July 25 2007 02:48 PM

Logistics is a very well-understood term. A Google search for logistics turns up 83 million hits. Look it up on Wikipedia, and you see that, Logistics is the art and science of managing and controlling the flow of goods, energy, information and other resources like products, services and people, from the source of production to the marketplace.


If logistics is a clear, well-defined concept, then what exactly is internal logistics? A Google search for this phrase returns only 40,000 hits, indicating that it is not in common use.


In the Spring 2007 issue of PARCEL, we proposed this term to describe the services provided by the leading-edge practitioners in the area of non-production shipping and receiving. The term encompasses non-production shipping and receiving, the business service that handles the wide variety of non-production items used throughout your organization. Depending on what business you are in, the list might include contracts and other legal correspondence, travel tickets, lab samples, drugs, clothing samples, IT hardware and assets in general. Other non-production items that may arrive (or leave) include PCs and other IT equipment, laboratory and test equipment, cell phones, marketing materials, displays, swag (t-shirts and trinkets) and company products for internal use. Lets look at how the world of internal logistics is becoming similar to (production) logistics.



A key goal of logistics is to provide accountability, trackability and visibility of everything that moves throughout the production and distribution processes, such as raw materials and subassemblies in and finished goods out. External logistics is especially concerned with things that move between your suppliers, your factories and distribution centers and your customers. Internal logistics has similar goals, but the things that are tracked are usually moving within the global four walls of your organization. There are some exceptions; for example, a beta version of a new product may be sent to a customer for testing.


Transportation Management Systems (TMS) and ERP systems are used to track external logistics. The world of internal logistics does not yet have a good TLA (three letter acronym) for IT systems needed to track items moving around within the organization, although there are products in the market today that provide the necessary capabilities.


Increase ROI (Reduce Expenses)

Another goal of external logistics is to optimize transportation costs. Reducing transportation spend is important, but there are times when the cheapest way to ship does not result in optimal results. Likewise, internal logistics tries to optimize the costs of internal transportation.


Lets look at an example of cost reduction made possible by internal logistics interoffice mail. If your organization has two sites where there are dozens of items sent to the other site each day, there are two ways to ship those envelopes:


1  Send each envelope individually via an external carrier: The total daily cost for both lanes of traffic might be in the hundreds of dollars per day. The items get to the other site the next day but not in an optimal manner. The external carrier only tracks these shipments from dock-to-dock.


2  Use a trusted, accountable, interoffice mail service. This method allows employees at each site to send envelopes to the other site the next day, but the external cost of transportation for the dozens of envelopes is reduced because they are sent as a single shipment at considerably less cost. Employees get a new benefit provided by this service the desk-to-desk tracking of their accountable interoffice mail.


An initial glance, the daily savings for a single lane of traffic might not be particularly impressive perhaps a hundred dollars or two per day. Total up these savings across all lanes of traffic for an entire year, and now were talking tens of thousands of dollars per year or perhaps even hundreds of thousands per year.


Performance Improvement

A well-run external logistics function improves the performance of the entire supply chain by optimizing both performance and costs across the entire organization. A well-run internal logistics department similarly improves the performance of the organization, albeit on a smaller scale, by optimizing the performance and costs of some internal processes throughout the company.


High-performance internal logistic departments understand the culture, processes and needs of their customers (the organization itself) far better than any external provider. And this illustrates an important point about internal logistics namely, the internal service is competing with external providers. Going back to the previous example, a newly introduced accountable interoffice mail service will reduce the number of shipments sent via external carriers. And, on the other hand, if the accountable interoffice mail service declines in performance to the extent that employees are reluctant to use it, then external carriers will be picking up an increasing number of shipments.


A well-run supply chain develops deeper relationships with suppliers, distributors and customers. Similarly, a well-run internal logistics service develops deeper relations within the company. This is because the internal logistics service shrinks geography by making it easier and simpler for an employee to have something sent to another employee, no matter where they work in another building, another city, another country. When employees can rely on the competence and professionalism of the internal logistics service, their direct use of external service providers (carriers, etc.) will decrease. As the traffic volume for the internal logistics service increases, they have more negotiating power with carriers and other external service providers.


Best Practices

The world of non-production shipping and receiving should look to the field of Supply Chain Management (SCM) as a source of best practices. Techniques and metrics need to be adapted to internal logistics, of course, but SCM practices are a good source of inspiration since SCM is at least a decade more advanced. Its time to start catching up!


An important foundation in improving any business process is benchmarking. Measuring the current business process appropriately is critical because otherwise you dont know if the new process is making things better or worse. Metrics and benchmarking are key parts of best practices because if you cant measure it, you cant improve it. A successful internal logistics service needs to measure itself regularly to evaluate performance and to look at from where new improvements can come. Evaluating traffic volume, staffing levels, transportation spend, losses, customer calls, process compliance and performance management is needed as much for internal logistics as for external logistics.


Non-production shipping and receiving is part of the final frontier that is, it is one of the last parts of the organization that has yet to be rethought and reinvented. Innovative, forward-looking managers of non-production shipping and receiving are transforming their groups into an internal logistics service. An internal logistics service provides trusted, reliable, accountable, trackable and visible logistics service for everything that is not part of the supply chain. An internal logistics service optimizes the transportation spend, reduces costs, follows best practices, reduces losses and provides valued services to its internal customers.


Anthony Meadow is the co-founder and president of Bear River Associates, a 20-year old company that develops enterprise software solutions for workflow management and the tracking of assets that move within the global four walls of its customers, including inbound and outbound packages and accountable interoffice mail. He is interested in applying new technology to solve business problems as well as the history of technology. Anthony has written two books and various articles on the application of advanced technologies to improve the efficiency and effectiveness of business processes. He has spoken at many conferences including Mailcom, MacWorld, Software Development, Apple Enterprise Computing Conference, Government Technology Conference and the Sixth International WWW Conference. He can be reached at 510-834-5300 or www.bearriver.com.