Business Logistics Process ReRe -engineering g g

Keys to Increased Business Profitability

A Profile of the Logistics Re-engineering Process, Methodology, and Results

Harrington Associates
20 NASSAU STREET, SUITE 244 PRINCETON, NEW JERSEY 08542

Easton, Maryland l d

Business Logistics ReRe-engineering Process

Our agenda for todays session includes . . . .

Introduction REM Associates, Inc. Business logistics perspective The rere-engineering process A sample client business profile Analyzing business logistics class participation
C Current t state t t Key issues Findings and opportunities What Wh t t to d do about b t it Management reporting Implementation

Summary and key taketake-aways.

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Profile of REM Associates

REM Associates, started in 1984, is now in its twenty-fourth year serving business clients . . . .

Advice and counsel in Business Logistics Consumer and industrial companies p as well as governmental g organizations g Strategic, tactical, and contingency planning Operations evaluations directed at improvements:
Profit improvement Facility operations analysis and planning Cost reduction and productivity improvement ABC i inventory costing i and d evaluation l i Functional outsourcing Customer service Organization structure and performance.
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The REM Associates Network

REM Associates provides virtually turn-key management . . . .

Policies, Procedures Procedures, and Practices

Setting Goals and Obj i Objectives

Operations Assessment

Organization And Staffing

Strategy Planning Through Implementation

Activity Based Costing

Project Management

Inventory Strategy

Distribution Network Design

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Functional Areas of Business Logistics

Specifically, business logistics and related functions, include . . . .

Business Logistics Management

Sourcing and Purchasing Forecasting and Sales Planning Production and Inventory Management Warehousing g & Distribution Operations p Facilities and Network Design Transportation Operations and Management Customer Service and Order Processing and Related Systems
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Business Logistics Perspective

Todays business management faces increasingly complex challenges from a variety of sources sources, including . . . .

Business technology issues Political, regulatory, and external controls Sociological and cultural change Investment community emphasis on real earnings and growth.

In addition, increasing business pressures require management focus, decision making, and action plans directed at . . . .

Intensified product, service, and market competition Innovative pricing strategies A constantly changing government regulatory environment Greater emphasis on operational and working capital cost reduction

Increasing the need for managing a company with in-depth understanding, improved knowledge, and skills not previously required in business management.
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Business Logistics Perspective

Recent assignments found that inefficiencies in business operations waste as much as 25% of an organizations organization s operating costs costs. With profit margins of 3 to 4%, even a 5% reduction in waste can double a companys profitability. Key drivers of this value creation include . . . .

Revenue - capacity utilization, product speed to market, stockstock-outs, and service to customers Expenses - inventory carrying costs, production and distribution costs, transportation costs, logistics productivity, outsourcing, and asset utilization Capital Utilization - working capital (inventory turns, order cycle time) and fixed assets (plants/DC locations, fleet utilization, strategic outsourcing)

By lowering costs and increasing asset utilization, business operations can free up cash.

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The Business Logistics g Process

The logic of business operations relates directly to the flow of products, information and costs through the business and to the customer . . . . information,
Sourcing Manufacturing Sales & Distribution Customer

Flows:

Products

Information

Costs R Revenue

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The Business Logistics g Process

There are several levels of business logistics between the product source and the customer . . . .
Plant Direct Distribution Customer
Large Ch i Chains

Small Independents

Primary S Sourcing i Distribution

Secondary Distribution

Tertiary Distribution
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The Business Logistics Process

Strategic issues are generally of a broader scope than those of day-to-day operations issues . . . .

Strategy gy
Business Mix Market Definition

Customer Mix

Product Mix

Operations & Service Mix

Forec cast Demand by Pr roduct

Service by Class of Cu ustomer

Facili ity Service Area

Produ uct Characteristics

Facili ity Size

Forec cast Varia ation

Type

Facili ity Locat tion

Operations
Uniqueness

SKU Us

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The Business Logistics Process

The hierarchy of business logistics operations with customers and their service . . . .
Customer Service Goals and Objectives

Inventory Investment

Inventory Goals Deployment Strategies and Programs

Order Processing Strategies and Programs

MIS Equipment Investment

Facilities Investment

Warehousing Strategies and g Programs

Transportation Strategies and Programs

Transportation Equipment Investment

MIS E i Equipment Investment

Systems and Procedures Strategies and Programs

Organization Strategies and Programs

Human Resource Investment

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The Business Logistics g Process

A number of factors must be evaluated to determine the best cost and service mix in a business logistics structure . . . .
COST:
Number of warehouses Location of warehouses Shipment modes Size of shipments Frequency of shipments p consolidation Shipment Operating methods Storage requirements Regulatory requirements

SERVICE:
Order processing times Customer service Operations Transportation Inventory service Stock vs. non-stock In-stock In stock position Delivery reliability Freight consolidation holding times Information systems

INVENTORY:
Stock vs. non-stock In-stock position Variability of demand Frequency of replenishment Transit times Inventory carrying costs

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The Business Logistics Process

An effective business logistics strategy requires the balancing of conflicting management objectives . . . .
Impact of Objectives on: Logistics Objectives:

Customer Inventory: Service: Costs:

High customer service Low warehousing costs Low transportation costs Reduced inventories Fast deliveries Reduced labor costs Desired results
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Business Logistics Re Re-engineering Process

Business strategy deals with planning the intermediate and longer-term direction of the business, business including . . . . Business mission Key strategic thrusts Business goals and objectives Action plans aimed at strategy implementation. Business re-engineering g g is directed at assessing g and improving p gp policies, procedures, and practices to improve costs, customer service, and business effectiveness, including . . . .

Operations p and p process assessments Data and information flows and linkages Policies, procedures, and practices completeness, consistency, and effectiveness Organization structure and responsibilities ownership.
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A Sample Client Business Profile

Our client was a major West coast pharmaceutical manufacturer . . . . The Th largest l t United U it d States St t privateprivate i t -label l b l manufacturer f t of: f

Vitamins Minerals Nutritional supplements OTC pharmaceuticals in the United States

4,000 stock keeping units - SKUs 27 billion pills annually East coast and West coast plant locations Inventories turning g at 2.5 times p per y year Service levels were at about 70 percent Major customers included WalWal-Mart, CVS, Costco, and Safeway Retailers were reducing inventories and compressing lead lead-times. times
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Analyzing Business Logistics Class

Additional class participation slides will be included during the presentation . . . .

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AS S O C IAT E S
MANAGEMENT CONSULTANTS
20 NASSAU STREET, SUITE 244 PO BOX 7345 PRINCETON, NEW JERSEY 08543-7345 Phone: 609-275-4444 Fax: 609-228-1056 E M il REM.Murray@REMAssoc.com E-Mail: REM M @REMA web: http://www.remassoc.com
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