In this article, a real practical case will be developed that shows the reality of the logistics and warehouse management problems of many SMEs, as well as the solutions and results achieved in this specific case.
In today's increasingly competitive environment with lower margins, organizations continually seek opportunities for improvement that make them more competitive. In this sense, they are increasingly aware of the importance of warehouse management (and logistics management in general) as an essential part when it comes to providing more value to their customers and reducing their costs.
The starting situation.
The present case takes place in an industrial company with a turnover of 34 million euros and that has the firm desire to align its logistics and warehouse management towards a Just in Time / Lean Manufacturing philosophy.
At a strategic level, the company -which is in a pure commodities market- had lost leadership in terms of customer service and costs, a situation aggravated by the entry of international competitors.
In addition, the warehouses were oversized (valued at 7% with respect to turnover), an excessively high value compared to their direct competitors and taking into account that production is made to order.
Although it was minor, there were also excessive costs of the processes related to purchasing, production and warehouse management due to the inefficiencies that will be described below.
For this reason, the Senior Management of the company decides to launch a project so that -after a general analysis of the company at both a strategic and operational level- the appropriate logistics solutions are analyzed, proposed and implemented to achieve new competitive advantages aligned with the strategy.
To do this, a mixed work team is created between the external consultant and key people in the logistics area of the company who, after carrying out a diagnosis, identify four major areas for improvement:
- Inadequate processes and information management in the logistics area Problems in supply management Physical arrangement of the warehouse Availability and reliability of information due to manual data entry
Each of these problems is described below.
Inadequate processes and information management in the logistics area
The lack of a global vision of the logistics processes on the part of the company was generating inefficiencies throughout the process, since both the information and the materials did not flow correctly.
This problem was basically due to two reasons:
- Processes designed in such a way that there is no flow of information between the different departments. The processes had been defined by each of the departments, having designed watertight processes that generate inefficiencies when the process crosses several areas. For example, in the analysis, documents were found that were validated up to three times by various departments since some were not aware that the others were doing it or planning of material needs that generated production and that purchases did not use because they were unaware of their existence.There were clear inefficiencies due to the information model used by the management software (ERP) recently implemented in the company, which did not cover the information needs of the company, causing excessively manual processes and duplication of tasks between departments. Thus, there was a lot of information that could not be consulted in real time and, for example, to know the stock level of certain products, you had to go to the warehouse and visually inspect it.
Procurement management problems
In this sense and associated with the concept of processes, especially serious was the problem in the areas of purchases / supplies.
Due to the lack of information and procedures in the organization, the purchasing department could not make decisions based on information but on sensations, which led to a chaotic situation with oversized warehouses and at the same time with continuous stock outs.
All the aforementioned weaknesses made it impossible to carry out analyzes on the rotation of products both to buy the correct quantities and for their physical disposition in the warehouse.
Physical layout of warehouses
The warehouses had a typical layout of small warehouses that, as they grew and had never been rethought, show some very common inefficiencies:
- Incorrect distribution in the plant (lay out) that caused inefficiencies in the handling of warehouse materials Oversized staff due to inefficiencies caused by the lay-out, material handling and lack of procedures Inadequate type of storage for some products, as is the case of those who were confined in cardboard boxes (and even more so considering that the warehouse was outdoors). The storage system that had been chosen (stacked products without shelves), did not allow have a warehouse with a FIFO (First In First Out) philosophy, causing an inappropriate rotation of products and therefore that there were items without rotation during long periods of the warehouse, considerably increasing the presence of obsolete articles and wastage.
Availability and reliability of information due to manual data entry
The manual introduction of the data, both for the raw materials warehouse and for the finished product, had two consequences:
- The possibility of errors due to the manual introduction of data. Ignorance in real time of the stocks in the two warehouses.
This last point was especially serious if one takes into account that the company produces during weekends, and that the manual registration of the products in the finished product warehouse implied the discount of its components in the raw materials warehouse, which there was a maximum delay of 2.5 days between the consumption of the items and their introduction into the system.
The lack of reliability in the system seriously affected both Purchasing, which was solved by increasing stock levels, and Expeditions, making it difficult to optimize them.
The proposed solution
After the diagnosis, the solution was proposed with three basic lines of work. Starting from the strategy and the desired positioning - and having the process area as the central axis - solutions were designed as shown in the following figure:
Physical warehouse
For the problem related to the storage system, the need to redesign the warehouses was raised and thus achieve the following objectives:
- Rationalize the number of people assigned to the warehouse due to the drastic reduction in the time of storage operations Improve turnover, and therefore reduce the level of stocks and obsolescence Reduction in the number of losses Allow the application of procedures that will ensure proper warehouse management.
For this, on a physical level, there were two main lines of work:
- Storage systems Physical distribution (lay out)
Regarding storage systems, a warehouse was designed with palletizing systems adapted to the characteristics of the product with modern FIFO storage systems and dynamic picking.
Regarding the distribution of the warehouse, a methodology of the consulting firm was used, redefining all the functional areas of the warehouse (loading and unloading docks, merchandise preparation areas, picking area, etc.)
Information management
In this area, it is important to highlight the complexity of successfully combining business concepts with technology concepts. To achieve this, an "Information System Implementation Committee" was created in which the same members of the consulting firm and the company participated as in the Project Committee, as well as representatives of the information systems solutions companies.
In this way, it was achieved that problems did not appear due to the lack of information or communication, with which it was possible to fulfill the project plan for this area in a timely manner.
The methodology
For the development of the project, a mixed work team was created between the client and the external consulting company, where all the departments involved were represented (Logistics, Purchasing, Production, Warehouse,…), and different methodologies were used depending on of the different elements of the project, although always with the following structure:
All the implementation of the work methodology and the proposed solutions was carried out using a Project Committee under the leadership of the project shared between the external consultant and the company and with full support from Senior Management.
Especially noteworthy is the change management methodology, a key element for the success of any project and whose treatment had a specific methodology. It must never be forgotten that organizational changes end up being changes in people, so this element -although it is often complex to manage- is essential for the success of any project.
The results
After the implementation of the project, some of the quantifiable results were:
- Reach a competitive position in terms of service Decrease in average warehouse stock by 34.5%. Decrease in losses by 27%. Have information in real time for decision-making due to the implementation of a logistics control panel 23% improvement in the costs of administrative processes Greater customer satisfaction due to the improvement in the service Increased satisfaction of the human team thanks to having collaborative, clearly defined, communicated and implemented processes.
All these improvements, achieved with a very interesting return on investment, allowed the company to regain its leadership position in its sector.
To finish and complement the text, we leave you with the webinar "Supply Chain Management: breaking down borders in logistics management" given by Juan Luis de los Ríos Sánchez, from IEBS, in which key aspects for managing logistics in the SME.
