A medium sized retailer of health food items imports products from abroad. The retailer prides itself with a very well organised warehouse and a crew of workers that swiftly repack the imported products and send them to the retailer’s stores all over the country.
The retailer’s sales department, however, has constantly complained about lack of enough fast-moving products to stock store shelves. They frequently request for more items which the retailer’s purchasing department promptly orders. Yet, the sales people still complain. Why are store shelves empty despite the inbound volume of imports?
A consulting team the retailer engaged found that the retailer’s warehouse was indeed quickly repacking and delivering needed fast-moving imported items to stores. Once they arrive at the stores, the fast-moving products were sold within days.
But the warehouse inventories showed almost no stock available of the fast-moving items at the beginning of every work week. How can this be since imports via container vans were arriving every week? The stocks have been arriving but the warehouse says they are not on inventory. Where were the items?
It turned out that when container vans of imports arrived, it would take as long as ten (10) days to completely unload, put away, and enter items into the warehouse inventory records. Every container van would have a mix of as many as a hundred products totalling to as much as a thousand cases or packages. Some items like paper products were bulky, some like food supplements were tiny. The warehouse’s personnel would unload products from the container van into pallets, but it would take several days to sort the items, inspect them, and scan them into inventory.
Hence, even as the imported items had arrived, they were still “in-transit” on the retailer’s inventory system. The warehouse didn’t repack and deliver products until they were entered into the system.
To complicate things further, sales people would ask the warehouse to put priority in receiving items that were running low on stock at stores. That resulted in warehouse staff in receiving some items from inbound container vans and putting others in a holding area, in which these latter items would sometimes sit there for as long as one (1) month before anyone sorts and scans them. This resulted in a vicious cycle where products were alternating in out-of-stock as warehouse staff switched priorities in receiving one item to another.
The solution to the problem was simple. Management just had to re-enforce the retailer’s policy of unloading every container van completely before receiving another one. Management also had to shorten the time to receive inbound imports. More than a week was too long. It turned out that the employees assigned to receive inbound container vans sometimes were pulled to do other jobs in the warehouse. Management only had to put a stop to that and have the assigned employees work full-time in receiving the vans.
The consulting team also suggested the management review the retailer’s purchasing and inventory policies. It wasn’t that the purchasing department was buying enough; it was that they weren’t buying frequently enough.
The purchasing management preferred to buy items in bulk to take advantage of pricing discounts. They would order only once a month or even less so. As inventories ran down, the next scheduled arrival of vans would sometimes be weeks away. Planners and purchasers ended up rushing the dispatch of container vans which sometimes delayed the delivery of other items and again brought on a vicious merry-go-round of items running out of stock.
Purchasing just needed to balance buying in bulk and scheduling shipments to arrive more frequently, such as weekly versus monthly. Purchasers could negotiate contracts with vendors to commit to buy in bulk at competitive prices but ask that deliveries arrive in smaller quantities more frequently.
Logistics is about ensuring a smooth supply of materials and products from one point of the supply chain to the next. It’s about planning, buying, and transporting enough. Not too much to cause pile-ups of stock that tie up space and cash. And not too few that risk run-outs that interrupt production and compromise services.
Logistics is broad. It covers what comes in, what comes out, where it goes, and where it leads to. One may say it covers all the things that sales, marketing, and manufacturing do not.
Logistics is not the supply chain. It’s a big part of it but not the whole of it. Logistics is the life-blood that courses through the supply chain but it isn’t the supply chain. It works with counterparts such as planning, procurement, and production to make sure merchandise moves through suppliers and manufacturers to meet the demands of customers.
Improving logistics is about improving the flow between points in the supply chain. That means minimising bottlenecks and focusing resources to move things where they are slowest. It means making sure stuff are put away and at least cost and risk of damage, at the same time making sure they don’t over-stay in one place. Scrap and out-of-stock are what logistics practitioners avoid as much as they could. For when there is scrap or out-of-stock, it’s a failing mark for logistics.
As the case of the health food retailer illustrated, logistics solutions usually come back to basics. Inbound receipts were moving too slow and caused stocks to run out at stores. What was needed was re-enforcing policy and focusing on finishing every job of unloading the container van and putting away the items. With items flowing with fewer delays, the warehouse would be able to repack and deliver to stores the items they sorely needed week to week.
Logistics can look complicated but the solutions can often be simple.