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Justifying Logistics Investments with End-to-End Supply Chain Benefits

1
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Investments in Logistics systems, technology and infrastructure can be high, and sometimes, a lower priority than Manufacturing or Sales/Marketing investments.

To meet the target IRR/ROI hurdles, we often need to look beyond Logistics-specific benefits, such as warehouse labor, transport costs or truck size/utilization etc - especially in regions where labor and fuel costs are relatively low, yet inflation medium-high.

What other areas across the Supply Chain (and beyond) could be encompassed into the benefits algorithm?
e.g. inventory reduction, projected annual labor/fuel/general inflation, benefits not realized if investment not made, dependent projects & their benefits not happening etc.

Logistics
Supply Chain Optimization
Financial Analysis
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Logistics Consulting
Supply Chain Management
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Inventory Reduction & Sustainment
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ROI Justification
Matthew Theocharous
48 months ago

8 answers

2

Inventory management or reduction is an obvious benefit that is often overlooked, but improved customer service is also a major benefit. A smoothly integrated end-to-end supply chain can result in substantial inventory reduction while greatly improving customer service. Quantifying the improvements in customer service is sometimes a challenge when justifying investment in supply chain infrastructure, but this type of goal can make sense to upper management.

Good luck!

Rob Houston
48 months ago
I do agree with Rob. Customer Satisfaction (CS) should be the starting point. Even difficult, CS should be modeled through quantitative KPIs. These CS KPIs are then linked to more physical end-to-end logistics KPIs. - Patrice L. 48 months ago
CS is always primary agree 100%, and usually satisfied. Logistics efficiency investments may just enable hitting the SLA more efficiently. But raise good points on digging deeper into CS failures which may help contribute - service recovery costs etc. Thanks - Matthew 48 months ago
Agree - Dr. David E. 37 months ago
Customer satisfaction is priority. - Er. Jangyadutta 35 months ago
Usually - some are unreasonable - Dr. David E. 35 months ago
1

Matthew: Totally agree with Rob and Patrice that quantifying customer service improvements or efficiencies in other areas of the organization can help make the business case. Thinking of a slight twist on this strategy, if you're able to quantify a financial return above and beyond a simple payback of the Logistics investment via Logistics-specific benefits, you could structure your business case so that it enables the excess to be applied toward funding another initiative with a higher corporate priority and more "sizzle". Now you've got people's attention and can leverage the visibility of those other initiatives to drive the business case through.

Steven E. Keith
48 months ago
Thanks Steven. Are you referring to helping fund future projects through the over delivery of others? If within the same P&L, may be possible, but not always when capital "borrowed" through corporate funding, and usually only over-delivering after the project has been scoped & executed. Did i understand your response correctly? - Matthew 48 months ago
Hi Matthew - My comments pertain primarily to positioning the business case in light of the challenges you are facing with a potential shortage of logistics-specific benefits. The thought was simply to come up with a creative way of incorporating other functional areas that have objectives or initiatives higher on the company's priority list which will naturally attract more attention to yours. - Steven E. 48 months ago
Thanks - Dr. David E. 37 months ago
Logistic investment improve company business. - Er. Jangyadutta 35 months ago
It sure helps - Dr. David E. 35 months ago
1

Part of our improvement in logistics was moving to hybrid warehousing/cross dock model where we were able to do JIT inventory management, bringing products into our facility by the pallet and shipping them out by the each on a daily basis. This allowed us to not only reduce the footprint of warehouses that we needed, but also allowed us to turn inventory 10-15 times before payment was due. The increased cash flow then allowed us to spend far more on advertising, causing a virtuous cycle of accelerated sales -> lowered costs of goods/transit per unit -> higher profitability.

Joshua Wood
48 months ago
Thanks Joshua. Was the inventory turns & cash release realized within warehouses of a larger manufacturing network, or a distributor network? Was there a change in manufacturing practices to enable the JIT order cycle or was this a constraint posed bck to the vendor? - Matthew 48 months ago
We were a pure play ecommerce company that brought in product mainly from local distributors who could accommodate our JIT needs. As we identified extremely fast moving products, those we would source direct from the manufacturer, picking up the sizable margin increase but only after having solid sales numbers to back up the expenditure trying here to get 90-180 day dating for cash flow reasons. - Joshua 48 months ago
Nice process - Dr. David E. 37 months ago
Good comment. - Er. Jangyadutta 35 months ago
Thanks - Dr. David E. 35 months ago
1

Managing inventory to identify what is missing and reduce products loss.
Logistics to guarantee on time delivery and identify what went wrong in case of incidents.
Automated customer services to meet their demands having a lower time response.
KPIs development to measure results.

Paolo Beffagnotti
48 months ago
Just do not work too hard to justify. - Dr. David E. 37 months ago
I agree. - Er. Jangyadutta 35 months ago
Thanks - Dr. David E. 35 months ago
0

From my experience, one of the biggest benefits is improved in-stock levels at shelf. In a bricks & mortar store this means:
(1) You have the item the consumer wants and make the sale today, you keep the consumer in your store vs. losing the sale (& maybe the cart) to a competitor. Not every consumer will switch to another item.

(2) You improve forecasting of store-level sales by reducing volatility of sales. This volatility during special events (such as in the flyer, on display, during new product launch) is especially crucial as retailers will set store-level orders for future similar events on historical sales. So if you ran out mid-week, next time you get enough to run out mid-week.

(3) Saving money by avoiding expedited high-cost transportation to fix out of stocks during critical periods

(4) Presenting a better image to consumers, prevents them from permanently switching to competitors.

(5) Improving productivity for store operations, keeping staff on assigned task vs. being distracted as they look for missing items for customers by hunting in a disorganized back room. In normalizing this process you can either reduce head count or reallocate staff to higher value activities.

I know there are parallel benefits in e-commerce operations but for the sake of brevity will cut it off here for now.

Janice MacInnis
48 months ago
Thanks - Dr. David E. 37 months ago
Right information. - Er. Jangyadutta 35 months ago
DITTO - Dr. David E. 35 months ago
0

In case of large company there are different activities and branches. So many company decide to divide work for smooth running, storing , marketing, distributing ,so logistic and out sourcing are inevitable.

Er. Jangyadutta D
35 months ago
Yes Sir - Dr. David E. 35 months ago
0

SCM

In commerce , supply-chain management ( SCM ), the management of the flow of goods and services.

It involves the movement and storage of raw materials , of work-in-process inventory , and of finished goods from point of origin to point of consumption.

Any definitional thoughts?

Dr. David E. M
35 months ago
-1

One way to be CAPEX efficient and thus reduce the risks is looking for established 3rd party logistics service providers. Especially in storage handling.
Secondly, think about how to integrate your large scale customers with your supply chains. This will be a great way to reduce storage costs, and also minimize the working capital. Also it is a way to maximize the service quality / customer satisfaction.

I hope this helps.

Mahir S. Gorur
48 months ago
Thanks Mahir. 3PLs are always an option, however cost to self-fund is usually cheaper within 3-5 years than the all-in 3PL costs. While not 3PL averse, outsourcing can often reduce control & agility is not managed correctly (Ops & procurement), especially within developing markets. Scaling customer inventories is perhaps something to dig deeper into. - Matthew 48 months ago
FedEx has joined the growing list of companies trialing autonomous deliveries - Dr. David E. 35 months ago
Outsourcing is not always acceptable for better involvement. - Er. Jangyadutta 35 months ago
True - Dr. David E. 35 months ago

Have some input?