In the last issue, I discussed a portion of a talk on logistics that I gave sometime in the second half of 2007. I discussed two key decisions that companies make that have a major effect on their logistics processes. These were:

• Key Decision #1 – Global / regional factory vs. a factory in every country. Where shall I locate my factory or factories?
• Key Decision #2 – Customer focus. Which customers shall I directly deal with? Here the choices include (a) one national distributor (b) several regional distributors (c) many small accounts..

Today’s column continues with #3 and #4.

Key Decision #3 – Design of distribution network. The question asked is how many depots or satellite warehouses and where?

In the 1970s to 1980s the trend in the Philippines was to increase the number of depots. Unilever increased from 5 to 14 during my time (1980s). The dominant thought was stocks must always be available for and near the markets. Sales Dept. had the loudest voice and always argued that we were at a severe disadvantage where competition had a warehouse and where we did not.

The upper 1980s to mid-1990s was a period of mixed directions. Many companies began to realize the high cost of warehousing + cost of inventory. Unilever was one of them. But certain companies continued with the uptrend, notably SMC, Nestle, URC. Nestle reached a maximum of maybe 30+ depots. SMC reached a maximum of around 140 warehouses The dominant belief was that there should be beer on every island.

The upper 1990s up to now is a period of decreasing depot numbers. There are companies with only one warehouse, notably Colgate and P&G.

But the debate is not over, even in the US. There are two schools of thought.

• Warehouse networks are too expensive. They never really work. Stocks committed to a field location become unavailable for other areas, except at great expense
• Warehouse networks allow faster service to customers because the stocks are nearer

Considerations in the decision on the number of depots are :

• Service time to customers
• Total logistics cost (warehousing, transport, money tied up in inventory, admin, customer service)

In a way the issue is analogous to the one factory vs. many factories decision.

Key Decision #4 – Do your own logistics or hire a TPL provider. Own logistics means own warehouse, own transport truck fleet, or direct management of a rented warehouse and of truckers. Using a TPL means leaving the logistics to the experts.

The trend in the 1970s to 1980s was to do your own logistics. Some big companies owned large truck fleets, such as SMC, PLDT, Coca Cola, Pepsi, and also operated or managed their warehouses. No one could entrust their own operations to another party, because of fear of loss of confidentially, and lack of faith in the TPL company’s capability to adhere to company standards in packaging, handling, quality, etc.

In the early 1980s, FCTC (Fast Cargo Transport Company, a subsidiary of William Lines) pioneered what is now known as TPL. At Unilever, I “experimented” with using FCTC to bring finished goods from the Unilever warehouse in Paco all the way to Samar Leyte customers. This arrangement included pickup of stocks from Paco warehouse, shipment to a warehouse in Tacloban provided by FCTC, and delivery of goods to Unilever customers using FCTC trucks.

Since the 1990s, confidence in TPLs has increased. The trend is worldwide and appears irreversible.

Considerations in the decision to go the TPL route include:

• Fear of loss of confidentiality
• TPL provider’s capabilities
• Price
• The issue of national TPL vs. regional TPLs.

Workshop – Quantitative Tools for Logistics Planning

Speaking of distribution networks (Key Decision #3 above), UniMaC-SCMAP offers a workshop on two technical tools that can assist companies in logistics planning. One of these tools is mathematical programming for warehouse site selection. The technique uses cost optimization to suggest a distribution network configuration that minimizes total cost. The other tool offered in the workshop is forecasting.

The workshop utilizes computer examples in optimization and forecasting, via Excel. Originally offered in April, it will be re-scheduled in July. The workshop is also available as an in-house seminar where 10 or more participants can be assembled.

Shipping Immersion Course

This year’s shipping immersion course may undergo a facelift (change of name), or even a complete change (air or land trip and change of content). As soon as the change is finalized, we will announce it in this column. The initial schedule is May 14 – 17, immediately after the election.

Address inquiries and comments to Ed Sanchez at tel. 671-8670, fax 671-4793, cell 0918-914-1689, or email scmap.org@gmail.com.  Those interested in SCMAP training and other activities are requested to send their e-mail addresses. Visit SCMAP’s website at:www.scmap.org

March 26, 2010