I have worked in logistics for nearly twenty years. During these years, I have encountered many colleagues who are frustrated because their boards have a reluctance to invest in logistics. Senior management has difficulties in understanding why the logistics cost as much as it does. Marketing and sales departments have a higher status because it naturally is through those departments you find new customers and increase your sales. But I find it strange that not more companies put more focus on also reduce their costs and become more competitive through cost reduction in logistics. Japanese companies has since Toyota introduced TPS had a huge focus on costs and when they have priced their products and selected sales channels they have thought in terms of: What is the customer willing to pay? The profit is estimated selling price minus the manufacturing / logistics costs, if the profit margin is too small, you have to investigate where in the processes you have costs you can cut. With the above way of thinking all departments have the same status in the company. It is equally important to save money as making money through increased growth. In the West, we have a different view on how we price products and think about costs. Often we start from a manufacturing / logistics cost then make a market research to see what potential customers are willing to pay for the product and then prices with the appropriate profit margin. If the profit margin is too small then there will be problems because often we don´t have the tools to start analyze processes in the flow to find activities that can reduce costs.
We who works in the logistics industry in leading positions must become better at being proactive and highlight our costs. We must also be better to calculate the economic impact of changes in for example order flows, shorter lead times and more complex methods of delivery as more and more companies begin with multichannel. In short, we must develop our analytical skills and be able to price any changes in logistics. Opening up for multichannel and have late orders with short lead times, costs money, it is a given. To minimize costs, you need to have systems, leadership and facilities that is adapted to the modern logistics.
When I talk to colleagues in the industry, I often hear that the senior management presses down in the organization that efficiency must improve, etc. but if the warehouse is not adapted for multichannel, it is impossible to optimize the business. Often, the company has invested huge money in e-commerce platform and customization of ERP but they have not put a dime in the warehouse logistics. It is a very big mistake!
Personally, I think the best way to highlight and make the costs visible in the warehouse logistics is to think 3PL. Many modern WMS have modules for 3PL that you can use in order to put a price on every specific process in the warehouse. The more complex the logistics becomes more important it is to put a price on the processes to see what costs money. If you only have a large cost base you cannot see what changes have the most positive or negative effect on logistics costs.
I’m sure there are many companies today where marketing and sales organizations implementing e-commerce but do not have a clue what it means for the increased costs of logistics. In the worst case, new sales channels run at a loss overall, since the logistics departments do not have the right resources and tools. The companies do not make a real impact analysis throughout the flow, produce a theoretical total cost, and then evaluate if they need to invest also in logistics to be competitive and be able to price the products correctly. Fully in TPS way.