What Benefits Can a Logistics Consultant Deliver For Your Organisation?
Executive Interims - Supply Chain Practice uses former "Big Four" logistics consultants to help clients to identify the most effective route to maximising ROCE.
ROCE = Profits / Capital Employed
The usual approach to increasing return on capital employed (ROCE) is to reduce operating costs - to increase profits. However, reducing the capital employed in a logistics chain is an equally valuable vehicle for driving substantial ROCE improvements.
A Logistics Consultant to Minimise "Cash Out" to "Cash In"
Minimising the cycle time from supplier payment to customer payment; the time from "cash out" to "cash in" (and if possible making it negative by ensuring that finished goods are paid for before suppliers are paid) is an extremely powerful vehicle for minimising working capital (and hence capital employed). As supply chains become increasingly global to reduce operating costs, the importance of minimising supply chain inventories has grown. Using a logistics consultant to strip out non-value-adding (NVA) activities to reduce throughput times can have three distinct types of advantage:
Firstly it minimises the cost of borrowings to fund working capital (reducing operating costs), but importantly working capital tied up in inventory in the organisation is reduced accordingly (reduction in capital employed) - the double whammy (if you like) from a ROCE perspective.
Thirdly however, from a lean manufacturing angle, reducing pipeline inventories systematically helps organisations to discover where the frailties in their supply chains really are and ultimately address the root causes. By doing so, the robustness of supply chain performance at increasingly faster throughput rates can sensibly be improved. On the other hand, if a structured approach to addressing supply chain weaknesses isn't used and say product quality non-conformances are discovered as products hit retail outlets in Europe and North America, then the cost impact of the goods throughout the entire supply chain from suppliers in say the Far East can be massive. Using a logistics consultant to help improve supply chain reliability will often facilitate substantial cost avoidance.
Minimising Capital Employed Through Outsourcing
The costs of running a warehousing and distribution network for outbound logistics for example, are far from insignificant. Outsourcing warehousing and distribution to 3PLs reduces the capital employed by transferring assets to the 3PL, but using a logistics consultant and approaching the issue strategically (rather than tactically), reduced operating expenditure should also be possible too, arising from:
- Economies of scale (e.g. shared warehousing)
- Network optimisation & increased back-loading (greater asset utilisation / reduced capital employed)
- Mode optimisation
- Lower vehicle total life-cycle costs
- Selective investment in enabling technologies (e.g. automated warehousing solutions, or those which facilitate reduced warehousing operating costs e.g. de-skilling through "pick to light")
Sometimes though, the solution isn't always as obvious as it might seem...
Case Study: Warehousing & Global Distribution Outsourcing
Client: Global high-technology aftermarket business
Key Challenges
- Truly global geographic spread of aftermarket clients
- Demanding customer service specifications because...
- Fast spares turnarounds demanded to minimise aftermarket clients' potential high cost of capital downtime
- Assumption by the client client that the outsourcing of warehousing and distribution was the most appropriate route forward for their aftermarket operation.
- Pre-determined / de-facto 3PL (warehousing and distribution) supplier selected - so no competition
- Sensitive supplier - client relationship
Approach
An Executive Interims logistics consultant was hired to perform a gap analysis of the client's requirements and the suppliers' service offering. Constructively challenging the supplier's service specification and it's value for money by using a due-diligence process ensured that the Supplier's privileged position could not be exploited to the client's disadvantage.
Benefits
By working closely within the client's warehousing and distribution team and thorougly challenging the business case, the Executive Interims' logistics consultant identified that in fact, the suppliers' plan to move warehousing to a shared facility would not generate an adequate saving to pay back the sunk costs at the existing warehouse on a long lease. Substantial on-costs were therefore avoided and instead a substantial programme of warehousing and distribution cost saving projects proposed instead.
Reducing Inventory Redundancy
Particularly in businesses with rapid new product life-cycles, the cost of inventory redundancy can be crippling. Valuable resources (capital employed) are wasted in processing products that ultimately have to be disposed of without making a reasonable contribution to gross margin. It's simply a complete waste of everyone's time.
Developing more accurate forecasting processes and ensuring that suppliers have transparent visibility of end-customer demand patterns can help collaborative decisions to kill unproductive product ranges early, so that shelf-space can be used for products which deliver the highest gross margin per unit volume of shelf space.
Maximising Gross Margin & Maximising Customer Retention
On the other hand the same mechanisms can be used positively to foster the allocation of more resources in the supply chain to rapidly grow product ranges which contribute the most gross margin. Maintaining high levels of availability for these products is often crucial in minimising lost sales, improving customer service and utlimately retaining customers in the future, and by so doing locking out competitors. A logistics consultant from Executive Interims - Supply Chain Practice can help your organisation to minimise inventory redundancy and maximise gross margin contributions.
See more information on logistics consultancy or transport consultants, or see our article about interim logistics managers.
As part of our supply chain portfolio we also provide clients with:
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