Supply Chain: Logistics Masterplans

The industrial footprint of major international companies has continued to grow over the last thirty years without however leading to a streamlined logistical organization. The topics currently dominating the Supply Chain represent as much a takeover of the logistics organizations as a very strong expected potential in terms of expected gains.

​By developing industrial sites around the world to meet the strategic imperatives, companies are obliged to implement a consistent set of processes to shape their value stream... If an applied implementation of the value stream is essential for meeting performance targets, it is indeed a significant position due to the implied needs (transportation, storage, support functions ...).

This is the price of increasing complexity. The internationalization of major organizations and the dispersion of industrial assets must now be combined with the growing need for flexibility and responsiveness required in the whole value stream without however restraining competitiveness.

What about flexibility? How to adapt one’s organization to be able to respond to shifts in demand (shifts in volumes, shifts in the nature of the requested products, modulation of the demand frequency)?

And about responsiveness? How to position yourself to make these adjustments in the least possible space-time? 

Industrial groups are not less demanding than the end-customer regarding flexibility and responsiveness: series’ sizes are reduced, effective time optimized and buffer stocks are reduced to the lowest possible level. In turn, they all require, from the logistics sector, a very high level of performance and regardless of the degree of internationalization of the latter.

​What are the levers currently being used?

  • Towards upstream logistics

After working on the downstream perimeter and leaving the upstream optimization to the purchasing (optimization of the purchase price) and supply (securing service levels) teams, supply chain managers ask us more and more about existing potential for reducing upstream logistic costs.

For a multinational, such costs can represent, over a year, up to 15% of the purchasing budget. They relate to the "door-to-door" transportation operations, including some players focused on warehousing operations and handling.

of the purchasing budget

The levers are not fundamentally different from what we know about the downstream:

  • General optimization of the Logistics framework
  • Generalization of the pick-up routing principles and sharing of resources used (trucks or containers) 
  • Tightened management of resources utilization (e.g. containers fill rate)
  • Alignment of internal schedules on standard logistics times (e.g. orders distributions)
  • Streamlining the panel of third parties, competitive bidding and optimization of contract terms (advanced price negotiations by route and channel, securing the provider's quality of service, backup solutions ...).

Using these levers on the upstream supply chain, large industrial groups such as Fiat or Valeo succeeded for example to generate in 2012 savings equal to € 7,8m and € 20m respectively. These initiatives are widely promoted in corporate communications as they contribute directly to the improvement in operating margin.

  • Regaining control of the flow

This approach was also at the heart of the study we conducted in early 2013 for one of the major market players in consumer goods, with a large presence in Asia Pacific emerging countries (5 local plants). The analysis of upstream logistics flows and costs incurred helped to highlight existing opportunities especially in terms of rationalization of domestic transportation from local suppliers.

The challenge in this case was first to question the relevance of the incoterms used in contracts. By delegating the organization of transportation to the suppliers, our client did not put himself in a position to control the cost and launch supply chain optimization initiatives. By taking over the organization of logistics flows, all levers mentioned above could therefore be activated. 

total transportation cost

On a domestic scope, regarding road transportation, switching to a touring system and using if necessary consolidation/deconsolidation nodes in the upstream flow enabled a 50% reduction in the total transportation cost. 

  • Adapting the organization

In addition to streamlining the process it is also good to question the Supply Chain organization to ensure that it is in line with the needs of flexibility and responsiveness mentioned above.

When a large industrial group sets up operations in a new country, it initially needs to manage the new plants centrally to ensure continuity in regard of the internal performance standards. According to the culture of the company, the progressive relocation of support activities follows with varying responsibilities, giving varying degrees of autonomy as appropriate.

A major English automotive supplier recently asked us to streamline its Supply Chain & Purchasing process in China and review the division of roles and responsibilities between central and local teams. We could then measure how the resurgence of historically centralized organizations could cripple the team’s daily life. The complexity of the decision making process (creates constant communication and various validation requirements) can lead to a severe lack of responsiveness and penalizes customer satisfaction.

Supply Chain is, in this sense, often trapped between two worlds; particularly regarding the issues of the upstream portion mentioned above, who could offer supplies on time touring transports without having the operational view of the factory? With the same reasoning, who can achieve economies of scale in purchasing or in service providers’ costs without having the data on the aggregated demand of the group?

We always recommend our clients to clearly separate strategic processes and business processes and then assign the former to global functions (which have a general vision of the group needs) and the latter to local or regional functions (which are directly aware of the field requirements). Timing is therefore essential between the local and the global, but the company makes sure that each one addresses the appropriate level of issue. 

If large international groups sometimes struggle to accelerate the transition to an efficient supply chain management in terms of process organization, confronting emerging market players make them directly face the need to change their way of thinking. Established in China and India and working with Western companies on issues concerning operational efficiency, we are regularly witnessing the extreme mobility and adaptability of local players. Supply chain managers will be more than ever in the forefront to support the strategic goals of the company: international development, “end-to-end” competitiveness, securing flexibility.