Logistics Network Design : From Internationalization to Rationalization

By developing industrial sites around the world to meet their strategic imperatives, companies have found themselves obliged to put in place a coherent set of processes intended to form the value chain.

If an applied implementation of the latter is essential for the good performance of the performance objectives, it represents a significant burden due to the needs generated: transport, storage, support functions, etc.

This is the price of increasing complexity: the internationalization of large groups and the dispersion of industrial assets must be combined with the growing need for flexibility and responsiveness expressed throughout the chain without compromising competitiveness.

• In terms of flexibility: How to adapt your organization so that it is able to respond to variations in demand: variations in volumes, variations in the nature of the products requested, modulation of the frequency of demand?
• On reactivity: how to put oneself in a position to carry out these adaptations in the smallest possible space-time?

Manufacturers are no less demanding than end consumers on these two points.

Series sizes are reduced, productive times optimized, intermediate stocks are reduced to the lowest possible level. In turn, they all require a very high level of performance from the logistics sector, regardless of its degree of internationalization.

Focus on Upstream Logistics

After having worked for a long time on the downstream perimeter and leaving the task of optimizing upstream to the Purchasing (optimization of the purchase price) and Procurement (securing the service rate) functions, Supply Chain directors are increasingly asking themselves the question of existing potential for reducing upstream logistics costs.

For a multinational, these costs can represent up to 15% of the purchasing budget over a year. These costs are linked to “door to door” transport operations, including for some players warehousing operations and various handling.

Levers not fundamentally different from what we know downstream

• General optimization of the logistics master plan
• Generalization of the principle of collection rounds and pooling of the resources used (trucks or containers)
• Tight control of the rate of use of resources (eg: container filling rate)
• Alignment of internal schedules with standard logistics times (eg distribution of orders)
• Rationalization of the panel of service providers, competition and optimization of the terms of the contract (advanced negotiations of tariffs by route and by mode, securing the quality of service of the provider, backup solutions, etc.)

By using the levers presented above, large industrial groups such as Fiat or Valeo managed to generate savings of between € 7 million and € 20 million for 2012.

These initiatives are widely highlighted in corporate communications because they directly contribute to improving the operating margin.

The rationalization of the logistics master plan was also at the heart of the study that we carried out in early 2013 for one of the major players in the consumer products market with a strong presence in emerging countries in the Asia Pacific region (5 factories located).

The analysis of upstream logistics flows and the costs incurred made it possible to highlight existing opportunities, particularly in terms of rationalization of domestic transport from local suppliers.

The challenge here is to question the relevance of the Incoterms used in contracts. By delegating the organization of transport to suppliers, our client was not in a position to drive the cost and launch initiatives to optimize the Supply Chain. By taking control of the organization of the logistics flow, all of the levers mentioned above can thus be activated.

On a domestic perimeter, mobilizing road transport, the switch to a touring system and the use, if necessary, of grouping / unbundling nodes in the upstream flow allowed a 50% reduction in the total cost of transport.

In addition to the rationalization of processes, it is also good to question the Supply Chain organization to ensure that it is in line with the needs for flexibility and responsiveness mentioned above.

When a large industrial group sets up in a new country, it first needs to manage the new site (s) from its central functions in order to guarantee continuity with regard to internal performance standards. Depending on the culture of the company, the gradual localization of support activities follows with more or less application, which gives varying degrees of autonomy depending on the case.

A leading Anglo-Saxon automotive supplier recently asked us in China to streamline its Supply-Chain & Purchasing processes and review the sharing of roles and responsibilities between central and local teams. Through this case, we were able to measure how much the resurgence of centralized historical organizations could handicap the daily life of the teams. The complexity of the decision-making processes – made up of constant back and forths and various validation needs – then induces a severe lack of responsiveness and ultimately penalizes the Quality of Service offered to customers.

The Supply Chain is in this sense often stuck between two worlds. This is particularly the case with the issues of the upstream part mentioned above.

• Who could organize just-in-time supplies and round trips without having an operational view of the factory?
• At the same time, who could obtain economies of scale on purchases or on service costs without having the group’s aggregate demand data?

We advise our clients to clearly separate the strategic processes from the operational processes and then to assign the former to global functions (which have a general vision of the group’s needs) and the latter to local or regional functions (which are directly linked to the need. ground).

Synchronization is therefore essential between the local and the global, but the company secures an adequate response to each level of the problem.

While large international groups sometimes struggle to speed up the pace towards efficient Supply Chain Management both in terms of process and organization, confrontation with players in emerging markets places them directly face to face with the need to change their way of thinking.

Established in China and India and working with Western companies on operational efficiency issues, the KEPLER Supply Chain Consulting Firm observes the extreme mobility and adaptability of local players on a daily basis. The Supply Chain Manager is more than ever on the front line to support the company’s strategic objectives: international development, end-to-end competitiveness, flexibility & security.