There's little doubt that logistics is getting more expensive, but we don't have to roll over and submit to the inevitablity of rising costs.
Earlier this summer, the Council of Supply Chain Management Professionals released its 24th annual State of Logistics Report. According to the CSCMP report authored by Rosalyn Wilson, the cost of the US business logistics rose $43 billion or 3.4 percent in 2012 to $1.33 trillion. Inventory carrying costs rose 4 percent, warehousing costs increased by 7.6 percent, trucking costs increased by 2.9 percent, and rail transport costs rose 4.9 percent. And though business logistics costs stayed at 8.5 percent of US GDP from 2011 to 2012, the report's bottom line is that prospects for growth in the sector are likely to be limited at least through 2015.
Though the report paints a less-than-rosy picture, I believe that with the application of the principles of lean, six sigma, and operational excellence, there are plenty of opportunities for logistics professionals to buck the trend and reduce costs, while improving their agility and responsiveness to changing customer demand.
For example, to combat rising transportation costs, centralizing purchasing and leveraging volumes are among the most basic, yet fruitful, approaches. Whether you have two facilities or two hundred, if you do not have a standardized corporate process for managing your transportation requirements, you are wasting the chance to use your corporate buying power to get the best rates from carriers.
When it comes to warehousing, improving productivity and efficiency in your receiving and put-away processes can go a long way in helping to reduce operating costs. One of the best means to do this is by increasing electronic advance ship notification requirements with customers and suppliers. More timely and complete Advanced Ship Notices (ASNs) can give your organization better insight into what workload coming, enabling you be more effective in your inventory planning and to streamline the inbound flow of goods.
Increasing warehouse capacity without expanding your storage footprint can also be achieved through lean logistics. For example, at Avnet, we conducted a lean initiative aimed at reducing our warehousing costs by increasing our capacity within our existing rack structure. After gathering input from our warehouse workers and analyzing our inventory profile, we determined that with a relatively simple adjustment in the sizing of our pallets, we were able to increase our capacity by 5.2 percent.
Using lean and six sigma to map the movement of product through your facilities and performing usage analysis can also help to better orient the placement of goods for better efficiency. Actions as basic as placing higher movement product closer to the inbound and outbound doors or storing most frequently picked products in the “sweet” zone (eye to waist level) so pickers can access them without the use of equipment can yield significant savings and improve your customer satisfaction.
These are just a few examples of the kinds improvements any company can make with little or no capital outlay. So, even smaller companies with limited resources, which, according to the Davis Logistics and Cost Service database from Establish Inc., continue to have higher logistics costs than their larger competitors, have the potential to operate at world-class levels.
I'd love to hear from readers about any especially productive or creative lean strategies you have employed within your logistics operations. Please feel free to share your experiences through our reader comments section.
If you are interested in seeing how your company stacks up against the competition, check out the Davis Logistics and Cost Service benchmarking tool.