Logistics Strategy in Manufacturing and Distribution
When you’re developing a logistics strategy for your manufacturing or distribution company, it’s not a simple matter of picking a shipper and being done with it. Logistics may seem like a small component of your business, but in reality, it’s second only to product quality in terms of the impact it has on your customer. Setting a logistics strategy can have very long term consequences for your entire business, and the payoffs can be huge: improved customer satisfaction, increased sales, and reduced costs. We recommend a three-part process to developing your logistics strategy. The steps in this process include:
- Setting SMART goals
- Analyzing your logistics operations and needs
- Strategy selection and implementation
We’ll walk you through some of the basic steps of developing your logistics strategy in the following sections. 1. Setting SMART Goals The first step in developing your logistics strategy is looking at logistics as a part of the overall business and asking how logistics contributes to success. Logistics is just one component of your overall business, but it’s an important one due to its impact on customer relationships. Whether your customers are eCommerce buyers who want reliable overnight delivery or manufacturers who are counting on you for JIT delivery on a certain day and time, the ability to deliver on your company’s promises is what an effective logistics strategy is all about. An effective logistics strategy starts with setting SMART goals. These are goals that are “Specific, Measurable, Achievable, Realistic and Time-bound.” What these goals will actually be depends on your organization’s needs, but there are some general categories of organizational goals that are typically important in logistics strategy. These include:
- Increased efficiency. Reducing overhead, inventory, and cost are important ways that logistics can contribute to profitability. On the other hand, inefficient logistics operations can be extremely costly both in terms of spending and its negative impact on customer service.
- Improved customer service. Logistics strategy can help improve customer satisfaction through reducing delivery times, making deliveries more reliable, and lowering the cost to the customer.
- Increased sales and improved relationships. Can logistics be a differentiator for your organization? Often, the answer is yes, either through reducing costs, or improving reliability. Improving your logistics strategy can increase the value of your brand to your customers, delivering a boost to sales and enhancing customer relationships.
2. Logistical Analysis The second step in developing your logistics strategy is taking an in-depth look at your logistics organization through logistical analysis. Depending on the size of your organization your logistics operations may be very simple, or they may be very complex. Logistical analysis considers your logistics operations from a variety of perspectives, including:
- Strategic analysis: There is more than one way to do strategic analysis. One of the most popular and time-tested methods is old-fashioned SWOT analysis, looking at the strengths of the logistics organization and overall business as well as weaknesses, that is, opportunities like unexplored strategies. Strategic analysis considers the various strategies that are available to manage logistics such as 3PL, outsourced logistics management, LTL and FTL shipping, and other best practices, comparing costs, risks, and potential benefits. You’ll also want to take a look at what your competitors are doing and how that is working for them. During strategic analysis you will lay out and analyze the options that your organization will later choose to implement.
- Structural analysis: Take a look at the current structure of your logistics. What does your supply chain look like? Does the organization outsource logistics, have a distribution network of its own, use distribution centers, or use transportation fleets? You’ll want a physical count of your current logistics resources from warehouses and distribution centers, to trucks, outsourcing partners, and human resources. Consider how logistics is handled in different regions or countries. How does it vary? Structural analysis can go into even greater depth by looking at data on:
- Freight optimization. Ensure you’re getting the best market rate on all freight shipments, and looking for opportunities to improve.
- Loadability. Look at your truck utilization rates. If trucks are frequently going out with less than a full load, outsourcing to an LTL shipper for some shipments would be an opportunity to consider.
- Sourcing. Investigating opportunities to source from within a local or regional geographic area is an area to consider.
- Functional analysis: Functional analysis is essentially the study of who does what. Because there are several business functions that affect and are affected by logistics activities, you’ll need to take a cross-functional view of what is going on to get a full view of your logistics operations. There are several business functions to consider, including:
- Supply chain management (SCM).Examine inbound logistics for the supplies needed for the manufacturing process. Unlike procurement, SCM is broad and also includes outbound logistics and distribution networks.
- Procurement.Track purchasing and inbound logistics of items needed by the business.
- Distribution. Ask what functions are involved in the distribution network regarding outbound logistics.
- Transportation. Know how goods actually move when they leave the warehouse. Does your organization have its own trucks or outsource its logistics needs?
- Reverse logistics. Consider how your business handles returns. When a customer is dissatisfied with an item and returns it, how does the logistics organization handle this?
3. Strategy Selection and Implementation Once you’ve analyzed your options and current situation from these perspectives, it’s time to start making some decisions. During the strategic analysis, you will have identified a number of options that competitors may be using, or that could be a fit for the needs of your business. When choosing between them, the criteria to consider includes how well these options may fit your organization’s SMART goals, their risk and cost, and their potential to impact customer satisfaction. After strategy selection, you’ll also want to analyze how the strategy will be implemented across the organization. Different departments within your company may handle logistics in a variety of ways. Perhaps distribution manages logistics using one outsourced partner, while returns handles reverse logistics with another partner. Implementation analysis should include developing policies and procedures to streamline operations and lower costs. Logistics is a highly complex business function, so developing a logistics strategy requires careful analysis and study. But with benefits like increased efficiency, reduced cost, and improved customer service, it’s definitely worth the investment. Has your business developed a logistics strategy? We’d love to hear about your experience in the comments.