In addition to trying to do their jobs, there is an urgent need for managers to be well versed in a host of routine but critical areas.
Synergistic Systems
Managers must have knowledge of inventory control of inbound raw materials, work in progress and finished goods, sales forecasting, marketing strategies, financial constraints on credit and inventory levels and production scheduling. Then add inventory dispersal, customer service levels, economic order quantities and knowledge of the specific impact, which any one or any combination of these activities can have on the logistics function, and therefore related costs. An acute awareness of how these various costs can be traded off against alternate reductions in costs is essential in order to optimize the bottom line. The system is also synergistic and is greater as a whole than any of the individual parts operating in an isolated vacuum.
In a July 1993, but still timely, enterprise article, Derek Mum Ford, vice president, Information Technologies, Eaton Corporation, said, �The company learned early that fulfilling business strategies meant focusing on processes, such as order fulfillment, that cut across internal boundaries. We were looking for the synergies to be gained by going across functional and traditional lines of responsibility.�
Hazardous Materials
The tracking of hazardous materials is required �from its creation to the end of forever.� This is not just a catchy term. This literally is the documentation required for designated amounts of any product classified as hazardous.
In this area, it is essential to stay current with local, state and federal regulations regarding the classification, handling, storage, packaging, shipping (including different rules for various modes of transportation), disposal, training of personnel and limits of liabilities (particularly while in transit or at rest at remote storage locations) in the hazardous materials arena.
The environmental impact and the growing concerns in this area make it mandatory that all requirements are fully met. Serious consequences � including the potential for severe fines and even criminal negligence citations, along with severe penalties upon conviction � are only part of the unhappy results of a failure to comply with the rather complicated rules and regulations in this field. Incidentally, these rules and regulations are constantly changing.
Personnel Management
Managing personnel is a continuing concern, as people represent a corporation�s most valuable asset. There is a need to hire, train, evaluate and motivate people to perform at least to the levels of competence required by their assignments. Giving credit to individuals is important and results in greater contributions in the future from all of the staff. But without the right people, nothing can be accomplished. Certainly, not having the personnel to do the job right the first time presents almost impossible obstacles to high-level job performance. Often you must reduce staff because of budget constraints or for any number of other legitimate reasons. At this point, the superior executive knows the capability and potential of each individual. He will then be in a position to evaluate the probability of achieving required results in the event this was required with a reduced staff.
Contracts
Knowledge of rules and laws pertaining to contracts is extremely important in today�s logistics world. A great deal of logistics transportation services is being provided on a contract basis.
Specific conditions must be included in any contract, which used to be covered by tariff rules: references to other ICC approved tariffs, ICC rules or prior legal case doctrine (e.g., general liability limits, credit terms, the level of rates, the passage of title and limits of liability for loss and damage).
The contract has to be a two-way street � a promise of a specific number or level of volume in exchange for the specialized services required to be provided by the carrier. Also important are concerns for service levels, type of equipment, the length of the contract period, the method of notification, the conditions for changes or modifications and/or specialized services to be provided. The method of resolution of disputes is important, as are any other unique conditions to the contract. If all unique conditions are not specifically included in the contract or included by appropriate references in the contract, then they do not apply.
So in reality, the contract must be an agreement between two or more parties and it imposes rights and obligations on all parties to conform to the conditions to which they have agreed.
Transportation Consumers Protection Council, Inc., has published an excellent guide for shippers, carriers and brokers entitled Transportation Contracts In Plain English available from the Council (120 Main St., Huntington, NY 11768, phone 516-549-8984).
Classification Ratings
Are classification ratings of your products important? You bet your bottom logistics dollar they are. A key element of developing freight rates is determining the classification ratings assigned to each unique product. This is particularly true if many of the products being shipped direct or through remote distribution centers are shipped out in small quantities (larger than UPS eligible) and/or via common carriers covering wide service areas. In this case, freight classifications set the level of small shipment rates, which apply to each one of the products. It is imperative that someone on the logistics team has a working knowledge of classification ratings and the significant physical characteristics, which control the assigned levels of the actual class ratings.
For instance, tile carries a variety of class ratings, ranging from class 55% to class 100%. The actual variations are 55, 60, 65, 70, 85 and 100 depending on the precise description of the tile being shipped and/or the packaging. A single weighted freight all kinds (FAK) average rating could be negotiated to eliminate all sorts of opportunities for an incorrect description, errors in ratings and errors in computation of charges.
On the surface, this doesn�t represent a very large contribution to either party in terms of total dollars of revenue, but there is another payoff. This will permit reducing the number of descriptions necessary on bills of lading (a simple �FAK� will be enough). It also reduces the chances of errors by the shipper or carrier in the determination of freight charges as well as the time for pre-audit of freight bills that were presented for payment. The carrier also receives the same sort of savings. Plus, there are substantial overall savings in clerical effort if one can achieve this kind of change.
Motor carriers still retain their anti-trust immunity in the area of classifications and ratings � so be vigilant about what the National Classification Committee is doing in this area. It can cost you and the corporation a lot!
Developing a Close Working Relationship with Purchasing
It is important to have a close working relationship with the purchasing group. Many purchasing groups include logistics as part of their responsibility, but many do not have this type of management structure. Regardless of the structure, working together is essential. There is a growing awareness of the importance of controlling inbound transportation, not only because of the ability to improve cost components, but as an integral part of a �just in time� program for inbound raw materials. The need for a high degree of working relationships between the purchasing decision and the transportation of the product is evident, but for some reason, the actual coordination of this function has not occurred in a manner consistent with its importance. There is a great potential to be realized through this sort of approach, and every effort should be expended to achieve the maximum benefit for the overall best interest of the corporation.
E-commerce
Oh, and by the way, don�t forget about the burgeoning force of e-commerce. The pull of the Internet may be getting stronger, but many companies lack the information and skills to haul their supply chains into the digital age, according to a report from Economist Intelligence Unit and Meritus Consulting Services. The report is based on responses to a detailed survey of senior executives in Fortune 500 companies with responsibility for supply-chain management.
Few doubt the Internet will have a profound effect on supply chain management. Eighty-two percent of senior executives believe the Internet will have a major impact or totally transform supply chain performance over the next three years. To what extent they will be able to reengineer their own supply chains to compete in this environment is another matter.
�Quite a few people do not measure the performance of their supply chain,� explains Lars Ljungdahl, vice president, Integrated Supply Chain Management at Meritus. While companies use different measures of how effectively various business processes link up internally and externally, �often they do not tie them together,� he says. As a result, many are ignorant of how well their integrated supply chains perform. Thirty percent of the respondents interviewed were unable to estimate their supply chain performance.
To some extent, the problem derives from a lack of metrics. According to the report, while performance measures such as the number of defects per million units are common and well defined in manufacturing, �the same type of performance measurement is rarely used in the evaluation of the supply chain.�
Also highlighted by the report is the yawning gap that exists between what some companies expect from their suppliers in the supply-chain terms and the level of service they them-selves deliver.
Another impediment to digitizing the supply chain is lack of skills. The report concludes that the three main obstacles to an integrated supply-chain are:
� Lack of Functional Expertise 52%
� Lack of Management Expertise 44%
� Ineffective Management 42%
But as Ljungdahl stresses, �E-commerce is a far sight more than just supply chain.� He sees the supply chain as one leg of a three-legged stool. The other two being: focusing on customer needs and restructuring the organization to function in a Web-based environment. �If you do the supply chain and don�t think about the other two, your execution will be good but you may not get the customers,� he explains. However, the reverse is also true. In other words, you can sell it, promote it and pack it, but if you don�t deliver it, how good is all the other stuff? You cannot disconnect any of these activities and be successful in any business enterprise system whether e-commerce is included or not.
As the need for logistics expertise increases, many managers are being pressured to continually improve all aspects of operations. However, it is important to remember Peter Druker�s admonition that �there is nothing less useful than to do a little better that which should not have been done at all.�
As more and more companies ask fundamental questions about their logistics functions, some have recognized that their strengths lie in research and development, manufacturing or marketing � not in logistics. These companies are increasingly turning to third-party logistics providers (3PLs) for those activities they realize �should not be done at all� by them.
Aa s logistics professional, whether or not you turn to a 3PL to handle all or part of your logistics functions, you clearly have your work cut out for you.
Editor�s Note: This the final excerpt from a paper on logistics entitled Third Party Service Options for the New Millennium Logistics Executive. In examining the critical � and ever-expanding � role of the logistician, it highlights some of the reasons many companies have begun to turn to 3PLs to handle some or all of their logistics functions.
Lee Cisneros is president of Transportation Consulting Associates. For more information, call 508-646-1000 or e-mail lctranscon@aol.com.
