Real Madrid have gone nowhere this season, in Spain or Europe. They were winning the league by 11 points and well on their way to an historic triple but they won nothing. Some pundits have described the team as a dream forward line backed by a defence hired from the local pub. The analogy extends to industry whereby a company invests in the best technology for its production process and takes the “state of the ark” physical movement of goods for granted. It is a false economy and globalisation has brought this home hard. You can source goods from anywhere but the competitive advantage is lost if the supply chain cannot respond – better, cheaper and ever faster.
IT has revolutionised the movement of goods, and logistics can no longer be seen as a mere adjunct to the production process. In this highly competitive world every step, from the order to the customer, counts and the timber industry is no exception. Companies no longer compete with companies, supply chains compete with supply chains. And since 9/11 and the resulting economic slowdown, container and general cargo traffic has doubled and will continue to do so over the next 10 years. As economies slow and customers expect to pay less for more, there is no alternative to looking for cheaper supply everywhere – constantly.
Wider focus
The first casualty in this transformation is the role itself. For example, it is no longer enough for the transport industry to focus on transport alone. Road hauliers, rail operators, shipping companies, airlines, freight forwarders, warehousing companies, postal companies, packaging and distribution companies no longer want to see themselves tied down to their traditional business models based on single services. It’s not only the one stop shop issue that calls the tune but the need to offer mode-neutral or multi-modal cargo options in the form of 3PL or third-party logistics; LLP (lead logistics provider) or, to cap it all, 4PL where a supplier becomes an exclusive partner and possibly even integrated at all levels of the organisation.
There are three key ways in which logistics and the supply chain are transforming sectors: the need for transparency; for closer integration and more effective and efficient flow of goods through reduced regulation; and more responsive financial services.
A product made in China and sold in the UK will move through an average of 15 pairs of hands on its journey. The members of any Olympic sprint relay team are world class – individually. However, the end result is all about how the baton is transferred. It is the same for the movement of goods and so every link in the chain needs to examined.
Once you understand the dynamics of supply, the emphasis is upon detailed and continuous improvement. For example, Dell claims that it changes its supply chain every four months. The company has removed inventory, replacing it with information. This means that every product is “built to order” and can be traced through the supply chain from order to delivery. Increasingly, timber is ordered for a specific project and no longer to complement the range in the yard.
In other words, best practice has reversed the approach from being all about “push” of product through the production process, to “pull” whereby everything starts with the customer order. In this way, IT has enabled companies to explore every step of the process and understand what really does add value. And this brings us to the shock of the true “cost to serve”. Few companies have an accurate idea of the real cost of supplying their customers and often a perceived “best customer” costs the most to satisfy.
All sectors are full of collaborative efforts. B&Q works with Tibbett & Britten and ABP on the Humber; Stonepath has become the 3PL provider for Home Depot worldwide. Companies cannot work on their own. For example, the move towards collaboratively managed inventory is becoming increasingly necessary in many sectors and, as the costs of major capital projects soar, few single companies can operate outside of a consortium or loose partnership.
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“The members of any Olympic sprint relay team are world class – individually. However, the end result is all about how the baton is transferred. It is the same for the movement of goods and so every link in the chain needs to examined” |
Partnership demands
Selecting a partner involves far more than extracting the best price for warehousing or distribution. Partnership demands that both parties are able to work together at all levels from the operational day-to-day to the IT systems themselves. And a budget is increasingly backed by an open book activity-based costing analysis where all cost assumptions are shared.
The third component of an effective and efficient supply chain is the need for goods to flow seamlessly from order to fulfilment. There are three major considerations: government regulations, security scares and the funds flow of each transaction. Government control is getting tighter and even the financial institutions are having to watch their role carefully. These are the areas where even the most innovative supply chains can come unstuck. This is where the local global banks come in and many of them are shifting their scope to involve paperwork along the way.
The timber trade has long been a major player in global sourcing and distribution so it is facing all of these challenges. As with retail in general, the sector has evolved from a network of stockists holding a range to an increasingly concentrated set of players using information to move specific materials to support specific projects. Also, environmental issues have forced a radical re-think of the range of products on offer. For example, the demand for sustainably managed timber and high tariffs have forced innovative thinking in product development and the shift from raw to processed woods. And distribution itself has changed as traditional merchants have found the likes of B&Q using their buying power and global reach to improve their offering to the trade. With the internet and an excellent delivery mechanism, the model is likely to see even more change as purchasing moves on.
There are many exciting developments in IT. And yet, we can overplay the role of technology. Radio frequency information, or RFID, will have a major role in tackling shrinkage, improving product availability and enhancing traceability through the supply chain. However, RFID tags products and not people and good hardware and software need to be backed by parallel HR initiatives.
Global trade is forcing businesses to rethink their supply chains; no company can act alone and no-one can afford to stand still. Dell insists that competitive pressures are forcing it to rethink its supply chain every four months. When was the last time you checked your operating assumptions on the way to the customer?
