In most businesses today, low cost has emerged as the prime differentiator, making effective inbound logistics an essential prerequisite. A keen focus on supply chain management can help reduce the total cost of material acquisition thereby reducing the overall operational overheads.
This is even more important for made-to-order mass customization businesses like Dell (they rely on a closely integrated supply chain), as there is always the possibility of large variations in the supply of raw material, material behavior dependencies from the buyer network (one supplier but many buyers, each with individual preferences), lead time issues, or for that matter, orchestration of several minor components of the fulfillment process that make up majority of the cost of fulfillment. Inbound logistics should therefore be considered an integral part of the overall supply chain strategy and organizations should strive to make this aspect robust and efficient.
The latest trend among companies is to manage logistics at the point of pick-up. What that means is we need to move away from the traditional mindset of controlling carrier rates, per mile charges, or the total cost of ownership (TCO) for a supplier, to a more holistic mindset of designing optimal routes, understanding and minimizing the total landed cost per item, streamlining material acquisition, and managing wastage better. Here, wastage refers to resources (personnel or money) consumed while executing an incorrect pick-up.
Logistics companies should be evaluated on the total cost of fulfillment, while suppliers should be assessed on lead time commitments. It should ensure that the critical path to delivery is the shortest possible route with the minimum number of inventory hold points. Route planning and cube utilization are therefore crucial to achieve this. Too many material handover points will ultimately increase the cost of transportation. The buyer’s responsibility lies in minimizing order variability, although in a consumer-driven market that is seldom controllable.
Given the importance of inbound logistics, the entire responsibility of reducing the landed cost of an item cannot be attached to the carrier company. Responsibilities should be divided among stakeholders, as shown in the following responsibility matrix.
|Seller and/or manufacturer||Logistics company||Buyer|
|Supply chain management||Route planning and management||Visibility and clarity in order. For instance, if the buyer does not communicate the required number of cartons or packages correctly, it will create chaos for the logistics company.|
|Production planning||Statutory compliances in transportation and logistics||Ensuring less order variability. Let’s take the case of Flipkart. For an item that is made to order, say a bike helmet tattoo, if the buyer keeps changing the scope, it will create pick-up uncertainty at the logistics company, disrupting the overall delivery schedule.|
|Inventory management||Contingency management||On-time pick-up notification|
|Carrier management including carrier performance and contract terms||Cube utilization||Receipt schedule|
|Communication plan||Ability to eliminate waste in transportation||Store-wise packing list|
|Packaging and labeling–based on buyer specifications||Fill rate (ability to run full truck load)||Smooth settlement process including timely payments|
Kaushik Mukherjee, Head – Marketing Support, iON Manufacturing
Kaushik is a Domain Consultant with the iON Small and Medium Business unit at Tata Consultancy Services (TCS). He has over 15 years of experience across areas such as research, corporate finance, investment banking, and business consulting and has led several large transformation programs for TCS’ clients before joining the iON unit. Kaushik’s contribution to the development of the CFO-PRTM Capital Spending Scorecard for valuing shareholder returns was mentioned in the CFO Magazine’s 2004 issue. Kaushik graduated from St. Xavier’s College, Kolkata, and has a Master’s degree in Business Administration (Finance and Strategy) from the University of Hartford, Connecticut, USA.