April/May 2019

Understanding the business of logistics

In the first of a series of features from the University of Salford’s Business School, GM Business Connect visited with Senior Lecturer in Operations and Supply Chain Management Dr Jonathan D Owens. The series of speed lectures will feature a different area of business covered by a select group of academic experts from Salford Business School – and Dr Owens starts the series by sharing his insight with us into Logistics.

How important is logistics to business strategy?
“Logistics is a core element to business strategy. It’s involved at a high level where you are making business-defining decisions, right down to the bottom level where you get decisions that are acted on a daily or even hourly basis. For example, ‘Are you going to build a new national or regional distribution centre, yes or no?’ (high level decision) or ‘What is your route for distributing goods around the region today?’ (this can change on a daily basis). The sheer range and amount of logistics decisions that are required means that, whatever sector you’re in, you need a flexible business strategy and a strong understanding of internal and external logistics.”

Is logistics more of a concern for manufacturing rather than a services business?
“Yes, but that can be associated with fixed layouts that tend to be more usual in the manufacturing sector. It’s very interesting because many people think that logistics is just an external viewpoint, but you have both external and internal logistics, and when you look closely many businesses come to appreciate value mapping those important internal processes. The basic rationale behind logistics and using that knowledge in a positive manner is to start by following a product or service around which can involve several hundreds of steps. This is where you can look to reduce down those steps in an attempt to increase productivity. If your business has a non-fixed layout, as is generally the case in a services business, that’s quite easy to achieve compared to a fixed layout, which is usually the case for the manufacturing sector. External logistics are more easily recognisable because we see infrastructure in a very visible way – we see freight on the roads, airmail, couriers, trains and sea freight – but the reality is that internal logistics is the starting point for a successful business.”

Tell me more about internal logistics?
“Internal logistics are a core part of preparing a business. For example, when designing a plant, it is designed with fixed layouts which can be problematic when looking at even a small change to an established process. However, when looking at non-fixed layouts (typical of services businesses) which can be moved easily, processes can have a great deal of flexibility. So, importantly, when you need to make even a small change to your product (this is especially relevant to manufacturing SMEs where products may need to change quickly to reflect a market edge) you can move things around.

“The question is now how does a business with fixed layouts identify the best way to look at their internal logistics? The key point here is that in small businesses, employees tend to be very involved and can work flexibly in multiple roles. They are knowledgeable about how their operations work and how products move from A to B. The operations (the ‘doing’) are directly linked to the logistics (the ‘moving from A to B’). If you ask an employee ‘how do you move it from A to B?’ they might say ‘if we had the ability to move this part or that part of the plant around, we could save money’. This can be one of the key advantages an SME has over a larger business, potentially resulting with quicker changes delivering greater flexibility and faster service to the end customer.”

What is your advice on how they should approach this as a problem? Should they build this in to how they grow as a business?
“My advice is to look at the big picture. Work as a team – and listen and communicate with the workforce. If you are in a fixed cell layout against a non fixed cell layout then it’s difficult to do this. For example, about 5 years ago we arranged a student placement at Siemens Industrial Turbines. The problem was that product was taking too long to move between workstations, and it was difficult to track inventory. The request was to work out a way to improve internal communication and internal flow of product. We had to map out and redesign the process, and because this was a fixed cell layout this took time so we had to work in stages. To do this we employed ‘invisible logsitics’, which directly link to operations. Internally these were known as ‘travellers’. This is an identification system usually applied at each process in the form of perhaps a stamp on each manufactured part telling you who created it and where it was applied. This adds information to a product going through the process.

“What we did with the travellers was to digitise the process and put it on iPad. The product moved around the cells, and at the end of each day this information was then uploaded to a central database that enabled better flow of inventory, better control of stock, and we were also recording better accuracy over the whole process. When you consider that the lead time to create an industrial turbine was 18 -24 months, this resulted in a massive difference in productivity over the life of fabrication.”

These seem like bespoke systems – are there any general systems that can be ‘good practice’ for businesses?
“I wish I could say there was one size fits all but there isn’t. It’s all about logical flow and throughput. What we advise our students is to recognise the importance of understanding ‘where is the flow’. Once you understand this, you can understand where the problems are. A lot of companies don’t fully understand where their problems are for this reason.”

What are the problems associated with globalisation and how can business compete in an aggressive global marketplace? Perhaps in relation to Brexit?
“Globalisation in terms of tariffs is an example of what the UK needs to consider for future routes to market for their goods, but we don’t know how things will end up and it may be the World Trade Organisation route once all the dust has settled. We should not necessarily be concerned about this as most of the things in our homes have already come in through the WTO route. Look at how many are made in China or Taiwan and this shows that it is not insurmountable through the globalisation strategy. The issue is in creating new supply chain routes. These will be the challenging part as they will be developed in the medium to long term rather than short term.”

What are the lessons from understanding customer expectations in terms of building a robust ordering system?
“Customer expectations are very interesting. The busiest shopping day in the UK year is actually 25th December. As the sales have started even earlier, the ordering and delivery systems are all robust and set up regardless of any shops being closed and delivery is made within 2 days after Christmas Day. It’s the day that we all think about gifts, and have the time to access Amazon or other online retailers and take advantage of their seasonal sales.

“The main concern is the accuracy of what’s available and how much information you will make available for the customers to see over that of your competitor. That’s a key consideration online. Some shops are now offering the ability to scan yourself so you can see a virtual reality of what the clothes will look like on you before you decide to order. This reduces the cyclability of the supply chain i.e. they don’t need to worry about items being returned.”

How flexible should the process be?
“Supermarkets are already starting to build flexibility into their supply chain, for example with robot delivery to your door, Ocado and Waitrose have started delivery with key safes to access owners’ houses so they can deliver and put away the shopping in their customers’ homes. The level of flexibility of what is there is startling. On the other hand, customers are only getting what is being delivered rather than getting a choice of bargains or what is available on the day. With supermarkets, such flexibility of supply chain works because many people are constrained by working hours and long commutes which mean that these people are very conscious of time spent doing ‘unnecessary’ work. Food shopping has gone from ‘shop and collect’ to ‘you shop we drop’ and now to ‘we deliver and put away the goods for you’”.

How should businesses succeed in such a busy environment? What can they be doing?
“Be open, communicative, and willing to accept new ideas. Openness to new technologies such as enterprise resource planning can really help.”

Can you explain what Enterprise Resource Planning is?
“An Enterprise Resource Planning (ERP) system is a software package that supports seamless integration of all the information flowing through a company. An ERP system will collect data from various key business processes in manufacturing, logistics, finance, sales and marketing, and human resources for example, and then store the data in a single repository where it can be used by other parts of the business. Therefore, managers have precise and timely information for co-ordinating the daily operations of the business and a firm-wide view of business processes and information flow.  This information can be crucial for a logisitics manager both for planning long and short term business strategies. It is a software package which can be an off the shelf system, or can be a designed bespoke system as needed.”

How do Knowledge Transfer Partnerships benefit businesses?
“Many SMEs don’t know about these but a great scheme offered at many universities which is government supported is called Knowledge Transfer Partnerships (KTP).

“I ran a KTP with a company that wanted an ERP system. They manufactured furniture for the NHS but were hopeless at ordering stock and maintaining stock inventory levels, and were always late or early. So, the KTP employs a knowledgeable academic, enlists
a university’s facilities such as a laboratory, and it will employ a knowledge transfer associate (a graduate from across the EU) who will work on the project for two years. The company gets their questions addressed and access to university facilities and a consultant academic to come in once a week for 4 hours, they of course get full access to the associate, and this runs over a 2-3 year period. The associate gets a Masters PhD qualification out of it. If the business is an SME it can be funded up to around 60% by the government and you can decide whether you want to keep the associate on or not after the end of the process. All equipment used (specialist scanners, laptops, software) is also funded out of the grant bid. We run shorter periods of involvement too depending on the nature of the requirements, and subject to available funding in the form of grants.”

Find out more about your opportunities to work with Salford Business School; contact Sam Wood on 0161 295 5361, or email s.e.wood@salford.ac.uk