Logistics platforms for profitability

Companies who want to be more agile and dynamic need to focus on how to use a logistics platform in the marketplace.

"It's very easy to grow in a boom," says Mats Abrahamsson, professor of logistics management at the University of Link?ping, Sweden."Because of the boom all the costs you generate

He compares mobile phone manufacturer Nokia to its Swedish competitor Ericsson. In the market boom both were growing, but when the market dropped only Nokia recovered - it was a disaster for Ericsson.

Companies need to be able to adapt their operations over a recession period if they are to survive. For these types of dynamics and capabilities companies need to run a logistics or supply chain platform, according to Abrahamsson.

"Some of our most admired companies - Ikea, H&M, Zara, Wal-Mart, Lidl, Aldi, Dell, Nokia - have business models that manage to out-perform their competitors;"says Abrahamsson. "They are scanning the current climate and have their antenna out all the time. They manage their supply chains to support different market strategies."

He says to focus on the delivery times needed to support different organisations. Logistics today should be a driver of highly dynamic effectiveness.

Early logistics operations were separate from marketing and production, then there was heavy synchronisation of these operations and stock levels went down. Now the focus of logistics is to serve customers with the capabilities you have.

"A logistics platform should include multiple logistics concepts and all the different processes you need to do them," says Abrahamsson. "In a best practice situation the company would be responsible for its own IT system, but the main thing is to be flexible and have the ability to adapt to new systems. The decisions should be centralised - I admit centralisation is very boring, but it is extremely efficient."

Centralisation can achieve economies of scale along with economies of integration. To do this properly you should share cost and profit.

"The Dell company is extremely successful, when it released its figures in the mid 90s we couldn't believe our eyes - it had increased net profit by 47%," says Abrahamsson.

Dell's stock turnover rate is 91 times a year. One of the ways it achieved such success was through having a standardised product.

"They even have figures like this when competitors with the same products have failed, so they have a good business, not product," says the professor in awe.

Dell's assembly time for a stationary PC is three minutes. Not a single screw is needed, all the parts snap into place. The rest of the time is spent adding and testing software.

The market that Dell operates in is a highly competitive one, yet it still manages to be very successful. It has no finished stock, but can have a product on the market in a week, while competitors take 40-80 days.

The price of components goes down, and Dell takes full advantage of this. It has a positive cash flow and full transparency of its supply chain.

"In 2000 Dell did a lot of market analysis to reduce all supply chain management costs," says Abrahamsson. "Then, in April 2001 it started a price war and reduced some PCs by 30%. Dell has the dear strategy that it should be market leader in terms of volume in all segments it covers."

He can't understand manufacturing models with a fixed capacity. If a car manufactured in this way proves popular you would have to wait a year for more - so if sales hit the roof the customers have to wait.

Atlas Copco have acguired the logistics operations of several companies and put all the logistics in one platform. They supply competitive products at the same time so Ford, for example, only has to receive one delivery.

"There's no reason to have local stock unless it's for the customers demands to have short lead times," says Abrahamsson. "Economy of scale is extremely important. You should also have minimised administration and atomise reordering activities."

He goes on to say that point-of-sale information should be available for all distribution and production units.

You shouldn't cheat sales folk, you should have coordination of what you're trying to sell and what you have.

"Get all amateurs away from the supply chain," he advises, "these are key processes and should be performed by specialist people. Do operations in a standard way so you can measure them with the same strategy. Logistics for me is the key to achieving profitability and provides a base for collaborations to grow."

He wants us to face that the world has turned upside down. The best rapper in the world, Eminem, is white. The best golfer in the world until recently, Tiger Woods, is black. Denmark beat the USA at ice hockey. And logistics is the most important thing in profitability.