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At the Logistics Bureau we help our customers to form a holistic view of the end-to- end supply chain, diagnose the key issues within it, prioritize key and improvement initiatives, then provide a specialist device to procurement function and then help you to determine how much extra value you could possibly derive from an inbound supply chain.

Our procurement consulting service will help you to determine your strategic, operational, and cultural remedies for offshore sourcing or offshore manufacturing and help you to operationalize your global procurement strategy in a practical way.

Part 2.

In the past few years global sourcing has been more of an economic as well as a political agenda to many large corporations. As time goes by more and more companies agree that the supply chain issues associated with an outsourcing program have often been underestimated. The cause of the problem is that many similarly smart outsourcing decisions were based on low acquisition cost rather than total supply chain cost. Here I want to share 8 key challenges that we’re facing in today’s global sourcing world.

Challenge 1. Low level of supply chain responsiveness is often observed when goods and services are purchased from remote countries. Supply chain executives need to analyze from skill, experience, organization and cultural perspectives to determine what process, procedure, and system are to be put in place to deploy an agile supply chain.

Challenge 2. High logistics cost often reduces the benefit from low cost purchasing.

Costly global transportation and excessive global inventory often cripple a company’s confidence in sourcing from remote countries. The good old theory of total cost ownership should always prevail.

Challenge 3. How many of us have experienced supply disturbance as the result of increasing buying competition and increasing material and energy cost in common supply markets. Developing supply alternatives should be a continuous task to procurement managers.

Challenge 4. We, as buying companies, often overlook the importance of introducing stringent control and audit mechanism at remote supply sites to ensure high quality and environmentally sound products and services being purchased.

Challenge 5. Failure in providing supply chain visibility can give detrimental effects to your outsourcing program. Today’s supply chain planning and execution tends to be heavily IT driven. We often ask ourselves if we are driving the system or the system is driving us. We can deploy a perfect ERP(Enterprise Resource Planning) or a vaster

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planning system today for we can never guarantee that it will solve the supply chain coordination issues of tomorrow. While we are designing IT platforms, let’ not forget the basics. Today’s supply chain issues are still largely people and process issues.

Challenge 6. How shall we coordinate along the supply chain? Internally, the interaction across your demand planning, purchasing, R&D, manufacturing operations, warehousing distribution and other logistics functions determines the systemic health and ease of your supply chain. Externally, the connectivity to your suppliers and your customers to certain degree determines your company’s supply chain efficiency.

Challenge 7. Cross enterprise collaboration between you and your suppliers is going to be vitally important to your success at a global scale. A true partnership comes with honesty, integrity, understanding and transparency. It is often easy to say, but hard to do.

Challenge 8. Companies can often be overwhelmed by the number of performance measurement matrices that external consultants give them. But selecting a set of KPIs that make sense to key supply chain stakeholders is not an easy task.

Consistently measuring a suitable and a balanced set of KPIs is going to give longterm and sustainable benefits to an organization. We believe that the proper management of all these challenges will help your company to contain and improve your total cost of supply chain. Please, feel free to contact us to discuss your global sourcing issues. We are here to wish your company a happy journey in a globalized economy.

Unit 5. Warehouse location decision

Chief Executive Officers and Supply Chain Executives typically ask 2 questions with respect to warehouse location decisions. Firstly, how many distribution centers do I need to adequately service my customers? Secondly, how can I minimize the cost of warehousing? Finding answers to these questions can be perplexing.

So, as a starting point, let’s focus for a moment on five cost impacts of multiple distribution centers. You may like to refer to the model displayed on a screen or to the logistics bureau website to view the model.

Firstly, multiple warehouses means higher storage management overheads and running cost. Secondly, inventory holding cost, otherwise known as the costs of capital, increase when inventory is held in multiple locations. This is reinforced by a landmark study by D.H. Maister published in the International Journal of Physical distribution in 1975. This study quantified the reduction of inventory holding applicably when the number of distribution centers in a network is decreased. Known as the Square Root

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Law, Maister determined that the total inventory in the network is proportional to the square root of the number of locations at which product is held. For example, if I reduce my warehouses down from, say, 8 to 2, by calculation, the law says that I’ll reduce my total inventories by 50 %. If I was to reduce my warehouses from 8 to 1 that increases to 65%. So, the key learning point here is that reducing warehouses, decreases stock holding and the associated working capital to finance it.

Now, for points 3 and 4, I am going to touch on transport. Point 3: Primarily line haul costs for transport between facilities are much higher for multiple facilities as more tonkilometers are travelled to replenish distant warehouse.

And for point 4 the converse applies. Point 4: customer delivery cost from multiple regional warehouses, otherwise known as secondary transport, tend be lower because with more facilities the in-distance between the warehouse and the customer is reduced. So, for your network design purposes and your assessment of the most appropriate delivery service times for your customers, you might like to note these rules of thumb for operations within Australia.

If a warehouse is 12 hours or less drive from your customer, for example from Melbourne to Sydney or Sydney to Brisbane delivery into store can be made the very next business day after dispatch. For customers 12 or 24 hours’ drive away, such as from Brisbane to Melbourne, then delivery will be 2 days. For deliveries exciding 24 hours drive as in this case from Sydney to Perth lead times of 3 to 4 days are typical. Now these rules are useful in balancing warehouse cost with transport delivery charges.

Finally, let’s look at point 5. It deals with control and systems. For multiple distribution centers, warehouse management systems costs increase markedly as more licenses, interfaces, and hardware requirements cause costs to rise.

So, to plan and to control these five expense areas the objective within any distribution network is to find the optimal number of facilities that will reduce to total cost curve while still maintaining appropriate levels of customer service.

So, you might say, how do I define what is optimal. Well, during the design process Executives should use a blend of common sense and appropriate use of optimization tools for important network decisions. Be cautious here, even the best designers, using excellent optimization tools and modeling, can overlook the basics. For example, one model I have seen showed that the best geographical location for a National Distribution Center in Australia was in Western New South Wales. I will not argue about the geographical justification for this. However, the solution did not take into account the

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significant population centers on the Eastern sea board of Australia, nor the incumbent transport hub and spoke networks and infrastructure in coastal of Australia. Taking these into account we often reveal a different solution. For instance, for a company supplying consumer durables to the Australian market place it is common for a National Distribution Center to be placed in either Sydney or Melbourne with an additional 2 regional distribution centers: one in Perth and the second in either Brisbane or Northern Queensland. In this way, the rule of thumb service times, mentioned earlier, can be achieved.

In a short module I have covered some brief insights in rules of thumb which can be applied to warehouse location decisions. I trust that I have been helpful to you and wish you well as you determine the optimal number of warehouses in your network.