Operational Characteristics of a Consumer Product Company
A consumer product company has standard operations such as purchasing, order scheduling, transportation, warehousing, inventory management, and customer service, which characterize its operations. Purchasing of products is an integral operation that characterizes logistics operations of a consumer company for it initiates the process of supplying products from manufacturers to consumers (Gudehus and Kotzab 53). Once customers purchase products by placing orders, they prompt manufacturers and suppliers to schedule essential logistics operations. Order scheduling is another characteristic of the company that entails the processing of orders in response to purchases made by customers. According to Gudehus and Kotzab, order scheduling ensures timely delivery of ordered products at their respective distribution centers for customers to collect (167). In this case, order scheduling entails the determination of the delivery time of the product as either same-day delivery or next day delivery and the distribution centers.
Transportation is a major characteristic of a consumer company for it allows the conveyance of products from manufacturers or one distribution center to another. When customers purchase products and consumer company schedule orders, the elaborate transport system is essential to transport products from the company to customers. Since transportation is a major characteristic of logistics, it is subject to many factors such as coordination, infrastructure, information, and demand, which influence its efficiency (Sanchez-Rodrigues, Potter, and Naim 45).
Efficient transportation allows customers to receive ordered products at the right time and the appropriate place. Warehousing is a characteristic of logistics because the transported products require storage at the distribution centers so that customers can access and collect them while in their respective right conditions. As purchasing, order scheduling, transportation, and warehousing generate massive data, inventory management, which is a characteristic of logistics operations, is essential for accurate and efficient tracking products along the supply chain. Customer service is a logistics characteristic of the company as it permits companies to interact with their customers, understand their needs, make inquiries, and voice their complaints.
Problem Areas of a Consumer Product Company
The problem areas considered in the case study are high logistics costs, excess distribution centers, overlapping distribution networks, limited availability of inventory, delays in delivery, and rigid services. High logistics costs constitute a problem area as LeanCor analyzed the distribution network and aimed to reduce logistics costs by $1 million. Optimization of the distribution network by LeanCor led to the reduction of the logistics costs by $1.8 million, which exceeded the goal set. An excess of distribution centers is another problem area in the case study for LeanCor focused on reducing their number within the distribution network. Given that the customers required distribution centers to be within a four-hour distance, the optimization process estimated that the reduction of distribution centers by five from 64 to 55 would be an ideal number. Continued optimization of the distribution centers resulted in their reduction from 64 to 51, which constitutes a reduction of 20.3% (13).
The overlapping distribution network is a problem area since the company had excess and redundant distribution networks, which do not add value to the supply chain but increase logistics cost. Limited availability of inventory is a problem area considered in the case study for customers who wanted improved availability so that they can track their products along the supply chain. Delays in the delivery of products to consumers is a problem area because customers required specific delivery services such as same-day delivery or next day delivery for logistics services to be reliable. Rigid services comprise a problem area as it prevented customers from using logistics services whenever they need it. Hence, customers requested for 24/7 flexibility and availability of logistics services so that they can use them conveniently. From the case study, it is apparent that it considers outbound logistics as a specific area of logistics because the aforementioned problem areas fall in the area.
Reasons for the Provided Operational Improvement
Reduction of the number of warehouses
In the case study, the consultant reduced the number of warehouses to optimize logistics operations and consequently eliminate wastage of redundant warehouses and lessen logistics cost. As the consumer company had acquired excess distribution networks and warehouses, optimization was essential to ensure that there are no redundant warehouses that do not add value to the supply chain. Liu argues that the optimization of the supply chain involves the elimination of redundant networks and distribution centers that add no value to the supply chain (78). In this case, the reduction of the warehouses from 64 to 51 optimized logistics operations of the consumer company. As a consequence of overlapping distribution networks and redundant warehouses, the consumer company incurred huge logistic costs. According to Richards, the size of the distribution network influences the number of distribution centers, the extensiveness of operations, and logistics costs (133). Thus, the reduction of the number of warehouses was an optimization strategy aimed at eliminating redundancies and reducing logistics costs.
The reduction of the number of warehouses has some risks, which include delayed delivery of products, shortage of warehousing, and a limited variety of products in the supply chain. The availability and accessibility of warehouses within four-hour distance implies that customers would not be able to collect their products easily. In this view, customers would experience delays for they have to spend hours traveling to the distribution centers. Moreover, due to delays in the delivery of products, the supply chain would only allow the consumer company to supply products with long shelf life. The shortage of warehousing is a potential risk during the period when the sales of the consumer company are high. The optimization of distribution networks and warehouses is a lean logistic strategy, which is not responsive and flexible to high demands of products (Christopher 45). Due to the shortage of warehousing, the consumer company would be unable to deal with diverse products for the supply chain can handle a limited variety of products.
The Target Areas of Improvement
Link to logistics
Analysis of the case study reveals that inventory costs, fleet costs, inventory availability, distribution centers, and replenishment of inventory are the target areas of improvement elucidated by LeanCor, which link to diverse areas of logistics. As inventory costs were high the consumer company, LeanCor aimed to reduce them. Specifically, the reduction of inventory costs is a target area of improvement that links to the logistics area of inventory management.
Christopher explains that inventory management comprises logistics operations involving the purchase, supply, storage, and distribution of products, which control the flow of products along the supply chain and enhance distribution centers and customers (95). Since the costs of fleets were high, LeanCor targeted to reduce them and decrease overall logistics costs. As a target area of improvement, the reduction of fleet costs links to the transportation area in logistics. Transportation is a core area in logistics because it entails the conveyance of products from manufacturers to consumers via distribution centers and warehouses. To reduce transportation costs, companies choose a relevant, safe, and cheap mode of transport.
Inventory availability was a target area of improvement since customers complained about the limited accessibility. Inventory availability is an area that links to customer service for it allows customers to track their products and interact with the suppliers and manufacturers of products. Customers need to access inventory and place orders for specific products, indicate a precise destination, and receive them required time. The reduction of distribution centers is an area of improvement because the consumer company had excess distribution networks and warehouses. The reduction of distribution centers links to the warehousing area of logistics. Warehousing is an integral area of logistics that allows suppliers to store products in the right conditions for customers to collect them at the destination of choice and opportune time. Replenishment of inventory is an area of improvement that links to the logistics area of supply management. In ensuring there is a constant supply of products from manufacturers to customers, companies employ robust supply management.
Recommend adoption of the lean technique
Critical analysis of the demand chain of outbound logistics indicates that lean technique is a suitable form of logistic technique that the company should adopt. As the company aims to reduce logistics costs by optimizing distribution networks, distribution centers, and fleets, the lean technique would enable it to achieve its aims. Wang and Koh explain that the lean technique optimizes logistic operations, reduces costs, and improves the quality of services that customers receive (5). By focusing on areas that required improvement, LeanCor adopted lean technique, which reduced the number of distribution centers by 20.3, decreased the logistics costs by $1.8 million, and lowered the cost per unit by 10%.
Adoption adopting the agile technique
Since the company strives to reduce logistics costs and eliminate wastage, the adoption of the agile technique is not suitable. Wang and Koh describe the agile strategy as a flexible logistic strategy that is sensitive to forces of demand and supply, and thus, requires a flexible supply chain (5). Thus, owing to the flexibility of the agile strategy, the company would incur huge logistic costs in maintaining redundant distribution networks and warehouses when the demand is low.
Christopher, Martin. Logistics & Supply Chain Management: Creating Value-Adding Networks. Prentice Hall, 2011.
Gudehus, Timm, and Herbert Kotzab. “Planning and Scheduling Production Systems from a Logistics Perspective.” Logistic Research 1.1 (2009): 163-172.
Liu, John. Supply Chain Management and Transport Logistics. Routledge, 2012.
Richards, Gwynne. Warehouse Management: A Complete Guide to Improving Efficiency and Minimizing Costs in the Modern Warehouse. Kogan Page, 2011.
Sanchez-Rodrigues, Vasco, Andrew Potter, and Mohamed Naim.”Evaluating the Causes of Uncertainty in Logistics Operations.” The International Journal of Logistics Management 21.1 (2010): 45-64.
Wang, Lihui, and Samui Koh. Enterprise Networks and Logistics for Agile Manufacturing. Springer, 2010.