Logistics gel `buy, make, move and sell'

It could be said that buy, make, move and sell are the four main functions of a business. If this is so, road, rail, air and water are what provide a seamless transition between these functions.

Traditionally the four functions were organised or arranged in isolation. But logistics, or supply chain management as people have come to understand it, is now a key factor that gels together the transition from buy to make to move and to sell.

Some people think logistics is just about transport. But in fact, it is about far more.

According to the National Institute of Transport and Logistics (NITL), logistics is about "managing the physical flow of product and related flows of information through the whole organisation".

This includes the purchasing of materials, production, distribution and delivery to the customer.

"It is everything from start to finish," says Mr Philip McCormack, the institute's head of research.

"What we are really talking about is trying to break down the boundaries separating buy, make, move and sell and trying to bring them together as an overall business strategy."

The National Institute of Transport and Logistics was set up by the Government as a centre for excellence for transport and logistics as a result of a 1998 Forfas report World Class to Save the World. The report identified the key role of logistics in creating competitive advantage for companies in Ireland.

The National Development Plan also allocated resources. The plan says: "These resources would be used to enhance the competitiveness of indigenous industry by providing support to increase output, reduce costs and rationalise supply-logistics".

The plan went on to say that the development of logistics as a key capability was to be supported by the NITL. As a result NITL now provides advice, facilitation and consultancy; education and training; and knowledge resources and research.

The NITL is not the only professional body for logistics in Ireland, others include the Chartered Institute of Transport (CIT), the Institute of Logistics and Transport (ILT), Irish Logistics Packaging (ILP), and the Institute of Freight Forwarders.

Four of the key Irish transport and logistics companies include Irish Express Cargo, Irish Warehousing and Transport, Hamann International and DFDS.

The importance of logistics was outlined in a recent study carried out by the Massachusetts Institute of Technology showing that "effective logistics management can cut costs, improve services and enhance revenues".

The study went on to show that the implementation of supply chain management by US industry has resulted in a 50 per cent reduction in inventory, a 40 per cent improvement in on-time deliveries, a 27 per cent reduction in order-cycle time and a nine-fold increase in out-of-stock rates.

Things are there when you want them and you are getting the right product at the right price delivered to the right place, explains Mr McCormack.

Because of Ireland's geographical status and island location on the edge of Europe, logistics is a vital factor for industry here.

"Logistics is a bigger issue here than anywhere else," says Mr McCormack. This is evident from the many trucks that fill our roads and the volumes that fill ferries in and out of the State.

E-commerce too has played a huge role in the development of logistics in Ireland.

"Supply chain management is as much about information flow as it is product flow. In terms of distribution and transport, e-commerce systems and supply chain systems, they stretch globally".

With so much buying online, logistics has a lot to do with people ordering products and the products arriving when people expect them, and at the right price.

A recent survey by the NITL entitled Logistics Capabilities of Companies in Ireland tried to create a benchmark for companies in Ireland. It surveyed 300 companies mainly in the food, clothing and manufacturing sectors.

It found that less than 20 per cent of companies have what they would call a logistics function, meaning that they would have purchasing staff, warehousing staff, transport staff, but they were not looking at logistics as a whole. "Really what that means is they can't possibly realise the full potential of having to maybe look at logistics and helping to create for themselves competitive advantage," says Mr McCormack.

However, they did see the logistics functions such as customer service, procurement and inventory management, as being all important to the strategic development.

Customer service came second only to product quality for the companies surveyed. They believed that product quality, not customer service, was the main reason people did business with them.

Some 51 per cent of companies do not measure customer service. Of the half that did, they only measured on-time delivery and customer complaints.

Surprisingly for such a small domestic market, it was also found that companies knew little about their competitors and couldn't compare themselves to them when asked, as they didn't know who they were.

Key Performance Measures is another area the survey delved into. Some 35 per cent of companies did not know the costs of their logistics.

"The key feature of a good logistics management concept is making sensible trade-offs between different elements of the supply chain, that means lowering your inventory and making better services versus transport costs."

While companies seem comfortable with their inventory figures, 44 per cent admitted to having obsolete inventory, which was down to lack of IT.

Forecasting is another process in supply chain management and 35 per cent of companies, the survey found, did not produce a forecast at all.

Warehousing is often seen as a hidden cost in the logistics process as companies don't think about what it costs.

Some 32 per cent of companies surveyed had reviewed their warehousing costs and only 35 per cent had considered an outsourcing option.

The biggest challenge, the NITL survey found, was skills shortage, a challenge that every company, whether or not they had a logistics solution in place, had to rise to meet.