Cover Story: Logistics: Your Next Source of Competitive Advantage; Pg 2

Ashort-sighted goal for your logistics operations would be to blindly obey the diktat of your supply chain managers to meet their needs of raw material and components-and, likewise, to mindlessly comply with the sales and marketing people's demands for finished products at different points of sale. The strategic, value-adding option is to make customer satisfaction the objective of your logistics operations-just as it is for everything else in your company. This can be translated into goals like on-time delivery, with zero mistakes, defects, and breakages, which can contribute towards building the brand's equity with the customer, especially where companies compete on delivery rather than the product.

For Hewlett-Packard (H-P), for instance, efficient logistics provide the underpinnings of a successful customer service system. Points out Anoop Khandelwal, 37, H-P's National Logistics Manager (Computers & Printers Division): ''Our customer-service hinges on speedy execution of orders, zero-defect delivery, clear customer communications, and personalised service-all of which is contributed to greatly by our logistics.'' How? Well, H-P has handed over to logistics the responsibility for managing the entire order-to-delivery cycle after the product has been assembled, as per the requirements of the customer, by sourcing parts from the regional warehouse in Singapore, as well as from local inventories.

Its logistics management people have responded by configuring their product-delivery system specifically to burn out delays. The physical process of getting an assembled product across to the customer was not a problem since it wasn't often the company had to juggle conflicting delivery-schedules. What was more important was to cut response-time, which involved creating an information infrastructure. So, they created 2 tools. A service mail information system has been installed to monitor the cycle-time between despatch and receipt. And second, the logistics managers have set up a Net-based customised re-seller infrastructure so that distributors can track deliveries and cycles, and put the pressure on the company if they are running behind schedule.

THE LOGISTICS OF ROUTE MAPPING

Then the product is perishable, logistics management involves operating within tight schedules. For Enkay Texofood, the logistics of distribution of its Onjus orange-juice has to take into account the fact that customers do not pick up a pack of juice that is more than 3 months old. So, the challenge for logistics is to ensure that the products are on shop-shelves within 15 days of manufacture-which, in turn, involves not just controlling transportation and delivery, but also aligning production and zonal despatch to the pace of product movement off the retailers' shelves-over 1.82 lakh outlets around the country!

The key issue here is to have every salesman of the company cover every retailer in his area at least once every 14 days so that he can relay back the information that is needed by the delivery logistics people to plan their despatches. However, logistics also entails planning out an optimised route for every salesman within his territory-and designing strategies and schemes to induce retailers to dispose of their old stock. In greater Mumbai, for instance, 14,460 outlets have been divided into 15 territories. So, every salesman has to cover about 80 outlets a day, which shows why route-planning is crucial. And it has to be dynamic since the needs of different retailers will vary continuously, changing the priorities for the company. So, although it has a set of 12 routes for each territory-one for each working day in a journey-cycle-these have to be changed whenever necessary. Don't forget, logistics is also about having the right person in the right place at the right time.

Thus, it has cut the time between order and delivery by 66 per cent, from 42 to 15 days-cutting operating-costs by 15 per cent. H-P is training vendors, and has set up logistics centres in Delhi and Mumbai to introduce a flexible supply chain and customised delivery. Adds Milind Kabir, 35, Country Logistics Manager, H-P: ''Our aim is to serve end-customers better by making order-to-delivery cycles shorter. This helps us faster market reach, leading to tremendous competitive advantage.''

With the same rationale, the logistics operations of fast-food chain McDonald's, made customer-satisfaction their goal. Logistics converts data on daily orders into accurate forecasts of what supplies will be needed when so that the lead time between order and delivery is as low as possible. Explains Sunder Shrinivasan, 33, Country Logistics Manager, McDonald's: ''This has enabled us to cut cycle-time as well as ensure an optimum cost-service mix.'' Importantly, meeting the needs of the production and marketing people are goals that are subsumed by the holistic objective of using logistics to generate customer satisfaction.

Link the results of your logistics-management to financial pay-offs in other parts of the value chain-and you will be amazed by the benefits you generate. That is because the impact of good logistics can be felt even on seemingly-unrelated areas of your company's activities. For instance, efficient logistics can help managers set stretch-targets for their salespeople, knowing that the company is capable of backing deals with on-time deliveries without running up disproportionate bills. Says Blue Dart's Cooper: ''Integrated and effective logistics management can dramatically reduce turnaround times, further reach, lower operating costs, make product life-cycles shorter, and delight the end-user.'' And when it comes to direct-impact areas, the gains can be astounding.

Take Ceat's experience with inventories. Using logistics as its tool, the tyre-maker managed to halve its inventory of finished goods, from 50 days in 1996 to 25 in 1999-despite the demand volatility in its markets-and aims to bring it down to 10-20 through Project Pragati, an initiative kicked off at the behest of consultants McKinsey & Co..

A series of cost-, quality-, and time-benchmarking exercises showed that Ceat's system was plagued with transit-time delays on account of multiple manufacturing locations, 125 selling-points, and 200-300 stock-keeping units. There was also a mismatch between tyre- and tube-production, and production was not in sync with planning. There were delays in decision-making due to lack of co-ordination between purchase and marketing, and even local despatches to dealers took upto 3 days. The logistics solution, clearly, was to streamline deliveries and transit. After studying the problem, the logistics people realised that the problem lay in the long distances between despatch-centres and selling-points. Because of this, the company tended to overstock products lest it be caught napping.

The answer, thus, was the setting up of 6 divisional despatch centres at Ahmedabad, Bhubaneshwar, Calcutta, Delhi, Nagpur, and Nashik. These points were selected after plotting the locations of all 125 selling-points on a map, and drawing circles around each with radii of 48 hours' travelling time. The overlap areas around the outer rim of the circles threw up the ideal locations for the despatch-centres. So, knowing that 48 hours' notice was all that was needed to replenish stocks anywhere in the country, Ceat could scale down its inventory of finished products. At the same time, an infotech infrastructure was set up to enable the despatch-centres to communicate their requirements to the plants on a J-I-T basis. Concludes K. Ranganathan, 53, General Manager (Operations), Ceat: ''The gains that have accrued to us through reduced finished goods inventory have been satisfactory. But Pragati is an on-going process, and we will be looking to do much more.''

Or take the way in which logistics service-provider Safexpress reworked the storage-system of consumables for HCL Infosystems' copier business. While the company used to stock the consumables on the basis of which of the 250 product categories they belong to, Safexpress reworked the system to stock the consumables according to which copier-model they would be used for. Naturally, this makes it much easier to process orders, which are made according to models.

Likewise, it was LG Electronics' logistics people who homed in on warehouse-usage as one of the tools for paring down inventories, which were running as high as 16 days in 1998-99. Of course, the primary problem was the lack of accuracy of the sales forecasts, which the company has been over-compensating for with excess production. But, as its logistics people pointed out, the faster they could undertake to deliver the finished products, the lower would be the inventories that the company needed to maintain. And, crucially, distribution efficiency-measured by model-mix ratios, J-I-T delivery, and the order-to-supply cycle-stood at only 68 per cent at that time.

So, even as sales-points, depots, and plants were networked to one another to ensure the instantaneous flow of information, logistics looked for solutions that it could contribute. One of these turned out to be optimisation of warehouse space. The 5-S principle of workplace-maintenance was implemented to increase the efficiency, storage and sorting, systematic sweeping, sorting, visual and physical arrangement, and implementing management systems like floor-space index-linked storage; in LG's case, it was 2.20 sq. ft per unit. At the beginning of every year, each product-line was allocated only a limited amount of space in the warehouse-determined by the sales plan-so that inventories simply could not rise beyond the capacity of that space. And this allocation was adjusted continuously, depending on the sales of the relevant line, which slashed inventories from 16 to 7 days. Elaborates S.N. Rai, 38, General Manager (Logistics), LG Electronics: ''The strategic purpose was to tailor inventory exactly to demand. This was one of the ways in which logistics enabled that.'' Just as it can in your company too.

Strategic logistics will look beyond its own parish to check for optimisation at the other nodes on your value chain. After all, with linkages to most of the other activities in your company, logistics is more likely to deliver better results if it can operate in those areas as well. The involvement is, usually, tactical, being the result of on-the-spot innovations rather than of established principles. The only rule: do what it takes.

That's what Federal Express, the logistics operator appointed by Jindal Vijayanagar Steel, did to ensure that the train operating between the company's plant at Gurgaon and its largest customer, the Chennai-based Tube Products, takes no more than 20 hours-versus the customary 4 days-to complete the journey. It has deputed its people to track the train at major junctions. It also liaises with Indian Railways to keep the train rolling, and even puts its people on the train to eliminate delays.

Or, take the case of McDonald's, the logistics of whose supply chain is complicated by the fact that there are 3 kinds of raw materials that it needs transported to its restaurants. The first have to be frozen, the second, refrigerated, and the third, maintained at ambient temperatures. The solution, provided by its logistics operator Airfreight: a set of special trucks with 3 temperature chambers so that products belonging to any-or all-of the genres can be carried simultaneously if necessary.

Logistics managers at more than one company have found solutions to their problems lurking in technology or automation, making the job of product-handling easier, quicker, and safer. ITC Bhadrachalam Paperboards, for instance, uses unmanned automated storage and retrieval systems at its plant in Bhadrachalam, installed by Godrej-Efacec, a joint venture between the Godrej Group and the Portugal-based Efacec. This system can, using automatic stacker cranes, move 3,500 pallets-of 600 mm to 1,400 mm-at upto 25-40 pallets an hour. A conventional system, by contrast, can handle a maximum of 6-8 pallets an hour. How does this translate into logistics gains? Simple: the speed ensures that products can be moved out of the plant far quicker than before so that large inventories of manufactured goods do not have to be maintained in anticipation of orders. Says Manoj Ganjawalla, 34, General Manager, Godrej-Efacec: ''Considering that inventory, often, accounts for 25 per cent of total logistics costs, installing automated systems can be highly cost-effective in the long run.'' Especially for lean logistics.

Paradoxically, despite the immense competitive advantage that your logistics can generate for your company, you may still have to outsource this function. That is because logistics operations are, usually, faster and cheaper if they are conducted by people who have achieved their economies of scale in those areas-by servicing more than one client. Moreover, the competencies required in executing the logistics operations are becoming so much more specialised, demanding investments in resources like data-processing power as well as transportation fleets, that it might be difficult for an organisation focusing on manufacturing or assembling, brand-management, marketing, and services-in other words, the typical corporation-to also develop skills in logistics operations.

Analyses H.R. Srinivasan, 35, CEO, Sembawaung Shriram: ''The evolution of multi-client logistics centres has meant that specialist logistics companies can provide an entire range of value-added services as opposed to logistics-providers in the past who provided only some components.'' He's right. From Customs clearance to storage, from physical distribution to material-handling, from transportation to packaging, the entire gamut of logistics-related services can be outsourced, allowing companies not to waste resources by creating these competencies for themselves. It will work out cheaper too as logistics service-providers move into pay-per-use offerings.

No wonder an increasing number of companies is turning to specialists in the business to have their logistics managed on a turnkey basis. And that is a global drift, as companies focus on their core areas. Why, Geologistics, for instance, even assembles products on behalf of IBM, and delivers them directly to the customer, in the process taking on traditionally in-house activities like manufacturing and service. As J. Miebach, 56, Chairman, Miebach Logistics, puts it: ''We're talking about the direct delivery of materials to the production line, on a demand-led, J-I-T basis. And direct delivery of the product to the customer or the retailer from a central warehouse.''

The boundaries of the physical zone in which your logistics will function may blur-but that it must serve up the right products in the right place, in the right numbers, at the right time, is essential. Ultimately, your competitive advantage will still ride on the back of, that's right, your logistic your logistics.