How to create cost reductions in the logistics industry?
Stijn Wever
Published at
I have seen many companies in the logistics industry in the past years. They are all focusing on cost reductions and becoming more competitive. After a short period of cost cutting, they pop the champagne. However, on the longer term, customers become dissatisfied. They even move away towards competitors and costs are increasing again. Dramatically.
In general, reducing costs and improving customer intimacy is what we all want. There is nothing wrong with that. However, I strongly believe that having the operational focus on this is not the right way to go. You first should translate your business goals into the right process language. Then start focusing on reducing variation and improving flow in your logistic processes.
However, I have seldom seen companies doing this, while the principle is crystal clear. Just have a look at your process as if it were your holiday and you will recognise the opportunity.
Imagine it is the first day of your vacation. It is going to be an exciting time, since this year you convinced your family to travel to your dream destination. Your bags are packed and you are on your way to the airport. Until now, everything is running smoothly. Until you stare at a screen, together with hundreds of other people, to find your departure hall and check-in desk. Then towards the baggage drop-off, the place where the frustration starts. First queue, second queue, a third queue at the security check and another queue at the passport control. Then there is probably again a lot of waiting time at the gate and even in the airplane itself. Not the best way to start your holiday, is it?
The airlines and airports recognise this as well. A few examples of their countermeasures:
- additional personnel to provide you with information;
- more digital information on waiting times, so you can plan you trip accordingly;
- frequent flyer programs to bypass the crowds;
- shops to buy food, drinks or all kind of gadgets;
- even up to clowns and magicians to entertain you while waiting.
Process flow
I have seen this phenomenon also frequently within logistic operations within companies. Scaling down people during quiet times when everything runs smoothly, but tripling personnel budgets during rush hours to minimise negative impact on customer experience. In the end, these actions only hide the real problems and do not improve your process flow. If you want to realise sustainable cost reductions, work on the real issues.
Therefore, you just must ask yourself five easy critical questions. Consider the airport security check for example.
- Why are there waiting times at the security check? Because the processing time is too long.
- Why is this processing time too long? Because it takes too long before passengers put all goods on the conveyer belt.
- Why does this take so much time? Because they bring a lot of hand luggage.
- Why do they bring a lot of hand luggage? Because they must pay for check-in luggage.
- Why do they have to pay for check-in luggage? Because this allows airlines to offer low fares.
Root cause analyses
By doing this, you see that the root cause of the problem is that because of low-fare tickets, the number of travellers has grown exponentially. This requires a different mind-set in how to deal with waiting times and improve your process flow. You can use the same approach to overcome bottlenecks and waiting times within your own logistic processes. Define how to measure flow in your process. Monitor the performance. Act when bottlenecks appear by asking the five critical questions. Implement the right countermeasure.
Systematically this will improve your process flow, resulting in sustainable cost reductions and increased customer intimacy.Then it is time to pop the champagne and go on a well-deserved smooth holiday!
Stijn Wever is Business Process Consultant at R&G Global Consultants in The Netherlands.
