Why do so many companies find it so difficult to improve their logistics performance? The spontaneous answer to this is often: things are very complex and people are often unsure whether the concepts they have in mind will work or not. Out of caution, nothing is often done.
However, I maintain that the actual causes lie elsewhere. The core problem is the lack of clarity and consistent pursuit of objectives. Of course, the aim is to reduce costs – the total costs of the entire value chain, not just those of logistics. On the other hand, certain strategic boundary conditions, such as a certain readiness to deliver in the logistics chain, must not be compromised. Such a specification can be translated into ‘logistical positioning’ using the appropriate tools. It provides a concrete statement about the compromise that must be maintained between stocks, delivery readiness, capacity utilization and throughput times in operations.
The overall company logistics positioning defined in the interest of the most economical value chain possible is often opposed by the specifications for individual divisional targets, which also originate from the company management. Many companies still have the naïve idea that the only way to achieve commercial success is to be successful,
– when purchasing pushes down prices (at the expense of longer replenishment times and higher inventories),
– production increases capacity utilization (at the expense of higher inventories and less flexibility),
– the sales department sells every little thing in order to increase sales (at the expense of earnings and inventory) and
– Logistics reduces inventories (at the expense of capacity utilization and procurement costs)
On the basis of such ‘strategic’ targets for the individual areas, however, it is hardly possible to maintain the logistical positioning of the entire company. Rather, the specifications are constantly changing because the success of one department leads to problems in another, and logistics dances around any eggs that are thrown its way.
In practice, it is often incredibly difficult to demand the necessary consistency from company management. A typical statement from a managing director that always comes to mind in this context is: “You are the consultants, tell us how we should set the delivery readiness levels in our product portfolio. The only thing that matters to me is that we are always able to deliver.” And even if you have decided on a logistical positioning, different rules often still apply to ‘executive orders’. And, of course, at the end of the financial year, the company’s inventory must be reduced to a level that is completely unrealistic for economic operation…
Clear objectives alone are not enough to achieve logistical success, but they are an essential prerequisite. Every logistics optimization project requires ‘conceptual transparency’. By this I mean clarity of objectives, including an explanation of the interrelationships, an assessment of profitability and an evaluation of opportunities and risks. Strategies can only be derived transparently and implementation measures defined in a way that everyone can understand on the basis of clear objectives that are formulated in an overall context.
