LOGISTICS COST OPTIMIZATION
In a supply chain, there are always two main focus areas for cost optimization In our assessments, we look initially at all relevant areas to optimize logistics cost - but only on a very high level, to understand the mechanics of the business, and the current performance levels of our client. Based on these high level insights, we develop a deeper understanding what drives the logistics cost, and from there to look into the two main levers for optimizing logistics cost. The two main levers are factor cost (spend per unit), and avoiding unnecessary cost. We prefer the second lever, as the first one is already exploited based on decades of purchase price optimization. But we also often run into the need to have a fresh look at the first one… By using a modified “Activity Based Costing” approach, we can clearly identify the areas of factor cost influence (the device and cost type levels), and the transaction levels which drive how much of the cost is created. The model also allows to see how often the transactions happen, in a similar way, or in different ways, in different time buckets. On that basis it is possible to identify other sets of measures to influence the cost position - and also the performance position. When having created such a high-level transparency with a very detailed backing of information, a wide range of possible improvements can be identified, quantified, and evaluated in their performance impact.
5 - Year Plan Year Day Week Month Trip Device Cost type Transaction Truck Driver Deprec Maint Fuel Trailer Driver Deprec Maint Fuel Pump Driver Deprec Maint Fuel Railcar Driver Deprec Maint Energy Barge Driver Deprec Maint Fuel Operators Salary Admin Loading/ unloading Operatr Deprec Maint Energy IT - Systems License Hardwr Maint Operats
Logistics, Transport, and Distribution networks offer plenty of opportunities for improvement There are many topics in logistics which offer opportunities for improvement. This is driven by the many participants, interactions, and processes along the logistics chain. Typical strategic topics cover distribution network design, number and role of warehouses, selection of transportation service providers and their given roles, outsourcing of warehouse services, and collaboration with sales and distribution channels. There are many themes and approaches, and every company will need a different perspective and set of improvements at a different point in time. Therefore individual analysis, and approach design, is a key driver for performance enhancements On the operational and transactional level, the nature of improvements is different - besides optimizing how a task is conducted, the initial question should be how to avoid the necessity to do this task. Or to do it in a completely different way. A core driver of logistics cost is the number of transactions - the higher the transaction volume, the higher the cost. Although often economies of scale apply, the starting question is often to understand what drives the number of transactions. And if a lot of emergency shipments are due to late availability of the parts, it is not a question of logistcs cost per se… Processes meet technology - a very large part of improvements, and changes to current setups and infrastructures, resides in the new abilities derived from clever IT systems, used in a clever way. The magic of “digital transformation” is very visible in this space, even including the potentials of 3D-Printing, and other technologies which reshape how products get to customers. Or even when digital products replace physical products (music, photos, videos etc).