Wednesday, 5 May 2010

Lousy Logistics Wastes Billions

Each year, in Britain and other countries, billions of pounds are wasted through inappropriate logistics techniques, adversarial business relationships and lack of holistic logistics solutions. What, therefore, could be realistically done to drive down those costs while delivering environmental advantages?

There are mainly two kinds of logistics costs -- storage and distribution, and both are pilloried for their adverse environmental impact. Of the two, storage must cost more if only because stocks put money to sleep. The higher the stocks the greater the opportunity cost. There are many simple ways to reduce storage costs and they need not always involve heavy new investment.

Take, for example, a warehouse footprint and how the chosen forklift types and sometimes the racking affect overall warehouse running costs. Fixed warehouse running costs include rents, rates, utilities, insurance, security and maintenance. The variables include materials handling equipment, with fuel, and labour costs.

There are basically four types of forklifts: standard counterbalance trucks, reach trucks, articulated forklifts and dedicated very narrow aisle (VNA) trucks like man up order pickers and combi trucks, and all require substantially different footprint sizes to handle the same, given pallet loads. The most wasteful of these in terms of space usage is the counterbalance truck, requiring typically minimum aisle widths of 3.6 mt and maximum lifts of 6-7 mt. The reach truck is better, needing only 2.6 mt wide aisles and able to lift to 12 mt, but these are generally unsuited to outdoor yard work. Likewise, the dedicated VNA trucks are internal machines and while able to to work in 1.5 mt wide aisles and up to 15 mt (more with crane types) they are slow, wasteful of space when aisle changing and incur significant extra costs like rail or buried wire guidance.

The articulated forklifts, produced in the British Isles by Translift Bendi, Narrow Aisle and Aisle Master, are easily the most space efficient and versatile of the trucks and such is their cost- cutting ability that in certain circumstances they can render instant truck payback. They may not always be the best choice, of course, as it depends on the nature of the business but the fact is an articulated forklift will allow 50% more pallet storage than counterbalance trucks and 33% more than reach trucks. Moreover, because of their yard-working abilities, the artics can reduce the overall number of forklifts on site and handle more pallets per hour than any other truck type. Such cost-cutting should particularly appeal in the current economic downswing.

There is help in the form of warehouse software to test layout options cheaply. It is better to choose a simulation package from an independent software house as those provided by forklift manufacturers may be skewed towards their own truck designs, and so give less than optimal results. A good example is CLASS, from Cirrus Logistics, which allowed one leading UK retailer, ASDA, to raise storage capacity by 10% at is warehouses and 40% in one case.

No matter how efficient products may be stored and internally moved, the operation could be seriously compromised by excessive stock levels, stock-outs, slow-moving and obsolete stocks. This is where a good stock forecasting program can save millions, particularly when used in real time with weather forecasts. Typically, they will allow users to reduce their total stocks by one third without adversely affecting customer service. Given that stocks in UK warehouses are always worth billions of pounds, the scope for savings is immense.

Once goods leave their warehouses, many cost-cutting initiatives beckon and their impact on the nation's economy would save billions of pounds. Congestion on UK roads alone is estimated to cost £25 billion a year. Any developments, therefore, which cut that congestion, but do not require costly new road building schemes, will be highly cost effective at both micro and macro levels. Already, UK pallet exchange operations, like those operated by Pall-Ex, Palletways and Palletline over the last 20 years, are ensuring that their members' lorries run full on both outward and return journeys, thus cutting emissions and running costs sharply.

Of far greater savings potential, however, is the use of double deck trailers. Typically, these trailers can carry 67% more goods per vehicle than single deck models, thus cutting costs and emissions by up to 40%. Yet, double deckers remain largely ignored and the adversarial relationship between third party logistics (3PLs) providers and their clients, and between 3PLs themselves, stymies true cooperation, leading to excessive empty mileage running.

The changing face of information technology (IT), however, could be the greatest cost cutter and environmental boon when applied by the consumer. Home online shopping is the only part of the UK retail industry that is growing like a weed, but a weed that needs nurturing. Each medium-sized van used by the likes of Tesco, Britain's leading food retailer, could eliminate 50 or more car journeys made by weekly shoppers. This would drastically reduce vehicle emissions, road congestion and repairs and accidents. If shoppers are encouraged to place online shopping orders earlier, food retailers and manufacturers could fine tune their supply/demand models so that less food would be wasted.

Such developments have the potential to disintermediate the current retail set ups, where manufacturers deliver to shops often via distribution centres. Large manufacturers of household consumables with a huge product range, could join with similar businesses to build giant order picking warehouses, accessed by shoppers online. This would eliminate a huge swathe of distribution/retail costs. It is difficult to see, however, given the current stranglehold on shopping by a handful of retailers, such a scenario unfolding, and might, for political/security reasons, be undesirable. This writer once pondered when visiting a huge warehouse that stored a quarter of Britain's tea stocks, what kind of cathartic experience would tea drinkers have deprived of their cuppas because the warehouse in question went up in flames. Even so, online shopping will continue to grow at a lick, posing financial problems, perhaps, for all those financial institutions heavily invested in bricks and mortar shops.

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