Friday, July 22, 2011

Lack of Internal Communication Drives Up Logistics Costs Warns Consultancy

Virtualized Logistics Warns Companies to Talk Better
Shipping News Feature

UK - Companies are accruing unnecessarily high costs within their supply chains because different departments do not communicate across functions, says Tony Leach, Solutions Director at Virtualized Logistics, a new consultancy set up by logistics specialists SBS Worldwide.

“Each department is so focused on its own activity and targets that it does not consider the impact of their actions or policies on the rest of the company can have further up or down the supply chain,” Mr Leach explains.

“Some are obvious. The purchasing department bulk-buying to achieve lower unit costs causes chaos for the warehouse manager who is tasked with reducing inventory.

“But others are more subtle. For instance, a change of packaging – for cost, point of sale or environmental reasons – has been known to force wholesale alterations in container utilisation and/or cost of last leg distribution.”

He cites another example where a purchasing team had described a product in a certain way which the import department then used when selecting a commodity for Customs classification declarations. This resulted in the company paying higher than needed excise duties, because another suitable category was not chosen instead.

“It’s all about communication. You can have the best software in the world to create the most cost-effective supply chain, but it needs all the relevant information, in order to achieve maximum benefit,” says Mr Leach.

“We must apply business specific visibility tools that people benefit from as part of the daily operation. If you can’t pull the data into the planning tools with integrity so that people trust the data and know that it’s current, they are not going to use that planning tool.”

Mr Leach, as you might expect, advocates the use of advisors such as Virtualized Logistics to conduct a Supply Chain Health Check.

“An independent expert, with no preconceived ideas and no particular loyalties to one department or another, can make a huge difference in a relatively short time,” he says.

Mr Leach and Tyrone Omidi, Technical Director, have already been instrumental in designing an enterprise supply chain software solution for their associate company SBS Worldwide. This has recently been launched in the book publishing industry, after in-depth consultation with publishers worldwide. One publisher is set to save $400,000 on shipping costs this year.

Leach concluded that:

“We have been amazed by how many companies do not really know how much their logistics, or other processes, cost them. So, of course, they do not know where to start to create efficiencies. And, needless to say, we want to improve customer service at the same time.”

(pic: (from left) Tyrone Omidi Technical Director, and Tony Leach Solutions Director, Virtualized Logistics.)