Forward Thinking

June 11th, 2013 - How companies manage urgent logistics has a big impact on the bottom line

Companies are under increasing pressure to respond quickly to client needs to remain competitive. But at the same time, they must plan production and logistics carefully to avoid operating constantly in crisis mode, says Fabrice Mattei, a director at consulting firm Vincia in France.

The risks are clear. Last-minute production and deliveries are more expensive than planned operations, he says, and could quickly erode a company’s profits.

“Businesses must react quickly in order to stay competitive,” notes Mattei, whose clients include French car manufacturer PSA Peugeot Citroen and Swedish mining equipment group Sandvik . “They must be capable of producing and shipping one part as well as 100 parts.”

Mattei estimates companies can boost production by between 10 percent and 20 percent by rethinking the way they operate.

For many companies, moving away from a strict just-in-time model, where companies produce just the amount of stock they need, is one way to gain flexibility. Mattei recommends manufacturers keep one month’s stock of low-risk products in reserve, for example.

“It’s less expensive to keep the assembly line in production for goods that companies are sure to sell eventually than to have people and machines doing nothing all day,” he says. It costs car manufacturers around 10,000 euros every minute the assembly line stops working, he estimates.

The purchasing department, meanwhile, can play an important role in helping the company manage urgent orders. Companies should be able to buy small quantities of parts from their suppliers with speedy delivery when needed. They need to make strategic choices about whether to pick suppliers in Europe, for example, because they will be able to deliver smaller amounts of goods more quickly than suppliers in India or China.

“It used to be that the cheapest supplier won the business,” Mattei says. “Now getting the right volume of product at the right time is increasingly important.”

It makes sense for many companies needing urgent deliveries to take control of the transport themselves, typically through a logistics provider, rather than leaving logistics to the manufacturer, he adds. In this way, the company has greater control over costs and timing and can seek solutions such as consolidating goods.

Companies buying goods from Asia should consider consolidating their orders in Hong Kong to reduce costs and boost reactivity, Mattei says.

In addition, companies should have clear procedures for receiving urgent goods, he adds, to make the process of taking delivery as efficient as possible.

Another solution is to identify the most urgent goods and create a local stock, so reducing the risks and costs of long-distance logistics. “This is already a strategy being adopted by the aeronautical industry,” Mattei adds. “Companies are creating platforms on every continent for faster delivery of parts to local clients.”

“Companies cannot avoid urgent deliveries,” he concludes. “But careful planning will help them avoid costly crises.”

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