Global Supply Chain Group

Menu
Edit

Best Way To Minimise Your Warehousing Logistics In Supply Chain Cost?

Share
Share
Share
Logistics In Supply Chain

Share:

Best Way To Minimise Your Warehousing Logistics In Supply Chain Cost?

Very few companies seem to have enough warehousing space. Almost 80% of the companies I have interacted with as part of my projects (and that number runs in thousands,

when you count the suppliers, customers and other supply chain partners of clients and customers) have sometime or other complained about running out of warehousing space.

And, if I had asked the remaining 20%, several of them would have also likely complained about the same thing. They did not complain only becuase their other problems were far more urgent and important.

So Why Are Most Companies Almost Always Out Of Warehousing Space in Logistics In Supply Chain?

We will come back to answer this question in a short while. But let us first see its effects.

You have probably already heard, and seen the effects yourself. People coming to you almost weekly (if not daily) to ask for more warehouse space.

The request may be temporary, seasonal or permanent. It may come up in many different ways during the meeting.

Inventory Has A Tendency To Accumulate on Logistics In Supply Chain

Even if you are not a hoarder by nature, someone else in your company might be enough to trigger the hoarding.

Let’s look at a few few case studies to get to the depth of it. Take a look at the picture below:

Global Supply Chain Group - tyrytt

Each of the circles (or dots) in the picture above is a stocking location for a business. Larger circles mean larger stock holdings (in $).

The horizontal axis is stock turns, so a stock turn of 2 a year means average stock holding of 6 months in this location. The vertical axis is annual sales in Million $.

What is clear from above picture is that barring two locations every other location is a low sales stock holding location. And about half those low sales location keep stock for 6 months or more.

Space Runs Out on Logistics In Supply Chain

And, this business was clamouring for more storage space. You might think that this business did not have a good enough inventory management system.

But in fact, the system was barely understood, let alone used. So it did not matter whether it was good or not (and yes, it was not the best in any case, though they were led to believe by the vendor it was quite good).

Here is a picture of another business – this time look at the stock that was untouched for more than one year (multiple years in many cases.)

Global Supply Chain Group - tytyt

You might excuse this business, thinking that perhaps this one too had dozens of locations and thousands of items to stock. But, no.

It has barely a handful of locations and a few hundred high velocity SKUs (items). So there was no reason for having such a large stock of inactive items.

I could of course produce dozens of charts like this from other projects, but I am sure these two already give you a picture.

Why Does This Happen on Logistics In Supply Chain?

So let’s come back to the question asked earlier. Why does every company seem to run out of inventory holding space?

Things happen. Sales people provide wrong forecasts. Or, they are optimistic about a particular customer and want to be prepared for when the order comes in.

Or they have high expectations from a new range of products. In many cases – they want to have a warehouse full of product before they want to go out to make a sale.

That puts psychological pressure on themselves, and also makes it easier to discount and make a sale.

Operations people make mistakes all the time. It is always better to be safe, than sorry. Last thing operations and supply chain staff want is to run out of stuff just when orders start rolling in.

You will right to ask, isn’t there some sort to science around inventory planning and targeting. What use is all this predictive analytics and AI if we cannot even manage inventories coherently.

I have written about systems short fall elsewhere so I do not want to divert my attention there. I want to add that in most cases even the personnel are not up to the job (despite the appearances).

Alas, it will take me an entire book to talk about potential reasons why the above charts are so typical of most businesses.

Sood’s Law Of Inventories on Logistics In Supply Chain

Let me sum it all up with a simple axiom – I call it Sood’s law of Inventories – “Inventory always expands to fill up all the warehousing space that is available”.

The reasons are partly technical, and partly psychological.

Just like the now famous Parkinson’s law of bureaucracy which states that “work expands to fill the time available for its completion,”

and that a “sufficiently large bureaucracy will generate enough internal work to keep itself ‘busy’ and so justify its continued existence without commensurate output. “

I want to spend just one more minute on the elaborating its effect before moving to the potential solutions.

Imagine for a moment, what happens if you have third party logistics service warehousing providers who claims to have put at your disposal an unlimited storage?

I will leave that corollary to you and move on to the potential solutions.

It is customary for most houses to do a sort of ‘spring cleaning’ or ‘after Christmas clearance’ to get rid of clutter. Many retailers use clearance sales a marketing tool or sales gimmick.

Some even use them to genuinely empty out the warehouses. The solution is to use these more often, and more rigorously.

Look into every nook and corner of the warehouses. Question every stock holding. Ask for the inactive stock report for 12 months, 24 months, 6 months and even 2 months.

Make it clear that you expect the stock to move, not sit. Flow creates momentum and performance. Expect it.

More importantly, do not allow people to fill warehouses with products that don’t sell.

The best way to minimise your warehousing logistics costs is minimise your warehousing logistics stock holding.

If you are getting too many excuses, get outside help. Here is how to get the best form of help in situations like these.

This Is Just The Beginning on Logistics In Supply Chain

The reason I added this last subsection to this article here is because I got feedback from an ex client who read this article till this last subtitle that

I left them with an impression that spring cleaning would be enough to minimise inventory, and thus the warehousing cost.

In case you thought this is all I have to say on the matter, I want to add that in addition, there is a an internal manual our company uses to train new recruits on the ‘science of inventory management’.

It details FIVE different types of inventories, why they are necessary and useful, how to scientifically calculate each type of inventory for each item at each place,

how to automate the process and how to use it to keep the inventories under check.

Unfortunately, that manual is not yet good enough to put in the public domain. When my team has time, sometimes with in the next 18 months,

we will refurbish that approx 300 page manual so you don’t have to be a top notch consultant to understand bulk of the content.

If you are keen to get a flavour of the subject, and if you can look past the antiquated 2011 era video production technologies we had, here is a video in which I explain to Fanny Martinache the problems in inventory management.

PROBLEMS IN INVENTORY MANAGEMENT – PART 1 (C) GLOBAL SUPPLY CHAIN GROUP

That just gets you in the right mindset to make use of the manual. I am not sure, but there might be a book out there somewhere which might give you some starting advise on the science of Inventory management.

Otherwise, contact me and I will send you some pages out of our internal manual.

Share Generously :

LinkedIn
Twitter
Facebook
WhatsApp

Copyright - These concepts, frameworks and ideas are copyright of GLOBAL SUPPLY CHAIN GROUP from the time of their creation. Do NOT copy these without permission and proper attribution.

Notes:

1. These ideas and concepts will be usually expressed by our thought leaders in multiple forums - conferences, speeches, books, reports, workshops, webinars, videos and training. You may have heard us say the same thing before.

2. The date shown above the article refers to the day when this article was updated. This blog post or article may have been written anytime prior to that date.

3. All anecdotes are based on true stories to highlight the key points of the article - some details are changed to protect identification of the parties involved.

4. You are encouraged to comment below - your real identity and email will not be revealed when your comment is displayed. Insightful comments will be featured, and will win a copy of one of our books. Please keep the comments relevant, decorous and respectful of everyone. All comments represent opinions of the commentators.

Our Quick Notes On Five Flows Of Supply Chain Management

Part of our new “Quick Notes” series – this report answers your most pertinent questions of the topic.

LIMITED TIME
USD 20
FREE

. What are the five flows of SCM?

. Why are they important TO YOU?

. How can you map, track, and optimise these flows to serve YOU?

. What is the importance of difference between "Supply Chain" and "Value Chain"?

. What are the stellar case studies of each of the five flows?

MORE INTERESTING READING

Leave a Comment

Your email address will not be published.

Table of Contents

ABOUT THE PRINCIPAL AUTHOR

Today, Vivek and his partners are among 20-30 people on the planet earth who have this deep understanding of supply chain systems, practices and tools. CEOs, COOs, executives and Boards call them in most challenging situations once they know the full potential of supply chain based transformations. Following are key milestones in Vivek's journey:

  • Started in 1983 as a merchant navy cadet at 18 years age, worked his way to qualify as a Captain – qualified to take command of any merchant ship, worldwide.
  • Earned a top tier MBA from UNSW at the top of his class.
  • Joined highly regarded strategy consulting firm Booz Allen & Hamilton, consulting to the CEOs, Boards and senior management of global corporations within Australia.
  • To learn and specialise in supply chain – against all odds, sought out the co-inventor of supply chain in Germany and convinced him to be a partner in his firm, GLOBAL SUPPLY CHAIN GROUP, launched in January 2000.
  • More than 500 successful blue chip projects with high impact business transformations in large corporations using the full power of SUPPLY CHAIN MANAGEMENT.
  • 4 Seminal and path breaking business books IN SUPPLY CHAIN MANAGEMENT – these are available in bookstores and universities and libraries worldwide.

Limited Time

FREE

This offer expires in

Our Quick Notes On Five Flows Of Supply Chain Management

US$20

USE CODE "FREETODAY"

WHAT OTHERS ARE SAYING

Our Clients say it better than we ever could:

TRENDING POSTS

OUR CLIENTS

Our Clients come from a variety of industries – yet they have a common element. They rarely rest on their laurels, and are always looking to do better.

OUR PROJECTS - EFFECTIVE TRANSFORMATIONS

In the last 20 years we have completed more than 500 projects. Click below to see a sample of our projects.

OUR TESTIMONIALS

RELATED POSTS

Our Books

5.0
5/5

THE 5-STAR BUSINESS NETWORK

If you are deeply passionate about the world of business and supply chain networks as I am, and enjoy digging answers to critical questions that will help build and steer your business with wisdom, then join me. This book is a journey of exploration through the world of business networks that run along the veins of today’s commercial world.

4.3
4.3/5

OUTPERFORM OUTSOURCE OUTPROFIT

The trend of outsourcing continues to grow unabated with the whole gamut of services, from simple to mission-critical tasks. There is not a single company on earth that does not outsource anything. It is not just about cost arbitrage, it is also a finer expression of division of labour at the organisational level. Like all leverage, outsourcing is a double-edged sword too. On one hand, it allows you to do more, faster. On the other hand, if it goes bad, it can easily kill your business. If you do not believe that is possible – you can google the Fox Meyer saga from the 90s and see for yourself.

4.3
4.3/5

UNCHAIN YOUR CORPORATION

Businesses Are Chained By Unseen Chains. If You Are Looking For Ways To “Unchain Your Corporation” A Successful Business Transformation Is Required.

Successful Business Transformations Are Difficult, Yet Rewarding.

Business Transformation Is Fast Becoming A Question Of Survival In The Modern Globalised Era.

Modern Supply Chains Integrate Businesses And Economies Faster By Systematic Information Sharing From Internal And External Sources.

Companies Can Multiply Profits By Progressively Ramping Up Cohesion And Collaboration Of All Moving Parts In B2B Network To Achieve Tighter Integration.

4.3
4.3/5

GREEN SUPPLY CHAIN – AN ACTION MANIFESTO

It is generally accepted that environmental consciousness is now changing to environmental proactiveness as organizations are discovering that it makes good commercial sense.

Boards are asking the management to review their policies related to environmental norms, not only to bolster their corporate social responsibility aims, but also because consumers are asking for greener supply chains

It is also widely agreed that consumers will increasingly prefer to buy more and even pay more for products or services provided in an environmentally sound manner.

FOR SENIOR EXECUTIVES AND DIRECTORS

YOUR HIGHEST VALUE ADDED IN YOUR COMPANY

Scroll to Top