PRLog - July 14, 2011 - PETALING JAYA, Malaysia -- Anyone who has received some formal supply chain training will be familiar with the concept that success is about ‘trading off’ the various cost components of logistics: transport, warehousing, handling, inventory, packaging etc. The famous ‘Total Logistics Costs’ curve is a great example of this.
Total Logistics Costs Tradeoff
Our first contention is that FMCG manufacturers operating in emerging markets have frequently lost sight of the potential and value of these trade-offs. The result is a sub-optimal distribution infrastructure that undermines sales and embeds unnecessary fixed costs.
Why has this happened? Probably because growth and profitability results have been acceptable – leading to a degree of complacency. Amongst the FMCG companies we work with, there is no question that competition is warming up. This can be direct competition, from local and international manufacturers, or indirect competition, as Modern Trade and the convenience stores squeeze the General Trade.
Our second contention is that those FMCG manufacturers that grasp the nettle and rationalize their distribution networks will achieve tangible competitive advantage in the short-medium term. Unfortunately, in the long-term your competitors will inevitably rationalize their networks too. The cost of not doing so will be too painful.
So what do you have to do? Revisit the trade-offs:
• Fixation on the price of transport often results in too infrequent replenishment of network inventory using unreliable (and environmentally horrible) vehicles.
• Is there a better fleet mix – using newer, better, cleaner vehicles?
• Are there scheduling alternatives that provide more frequent replenishment – with the costs offset by lower inventories and higher product availability?
• Can an alternate distribution structure simplify processes and reduce noise? What benefits will this bring to the business?
Our third contention is that the benefits of distribution network rationalization are becoming so blindingly obvious - so everyone will eventually do it. The winners will be those that move first, forcing the rest to play ‘catch-up’
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Logistics Consulting Asia is Asia’s leading supply chain consultancy. Founded in 1999, LCA’s key services are supply chain consulting and LUCIA SaaS. Some of LCA’s clients include Coca-Cola, Heinz, Kraft, L’Oreal, McDonald’s and Nestle.