977, we don’t have to go to the movie theatre, turn on a radio or television set, or buy a newspaper to watch a film, listen to music, keep up with our soap operas, or know what’s going on in the world. Almost everything we’d need would be from apps installed on our mobile devices.

Probably the most popular ‘apps’ are the one categorised under ‘social media.’ These are virtual platforms where just about everyone could sign up for free and enter information (which we call ‘posts’) for everyone to see and read. Just install & open a social media app and you could find out what a total stranger’s life is all about. By the way, your ongoing trip to cosmos is on a NASA website which had been constantly updated for anyone to see where you are, if not what you’re doing (which I guess isn’t much given your low energy limit).

For some people, social media had become a scourge than a blessing. Hence, there have been those who had chosen to ‘unplug,’ or disconnect from our very heavily exposed world. Ironically, it’s been more difficult to disconnect than to connect.

Despite the world being more connected or more shared information-wise and being more automated, the world is hardly any closer to a peacefully synergistic and economically well-off one.

We fight one another. Whether it be between nations or between neighbours, we could never get away from conflicts. We fight for whatever reason; most of which are illogical, such as religious beliefs, differences of opinions, and the refusal to share resources.

We also had been struggling to survive economically. Earth’s population had grown and despite whatever wealth some people had reaped, many of us are not satisfied with what we already possess. Some of us live day to day, can’t afford better food, or don’t have enough to pay for electricity and running water.

The Earth’s climate had also shifted in the last 49 years. Well, at least it seemed it did. It feels warmer; there seems to be less ice up north and down south. There had been some violent storms and very bad droughts. There’s talk that a really scary El Nino is coming, a record warming of the Eastern Pacific Ocean which some scientists had been already blaming for more than the normal number of typhoons hitting Hawaii, Japan, and Latin America, and almost no wet weather in the Gulf of Mexico (which some now call the Gulf of America).

When you left Earth on September 05, 1977, I was barely a teenager. Your launch wasn’t on the top of the news. Barely everyone noticed your departure and your mission. You passed by Jupiter and Saturn on March 5, 1979 and November 12, 1980 respectively. You took & sent back some photos which awed scientists and finally did get you noticed on the news. On February 14, 1990, NASA turned your cameras and took a photo of our solar system from a distance of 6 billion kilometres. The late famous scientist, Carl Sagan, had asked NASA to take that picture and when he saw it, he was inspired to write about it in his book, “Pale Blue Dot: A Vision of the Human Future in Space.”

Voyager One’s Photo of Earth
https://www.bbc.com/news/science-environment-51491471

On August 25, 2012, you officially left the solar system and entered interstellar space. I remember reading about that. It was brief given there were really no photos to show (NASA turned off your cameras after the ‘pale blue dot’ shot).

It would be something if you could send another photo from a distance of one light day away, if only to show us again how tiny our solar system would look like from where you are, if you could still see us at all.

But it isn’t only about how insignificant we are relative to space which your position in space reminds us of.

It’s also that space where you are isn’t possibly all darkness or void. There could be lots happening at where you are.

For one, you’re still within the gravitational field of the solar system and you’re heading for the Oort cloud, which scientists think is a giant spherical shell surrounding the solar system, composed of comet-like objects. It’d be 300 years before you do reach the Oort cloud, however, well beyond my and present-day everyone’s lifetimes.

I wouldn’t be surprised that you’d be drifting with thousands of stars shining around you. It’s kind of a bummer you couldn’t tell us what it’s fully like out there right now.

We humans indeed have so much on our plates right now given the crises and struggles we continuously encounter, never mind that we ourselves are the causes of most of our problems. We, therefore, could only glance occasionally at the news of where you are and wonder how you’re doing.

And I wonder what if we focused more on looking outward than so much inward in our daily lives. Is it possible we could transcend from our conflicts and unify ourselves to make our planet, our little pale blue dot, a better place?

One thing about human nature is that unity doesn’t come unless there’s an urgency for it. And we feel no sense of urgency when we see your photo of our pale blue dot. Which also adds to the bummer of we people not recognizing the need to get our acts together.

I guess this is why some of us continue to hope. And your being out there helps us to continue to hope. It reminds us that there is more to life than just us and our problems.

Keep on transmitting, Voyager One, some of us will still be listening.

Sincerely,

A Resident of the Pale Blue Dot

Find Ellery

Improving the Commodity Supply Chain

Just about every supply chain involves commodities. And it is in commodities where many supply chain challenges emerge.

By the strictest definition, commodities are essential raw materials like grains, minerals, fish, livestock, metals, and fruits. Commodities are basic items that are typically the same wherever they may be sourced or how they are processed. One could mine gold from South America or Australia and there would be no difference. The same for sardines, cotton, and palm oil. (Traders would argue that crude oil from Venezuela is much different from crude oil drilled from Saudi Arabia such that petroleum executives would treat either as separate commodities).

What also would qualify an item as a commodity is if it were traded frequently such as in real-time from one minute to the next. Buyers and sellers haggle and firm up contracts, but not only to buy quantities needed to manufacture products but also to bet and hedge for the purpose of either selling at higher prices in the future or to stock up inventories at the lowest cost.

Availability is a constant concern when it comes to commodities. One anticipates scarcity but exploits abundance. Rice prices rose in August and September 2023 due to restrictions in supply. They rose again in 2026 due to increasing costs spurred by higher prices of diesel fuel. Bumper crop harvests of rice in Vietnam and Thailand, however, gave buyers leeway to negotiate lower prices as sellers became worried about selling all of what they bought.

Supply chain managers contend with uncertainties in commodity prices and availabilities, which make it hard for them to set budgets, manage inventories, and ensure enough supply of critical materials for their enterprises’ operations.

Commodities also fray supply chain relationships.

Ranchers in the United States in 2025 intentionally reduced their cattle populations to keep beef prices from dropping. Reduced deliveries of cattle, however, led to shutdowns of meat processing plants, resulting in worker layoffs. Larger meat companies opted to source and import beef from Brazil and Argentina to maintain supply. American ranchers protested but the meat companies ignored them, their feelings already hurt by the ranchers’ unwillingness to boost their cattle herds.

Supply chain managers try to avoid speculation and instead focus on just procuring just enough for their respective operations. They work within the system and use familiar tactics like building inventories or seeking new supply sources for the commodities or raw materials they need. They even try to substitute commodities with other ‘cheaper’ commodities, hoping that they could secure steady supply on top of saving money.

Supply chain engineers (SCEs) on the other hand don’t work within systems; they improve, if not build them, along with the structures that come with them. SCEs plan and construct systems & structures to improve how commodities are procured, transported, and utilised in the manufacture of merchandise. SCEs can be very instrumental in boosting the productivities of operations which are directly dealing with commodities.

For example, the corporate owners of a large plantation did not know for certain how many ripe pineapples they could harvest. There would be days that the corporation’s cannery would have more than enough pineapples for production of canned fruit products. And there would be days that there would be scarce supply which would lead to cutbacks in scheduled operations.

SCEs offered plantation managers a forecasting system to predict pineapple harvest yields via historic data. The system included AI-enhanced simulation tools to forecast pineapple harvests to more precise ranges such that operations managers could draft production schedules in advance to smoothly match the expected arrival quantities of pineapples.

SCEs also identified opportunities for the pineapple cannery to improve operational structures. They proposed, for example, the ideal number of unloading docks to speedily receive newly harvested pineapples.

SCEs could also help enterprises simplify the financial & informational flow processes that make importing foreign-sourced commodities quite complicated. A metals importer, for example, found out via an SCE’s flow map that executives were signing several times for the approval of purchase of the same lot of steel coils from China. The SCE recommended a simpler process of purchase and approval which cut down the time to buy and import critical materials. At the same time, the SCE also suggested lower lot-size purchases of imported commodities to spread cash-out payments and even out inventories.

Most raw materials are commodities, and they are subject to frequent price swings and uncertainties in supply. Speculations in commodities don’t contribute to supply chain productivity even if they may lead to windfall profits and high-cost savings.

As much as supply chain managers may manage inventories to mitigate the uncertainties, it wouldn’t hurt to apply some supply chain engineering ideas to improve systems & structures which govern the flows of commodities.

Find Ellery

Writing for Communication, Not for Art’s Sake

I don’t write for the sake of it. I write to express thoughts or send messages. I write to communicate.

I get it that there are writers who add beauty into our world. Like artists, they write masterpieces of poetry & prose. Admirers read their poems and stories with gusto, more so if the text is eloquent. Some would even seek the original manuscripts of great writers so they could admire the strokes and penmanship which added beauty to the content.

I do admire the art of the written word. But I don’t write for that purpose.

Writing for me is a skill—a means to an end. I had been developing that skill to improve how I communicate and get my messages across.

I write not to add beauty, but to offer ideas to make the world a more productive place.

And that is why I write.

Find Ellery

When Standard Features Aren’t Needed

How do engineers justify buying equipment if it comes with standard features that the enterprise doesn’t really need?

Before engineers recommend buying new equipment, managers first mention what they need or what the problem is. Managers may already have a solution in mind such as a machine they read on a catalogue or saw in another facility. Nevertheless, they ask engineers to justify the equipment for purchase & installation.

Engineers would clarify the criteria for what the new equipment should deliver. They would research and canvass different brands & models, and list down specifications & features. And then they’d identify what they believe would be the equipment that would best meet the needs of the enterprise.

Standard features of some machines, however, sometimes don’t match what engineers had identified as needed. In some cases, the features exceed the needs.

For example, a company wanted to buy a new car for its general manager. New cars, however, came standard with climate control air-conditioning, Wi-Fi connectivity, safety sensors, and a touchscreen. The company’s general manager wasn’t keen in driving a car with all these features. He just wanted a car that he could drive from the office to the company’s sites which were just nearby. There was no business need for the aforementioned ‘standard features.’

Automobile dealers, however, didn’t offer any models without the said ‘standard features.’ And they wouldn’t strip out the features and offer lower prices. ‘Standard features’ were take-it-or-leave-it in the purchase of their cars.

The company ended up buying a hybrid electric car. As much as the company would be paying for standard features it didn’t need, at least it would save some money from the better fuel economy versus traditional fully gasoline-powered models.

Another example: engineers couldn’t find a machine that could automatically package their company’s window glass products. Machine vendors offered models that could pack products but only in boxes of limited sizes. Engineers even looked at robots, but none met the criteria. Buying any machine or robot would require the company drastically changing its product packaging to adapt to the new equipment. Engineers didn’t like the idea.

The engineers decided to invent their own packaging machine. They designed, fabricated, and assembled a ‘box machine’ that could pack window glass panes of various sizes and thicknesses without having to change the company’s packaging and which entailed fast change-over or set-up times. Although it took months to put the machine together and make it work, the new ‘box machine’ became a significant contributor of revenue for the company, as products were low-cost and had price advantages versus competition.

When it comes to justifying new equipment, engineers shouldn’t be limited to few options or trying to crunch justifiable economics via calculating seemingly favourable rates of returns on investments (ROI). Engineers, instead, should be ready to ‘think out of the box’ and find other ways no matter how decided they may have been at first with an initial solution or option.

Project solutions come with constraints and setbacks. Engineers should be ready to scrap what they first thought had been good ideas and be open to turn to other options, especially if and when they hit dead-ends in obtaining the equipment they first wanted.

Engineers never should stop looking for a better way no matter how late in the game their project schedules are.

Find Ellery

Why Should One Care About How Long Customers Wait

https://cf.preview.redd.it/isa-sa-mga-pinakabobong-mercury-drug-na-napuntahan-ko-sa-v0-nec5mkrln8mc1.jpg?width=1080&crop=smart&auto=webp&s=276565e5bbd33529ab4b9fe5fd6048818ef87de3

A leading drugstore chain in the Philippines was getting flak on social media for only having one (1) cashier at each of its branches. Netizens were complaining that whenever they went to any of the drugstore’s branches, they’d see two to three pharmacists at the prescription counter but only one (1) cashier. The complaining netizens posted there should be more cashiers so that customers wouldn’t have to wait so long to buy and pay for prescription medicines.

From personal experience, I had never had to wait long at any of the drugstore’s branches I went to. True, there were long lines in some branches, but I never had to spend more than fifteen (15) minutes waiting and paying for my medicines.

I also had identified branches where there’d likely be no long line at all. These would be branches which were in stand-alone buildings and away from nearby shopping malls. I would fill my prescriptions at these branches on Sunday mornings where there wouldn’t be many people. I would be in and out of these branches in about five (5) minutes.

The owners of the drugstore chain apparently adopted a strategy of having as many branches as possible to cater to customers in just about every neighbourhood. It’s a strategy that seemed to have been successful as the drugstore chain is the leader in the Philippines’ pharmaceutical retail industry.

It’s not a unique strategy. Other service retailers like banks, supermarkets, convenience stores, fast-food restaurants, and gas stations also put up as many branches as they could. The leaders are those with the most number of branches.

Having many branches, however, does not necessarily result in quicker turnarounds for customers. That’s what I observed from the drugstore’s branches. One branch would have longer lines with subsequently longer queue times while another would have almost non-existent queues with customers hardly spending any time waiting.

The netizens’ criticisms regarding branches having only one cashier versus three to four pharmacists were originating from impatient customers who felt they were spending too much time in line at some branches.

And what did the drugstore say in response?

Nothing. The drugstore never replied to the complaints.

And why should they? Sales continued to grow. Profits had been increasing. Why hire more cashiers and incur more costs? The drugstore’s many branches were serving just about every corner of the country, and its customer base continued to grow. Its market leadership was solid.

When customers become impatient, the seemingly logical response is they will leave and find another drugstore to buy their medicines. But with the drugstore’s branches just about everywhere, it’s more likely that impatient customers would go to another of the drugstore’s branches which would have fewer people and shorter wait times. The drugstore still wins.

Is there any merit, therefore, for the drugstore’s management to productively improve service processes and reduce waiting times at their branches?

Queueing theory presents several factors that impact the wait times of customers. These include at what time customers arrive at a service point (e.g., a drugstore’s branch), how many other customers arrive at different times of the day, how many available servers (i.e., pharmacists & cashier) are there, and how fast servers work. Having only one cashier is just one factor to why wait times may be long.

If one drugstore branch shows that most customers arrive at about lunch hour (12:00noon to 1:00pm) and that two out of three servers at that same hour go on lunch break, then one could imagine the long queue and wait time at that hour of the day. Common sense would dictate that the branch supervisor should stagger lunch breaks outside the 12:00noon to 1:00pm period.

With more sophistication, the drugstore’s management could compile more details on the arrivals of customers, the lengths of time they waited in line, and how long servers processed customers’ prescriptions & payments. Drugstore managers could also investigate why some customers take so long to have their prescriptions filled versus others.

Data from queueing experiences could be helpful in justifying changes in how the drugstore serves its customers. For example, the data may show a correlation of long service times with customers who not only have multiple medicines to purchase but also who make up a larger share of a drugstore branch’s revenue.

The drugstore could study setting up special service lanes for customers buying high amounts of medicines which would thereby attract a greater share of a more lucrative market.

Casinos already do this with so-called ‘high rollers,’ customers who gamble high stakes. Some banks also have departments who cater to wealthier clients. Hotels & airlines have special web portals & check-in lanes for higher paying travellers. Such services spare some customers from long wait & process times via such ‘exclusive’ services and at the same time contribute revenue to businesses.

Queues are a fact of life. Every service entails a time to wait and a time to be served. Reducing either is not that straightforward as there are factors to be considered from how many arrive at a certain time of day to how many servers are there available. The enterprise who is doing the serving may not see any outright benefit at the onset but with some studies, it could find new sources of revenue from improving the speed of service and the reduction of waiting time.

And one more thing: customers would be happier if they waited less and are served faster. An enterprise has nothing to lose and much to gain from happy (and not impatient) customers.

Find Ellery

In Cost Reduction, Context Matters

It’s a commonly asked question from business leaders. ‘How can we reduce costs?’

Answers arrive almost immediately.

Reduce head counts.

Buy cheaper stuff.

Cut overtime.

Save energy.

The list goes on.

A large multinational corporation initiated a ‘cost improvement program.’ Departments were asked to submit reports on cost improvement projects they initiated and implemented. Those departments whose projects resulted in the largest savings were awarded trophies. A committee made sure that the savings from projects were real. The corporation claimed millions of dollars in annual savings.

Yet, unit costs of products sold continued to rise. To maintain profit margins, the corporation increased prices yearly.

Much of the savings from the corporation’s cost improvement program were cost avoidance, that is, they were higher expenses project proponents were successful in preventing.

Some cynical critics commented that the ‘cost avoidance’ projects weren’t rooted in anything innovative but stemmed more from what was already being done. For example, one project claimed savings from locally fabricating spare parts instead of buying more expensive brand-new imported components. Local fabrication had already been a common practice of the department who submitted it anyway as a cost improvement project.

Executives, however, stuck with their beliefs that the corporation’s cost improvement program was a success. They blamed uncontrollable economic inflation for higher prices leading to rising costs but continued to praise departments for their ‘cost improvement’ zeal.

Context matters when it comes to cost reduction.

Are you looking to reduce costs or avoid costs? Or are you seeking to maintain profit margins?

Are you trying to reduce costs to ensure business survival? Or are you trying to psyche your organisation to have a cost-reduction mindset?

The owner of a start-up laundromat was worried she wouldn’t be making enough money from her business.

The owner leased a small space at the basement of a residential building and bought & installed two (2) washing machines & two (2) dryers.

From the first day of her business, her washing machines & dryers ran almost non-stop twelve (12) hours a day. Customers kept arriving and paying to use her laundry machines.

At the end of every month, however, she saw that profits were barely above her costs.

The owner employed one (1) attendant and paid electricity & water bills. She saw no means to reduce expenses and instead, was anxious that mandated increases in minimum wages and increasing rates in utilities would overtake her profits.

When she asked me for advice, I broke down her costs and told her that she shouldn’t look for reductions in wages & utilities. She should look for how much overhead she was paying.

Overhead is the fixed costs one pays regardless of how much volume or revenue one’s business is earning. In business, the idea is to sell more than the fixed costs or earn above the ‘overhead.’

In the case of the owner and her laundromat, the attendant’s wages and the lease or rent of building space were her overhead. Maybe the owner can’t control wage costs rising, but maybe she could do something about the rent. The owner could find a cheaper place to rent, or she could buy the space in the building.

The other option was to buy more washing machines & dryers and that’s what the owner did. The owner’s business improved as her revenues doubled as more customers arrived to use all her machines every day.

Sometimes the best starting point to reduce cost is to not to find what to eliminate but to overcome the overhead by selling more or investing in additional capacities.

Cost reduction is not the problem. The context behind it is where to look for where the problem really lies.

I am an Engineer Even If People May Not Think So

In a meeting of a building association’s board of trustees, the building administrator recommended purchase of a flange-type water sub-meter to monitor the loss of water from the building’s cooling towers. I suggested the engineer look at other ways to measure the water flow as the water meter would cost PhP 40,000 ($USD 666 approximately).

One trustee disagreed. He said the building needed the sub-meter immediately. A brief argument between me and the trustee ensued. The trustee said he is an engineer to which he judges a water sub-meter would be the best device to measure the water usage of the building’s cooling towers. I responded that I too am an engineer and that the building administrator could use a simple dipstick to measure the water levels of the cooling tower reservoir at different times of the day to deduce the volume of water used.

The trustee said “you are not an engineer!” I said, “I am an engineer!”

At that point, the presiding chairman shifted the discussion and asked the other trustees for their opinions. The other trustees voted in favour of the water sub-meter. I said I would not object, but I remained silent for the rest of the meeting.

The trustee who argued with me later apologised after I wrote an email to the board that I felt insulted being told I’m not an engineer.

I graduated as an industrial engineer (IE) in 1983, and I have practiced IE in my various jobs throughout my career.

IEs don’t have professional licenses in the Philippines where I work.

Many people don’t consider IEs as full-fledged engineers. It doesn’t help that many IEs themselves believe they are more managers than engineers. Some colleges have more courses in Industrial & Management Engineering than just Industrial Engineering alone.

This wasn’t the first time someone said I’m not an engineer. Some would flaunt their professional licenses as proof they are engineers versus the absence of one on my part.

I do get the need for licenses for engineers to practice professionally. Licensed structural engineers assure clients that the edifices they construct will be built to proper & updated standards. Licensed electrical engineers ensure homes will not be at high risk of electrical short-circuits. Licensed mechanical engineers make sure owners buy & install the right types of plumbing & machinery for their factories.

But even if I’m an IE who isn’t fully recognised as an engineer or a professional with a technical license or certificate, that doesn’t mean I don’t know or cannot apply some of the engineering principles I learned in school and from experience.

My engineering sense, if not common sense, told me that the building didn’t need to buy an expensive water meter to know how much water the building’s cooling towers were consuming every day. I didn’t need a license to qualify me to assert that the building administration could measure the daily water levels of the cooling tower reservoir to figure out the information needed.

Instead, my absence of a license and my college degree major was used to weaken the logic of my side of the argument.

We waste the talents, skills, and knowledge of people when we discriminate against their academic backgrounds and professional titles.

Find Ellery

How Many Depots Does Your Business Need?

The large consumer goods company where I used to work as shipping manager had a central warehouse which served customers via distributors in different regions of the country. My former boss boasted then that the company saved plenty of money from not having depots.

A company that sells laptops & printers utilises a 3^rd party logistics partner (3PL) to deliver to customers around the Philippines. The 3PL has depots in the country’s three (3) major cities and hires truckers & couriers to ship to customers.

A large beverages corporation had like ten (10) bottling plants all over the country. The corporation also had depots in just about every province. Bottling plants would send finished products to the depots which in turn served customers in their assigned territories.

The need to have warehouses or depots differs from enterprise to enterprise. The following are some factors that determine whether your enterprise needs a storage facility, distribution centre, warehouse, or depot:

Inventory: how many items or SKU’s do you intend to sell?
Density: how many and where are the customers you plan to sell to?
Demand: how much sales do you foresee from these customers?
Accessibility: how easy would it be to ship merchandise where the customers are?
Availability: Are there places and spaces near your customers where you could buy, build, or lease depots?
Function: what specifically will your depots do other than store, receive, & ship products (e.g., repacking, processing orders, retrieving & disposing customer returns, quality inspections)?
Risk: What are the risks of setting up depots at certain locations?
Cost: How much will it cost on top of the investment & cashflow needed?

Answering these questions is the easy part. The hard part is putting them all together to come up with a rationale for deciding how many depots you’d need and where to put them.

A fast-track method to figuring that out would be to identify and compare possible scenarios.

For example, one could compare the three (3) different examples I laid out above:

One Warehouse (Centralised)

The consumer goods company closed its provincial depots and concentrated shipping and inventories from one (1) central warehouse at the Philippine capital, Manila.

The company significantly reduced overhead expenses from the removal of the depots, but still had to shoulder freight expenses for direct shipments to distributors & customers in the provinces. Market share also dropped in some areas as distributors prioritised denser population centres than customers in remote areas of the country.

In short, the transition from a depot network to a centralised one resulted in lower supply chain costs but lower delivery reliabilities to customers.

2. Three (3) Depots (Regional)

The 3PL service provider for the company selling laptops & printers had three (3) depots located at the Philippines three (3) major cities. The Philippines has three major island groups: Luzon, Visayas, & Mindanao. Manila was the company’s depot for Luzon. Cebu City was the depot for the Visayas and Davao City was the depot for Mindanao.

All of the company’s products, which were imported from abroad, were received at Manila which then passed some of the products to Cebu and Davao.

The 3PL had staff and freight carrier contractors at each city who processed orders from customers at regions the respective hubs covered.

The company paid for freight expenses to ship products to the depots and also shouldered 3PL service charges for the operations of the depots.

Speedy deliveries to customers were made possible by the availabilities of products at the depots. Most customers were dealers & retailers located at Cebu, Davao, and not-too-distant urban centres such that deliveries were fast and most of the time, complete (assuming there were enough inventories).

3. Multiple Depots (Network)

The beverages company dealt with very high demand volumes all over the country. Hence, it was elementary to set up bottling plants at several urban centres as well as depots in just about every province.

High turnover and the company’s less than twenty (20) SKUs made it simple for the company to keep high stock levels and ensure availabilities to customers.

Costs and accessibilities, however, varied from depot to depot such that freight expenses would be astronomical at more remote locations even as rent and salaries would be lower than at cities. Scenarios allow companies to lay out quantitative matrices for the factors I mentioned above. One could put numbers & descriptions for every factor. Managers or industrial engineers could calculate probabilities of risks, compute statistics for on-time & complete deliveries, forecast customer demand per geographic area, budget transportation expenses, and estimate working capital needs for inventories.

Scenarios allow companies to lay out quantitative matrices for the factors I mentioned above. One could put numbers & descriptions for every factor. Managers or industrial engineers could calculate probabilities of risks, compute statistics for on-time & complete deliveries, forecast customer demand per geographic area, budget transportation expenses, and estimate working capital needs for inventories.

The sample matrix above would be more effective if engineers & managers could substitute numbers for the descriptions for each respective factor per scenario. Executives would get a better handle on what each scenario would entail on top of what benefits each would bring.

Some executives try to be straightforward in setting up depots. They decide on either one (1) depot or several depots, using subjective rationale such as reducing costs, simplifying operations, or delegating customer services to individual distribution centres. They discover later that benefits don’t materialise and what looked simple turns out to be more complicated.

Planning how many depots may seem simple until one realises there are more than a few factors to consider. It’s not just cost or service but also risk, accessibility, what the depots’ roles would be, and how much potential demand there could be that may be what really determine how successful a depot would be in contributing to a company’s success story.

Find Ellery

Central vs. Depots: A Case of a Seemingly Straightforward Solution to a Seemingly Straightforward Problem

My boss at the consumer goods corporation in the Philippines where I worked a long time ago told me the company didn’t need warehouses in the provinces. A central warehouse in the national capital, Manila, would be enough.

The field salespeople in the provinces disagreed. Having provincial depots assured on-hand inventories of finished products for the salespeople to sell to customers.

My boss argued that the central warehouse could ship directly to the company’s distributors, who in turn could serve customers in their respective territories. Depots, therefore, would be redundant.

The salespeople countered that their customers would resent being served by distributors instead of by the company. Customers would fear that they would lose the low-price deals they had grown accustomed to getting from the company.

The company’s executives favoured my boss’s argument and within a year, the provincial depots were gone. A new central warehouse shipped to distributors, who saw their businesses expand tenfold. Product distribution, however, was iffy, as some provinces reported lower market shares for some brands due to chronic delays in deliveries.

The Philippines is an archipelago of 7,107 islands. Transportation relied on inter-island shipping and aircraft to ferry passengers and cargo to provinces. It seemed sensible to set up warehouses in provinces as it took freight carriers about one to two weeks to transport merchandise.

The consumer goods company, however, had distributors covering just about every province. The distributors were willing to put in more capital to serve customers like supermarkets in their respective areas. The company’s executives saw the logic in shipping products directly to the distributors, which would make the provincial depots unnecessary.

A few years after the transition to the centralised warehouse set-up, the distributors saw their businesses grow. They, however, complained that their orders, especially for best-selling fast-moving products, were rarely served completely and on time due mainly to the long transit times from the central warehouse to the provinces.

Meanwhile, savings the company got from eliminating provincial depots were partly offset from higher lease payments for the additional space the central warehouse required. And because the central warehouse was located not too near to the company’s manufacturing facilities, the company had to shoulder expenses shuttling products between sites.

All in all, not much really changed in terms of expenses and customer service for the company. The distributors, on the other hand, turned out to be the big winners from the wealth they got from added business.

Straightforward strategies don’t necessarily translate to straightforward benefits. My boss thought a central warehouse would lead to real savings and more efficient distribution of products. It didn’t.

Many executives tend to ‘shoot first and ask questions later,’ that is, they get a seemingly bright idea which they in turn implement via delegating the task to subordinates. They stick to their beliefs that their good ideas will lead to significant business improvement. They don’t first define what problems they’re trying to solve nor do they analyse the costs & benefits of their ideas.

My boss and his superiors didn’t clearly define what they wanted to accomplish by eliminating depots and centralising outbound logistics at a large Manila warehouse. There was no formal report or study outlining what their objectives were. Everyone thought it was a good idea consistent with the company’s thrust to reduce costs without sacrificing shipments or customer services.

How many depots did the company need? That was the question which the company’s failed to ask and answer.

Subsequent questions which my boss and executives also failed to ask and answer were:

How would the company make available products to consumers (not customers who were distributors or supermarkets but the final end-users) in the centralised warehouse scenario?
How would the company restructure the transportation of products to preserve, if not improve, productivity and customer service?
How would the company receive and serve orders from distributors, especially the ones who will see their territories expand and their selling volumes increase?
What changes in systems, procedures, and resources would be needed to transition from a multiple depot structure to that of a centralised warehouse?

The transition the company went through from the multiple depot structure to a centralised warehouse was rough. Facilities and equipment were lacking the first few weeks after the central warehouse opened. Truckers did not know where to go and got lost finding the warehouse. It took a while for the warehouse’s local area network (LAN) to be set up which led to delays in the processing of orders.

My boss still boasted the central warehouse was a success; never mind he wasn’t around those first few tough days to experience the transition. And never mind that the company didn’t realise much in savings or productivity improvements.

On hindsight, I believed the company would have saved more money and have become more productive if my boss and the executives thought their ideas through before jumping hastily into a centralised warehouse scheme.

But as this anecdote is much in the past, it’s become a case study I’ve used repeatedly in training supply chain managers in thinking how to improve their distribution systems & structures.

And avoid the pitfall of implementing seemingly straightforward solutions to seemingly straightforward problems.

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