The experience of working as a director of logistics in a large company confirms the correctness of those specialists who claim that there is no “magic pill” or only correct solutions in the supply chain management system and there cannot be. On the other hand, there are certain principles, following which we can achieve success in our business. And they are the same for logisticians who work in almost all branches of the domestic and global economy. No matter what type of business you’re in, your technology, your people, and your partners should always be at the center of attention.
This statement has not yet been disputed by anyone. But how to use the three main “keys” in practice?
It all starts with strategy
Those who think that strategies are created only to paint a beautiful picture to investors or creditors are mistaken. In fact, the strategy adopted by the company determines the direction in which you will develop the business. Accordingly, if there is no strategy or it exists only formally, the question arises: is the enterprise developing at all, or is it making money today, using the favorable circumstances that happened by chance? And here we should also ask: what will happen tomorrow?
However, the majority of current managers of large successful companies operating in Ukraine do not need to be convinced of the need to develop a strategy. Another matter is how well the developed and adopted strategy is consistent with other plans of the enterprise that are being implemented at the current moment.
We have more than once encountered a situation when the company’s general strategy and its logistics development strategy were in different directions. For example, the company as a whole focuses on actively conquering the market, bringing it to market and promoting novelties, etc. And the logistics department believes that the main investments should be directed to the development of the warehouse. Moreover, it is about storage, not about the development of the distribution system and, even more so, not about the introduction of fast delivery, convenient customer services, etc.
If this is the case, sooner or later the moment will come when management will ask: why are we spending so much money on logistics, and the return on investment is minimal? It is difficult for the director of logistics to justify the need for additional financial costs. On the other hand, if the strategy of the company as a whole and its logistics division in particular allowed to achieve the same goals, then the CEO, the owner, and the investors would understand that every penny invested in logistics today will bring a good profit tomorrow. After all, it is about increasing the competitiveness of the entire enterprise.
How to achieve such an agreement? First of all, the head of the logistics department needs to understand what are the features of the market in which his company operates and what place it occupies in this market.
Studies of the Ukrainian market show that today we are experiencing the same structural changes that took place in America and Europe back in the eighties of the last century. And here – two news, and both – good.
First of all, not only the advanced countries, but also many of our neighbors have survived this period, gaining valuable experience. We only have to come to them and see what and how they did, what they came to, borrow all the best and try to avoid the mistakes they made. Of course, any foreign experience should be used taking into account our realities. But “inventing the wheel” is no longer necessary.
Secondly, if we organize everything correctly, it will not be necessary to spend a lot of effort, time and money. After all, it is not necessary to create your own systems from scratch either.
And in general, we see a good dynamic of development in the modern Ukrainian market, we have an economy of speed, innovation, as well as an economy of interaction. We learn to do everything quickly and qualitatively, introduce modern technologies, develop professional skills of employees and try to find new, more perfect forms of relationship with our partners and customers. Let’s talk about it in more detail.
The role of IT in supply chain management
It is clear that technological progress is not limited only to the field of IT. However, information technologies occupy such an important place in our lives that we increasingly ask ourselves a philosophical question: does business determine the essence of IT systems, or vice versa – IT systems themselves now determine the essence of business?
A very telling example here can be e–commerce. The capabilities of any online store, the level of service and the list of services directly depend on the IT solutions used. Without information technologies, it is impossible to work here at all. They determine how you will conduct your business and, in particular, how you will build your logistics.
General digitization has covered many branches of the Ukrainian economy. We understand that similar processes in the USA, for example, took place three decades ago, but we still do not cease to be surprised by the level of technology that comes to us from abroad. Yes, great technologies were brought by the large retail chains “METRO” and “Auchan”. Today, following them, many implement EDI systems that provide simple and reliable communication with all business partners online.
We moved away from the traditional rolls of paper from the fax machine, from paper invoices and other documents in which managers were drowning. We don’t need to redial the same data multiple times. Today, access to all necessary information is provided with one click of a computer mouse. We can also see what is happening with our business partners, easily and simply uploading information about their offers to our system, processing it and getting results in the shortest possible time. And our clients also receive information about the shipment of goods, all kinds of confirmations, etc. in the most magical way in real time.
So, modern technologies simplify everything that is impossible. We see what our partners and clients do, they see what we do. No need for numerous phone calls, visits to sales halls and offices. All procedures are performed on a working computer. But still, this level of cooperation can still be achieved if we are talking about the interaction between large companies that have invested a lot of money in IT. And what to do with Traditional Trade?
Still, along with large retail chains, there are ordinary bazaars, small retail chains and private shops, which provide a significant part of product sales. They cannot be discounted if we want to establish a clear supply chain in all directions. But traditional trade simply does not have the money for modern IT systems and it is useless to promote them to use EDI. What to do?
Offer help and technical support
We cannot wait until they earn money and understand how convenient and profitable it is to use modern technologies. Moreover, this may never happen. After all, in these small trading points, the lists of suppliers are not much shorter than in large ones. Only God knows by what “shamanism” they understand them. On the other hand, you, as a manager connecting this type of trade with manufacturers and distributors, need to somehow learn how to manage supply. But you understand that it is basically impossible to do this without reliable tools. By the way, the same situation is observed in the field of Special Channels (specialized stores, pharmacies, etc., focused on the sale of a certain type of goods).
The worst thing is that it is almost impossible to predict the behavior of such customers and business partners under normal conditions. Very often, they “break” your strategy for working with stocks in warehouses – either they wash out all the under–cleaning, or for unknown reasons they start making smaller orders.
This problem can also be solved by implementing electronic document management and online inventory management services. You can’t even. A must if you have a lot of “threes” and specialized trading in your pool. Focus all your attention on this and find solutions that will not be too burdensome for them.
In our company, we began to offer simple algorithms for this sector: balance accounting, ABC analysis, order forecasting based on factors such as seasonality. These are all manual tools, but thanks to them, we have established the collection of data on the secondary sales of distributors on a daily basis, automatically receiving information about their product balances. We already processed this information, and based on it we built forecasts, forming our own warehouse stocks.
You’re probably asking how we managed to convince the distributors to agree to us entering their base? It was not easy, of course, and we had to conduct many negotiations with representatives of traditional trade. We went to each of them, showed them, proved them, offered to participate in the pilot project. And you know, almost everyone who tried to work with the help of modern IT systems did not refuse our proposals, because they experienced how easily and quickly it is now possible to manage product flows.
The system not only helps to quickly place an order, but also shows information about new products that have arrived. 15 minutes was enough for our partners to review and analyze all the information. The most interesting thing is that they also reduced their stocks, which had a positive effect on financial results.
EDI is just one of the modern systems that can be used in logistics. And in general, there are a lot of useful IT products now. The task of the logistician is to choose exactly those developments that are most suitable for the company’s business. You only need to focus on solving this issue. Start looking for the optimal system right now, if you haven’t already.
Friends are known in trouble
This is another important issue that determines the company’s development strategy. Of course, any cooperation should be mutually beneficial. And customers should also get something more from your company than just the product they need. Pay more attention to your business contacts. Probably, such “capital investment” will pay off a hundredfold in the future.
We were able to see this from our own experience. Imagine that one day our largest warehouse, where 80% of the stock was stored, burned down. Imagine that the value of lost tangible assets was equal to 30% of the assets of the entire company. The fire burned for two days. But it took much longer to extinguish the financial consequences of this fire.
It was during this period that we realized why true partnerships are so valued in business. When the suppliers and manufacturers we had been working with on a regular basis revised their plans and prioritized our company, it became clear that it was theoretically possible to meet our commitments. When national chains and distributors agreed to buy back the remaining goods from us and quickly transferred money for them to our accounts, and we got the opportunity to make further purchases, the light at the end of the tunnel did appear.
It became even brighter when our partners agreed to transfer goods to those areas that remained without our supplies. This is the truth – friends are known in trouble.
When the fire happened, none of us knew if the company would make it to the end of the year. But with joint efforts, we saved our business. Moreover, we even managed to exceed the sales plan! After that, one of the top managers jokingly wished that our warehouses would burn every year. But hardly anyone would come to the aid of an enterprise that does business without taking into account the interests of others.
Personnel
Finally, it is worth talking about people – the very qualified personnel on which, by and large, the entire business rests. They carry your ideas on their shoulders, raising the company to a new level of development. You need not only to pay a decent salary on time, but also to develop people who work for hire.
For example, a certified logistician already knows how to plan supplies, forecast shipments, how to build ABC analysis, etc. it’s all in the textbooks. What else?
However, if you need a true professional in your field, and in the future, perhaps a manager, you need to develop his leadership qualities. And today it is necessary to teach him how to interact with other employees, how to work effectively in a team. After all, it is no secret that many people do not know how to establish communications, turning them into a tool for their work.
These problems will never be solved by themselves. They require the manager’s attention and efforts.
And the head of the logistics department must be in constant search of new ideas, develop optimal solutions to current and strategic problems. He should also have a good understanding of what is happening in the market. The dynamics of development today are downright crazy. Remember at least what we all said about three years ago? We thought and dreamed about something else. But today, many things that seemed fantastic until recently have become commonplace.
It is impossible to stop or lag behind such a pace of development. There are many examples of how people who failed to reorganize their work in time, bring it into line with the requirements of the day, lost in the competition. As a result, their companies left the market, and they themselves left logistics.
In the end, I would like to say that success in logistics can only be achieved by those people who are passionate about their work. If you don’t like this business, better quit it and do something else. But if you love logistics, everything will work out for you. You yourself will seek new knowledge, find new non–standard solutions and lead your team to success. A person devoted to his work will not be hindered by any crises.
Kseniia Yudina, practical trainer, expert in the field of Supply Chain Management and Project Management
We are entering the era of the economy of interaction and cooperation. Here, the boundaries of roles and functions are blurred, where the Business that interacts more effectively with internal and external customers gains a competitive advantage.
A common mistake of a logistician is to focus exclusively on product flows and lack of proper communication and interaction with related functions.
The model – “doing your job well” gives a very mediocre result and blocks business growth. Ineffective communication and lack of synergy lead to colossal losses.
In my experience, losses from disruptions in information flows on the example of a medium–sized business in the FMCG sector turned out to be equal to the budget of transport costs – a large amount, agree! But these are pure losses. And if you count the missed arrival due to the lack of synergy, believe me, you can compensate for half of the budget of all logistics.
Developing leadership in employees and managers and building information flows in the supply chain management system is the most important task of the leader.
