Logistionary: Milk run logistics

 

You might have heard the term “Milk Run” in a logistics context and wondered what milk has to do with Supply Chain.

To people´s surprise it has a lot to do! The Milk Run got its name from the milk industry practice wherein a single tanker goes to different dairy producers every day to collect milk and then deliver it to the milk processing firm.

In other words, Milk run in logistics is a process for inbound deliveries to warehouses or distribution centres, or within an internal Supply Chain, that involves a route with many stops.

To better explain this concept here is an example. Let’s say that many different growers in one region supply corn to a mill that makes flour. In a traditional Supply Chain, each farm could send a delivery truck with a load of grain to the mill each day. In milk run logistics, however, a truck would go from the mill to each of the farms and at each stop it will pick up corn from the different suppliers.

As we said, Milk runs can also be part of internal operations. Sometimes, they don’t even involve delivery trucks. Let’s take the example of a heavy equipment manufacturing facility. Several sections of the facility fabricate different parts of the machinery. Another team does the assembly. Someone from each fabrication department could deliver finished pieces to the assembly section. However, it’s following the Milk run approach, it will be probably more efficient to send one driver to the different sections to load and transport all the parts to the assembly area.

Milk runs are an excellent example of lean management principles applied to logistics and while it can certainly be a more efficient way to handle logistics they do take planning. 

Addressing a bottleneck with Theory of Constraints

 

The Theory of Constraints is an approach to improving organizational performance; the rationale behind this methodology is that in every organizational system, there is one constraint that limits the output, and only when this constraint is addressed we can improve the whole process.

No matter how much we improve the rest of the non-constrained steps, the process will not improve until we improve the weakest link.

The Theory of Constraints uses five steps for optimising systems, allowing to address constraints is the simplest way possible.

Step 0: define the goal

Each process has a goal, and understanding the goal is often the most difficult step in the process. Finding the right goal and the right metrics to measure progress toward that goal will be critical to your success.

Step 1: Identify the bottleneck

In a similar way, each system has one constraint that determines the throughput of the entire process.

The constraint can be a person, a team, a physical machine, one organizational rule, or anything else that limits the output of a process.  The constraint is often called a bottleneck.

As mentioned earlier, making improvements anywhere but the bottleneck will not improve the throughput of the system and it can even have a negative effect.

To help identify the bottleneck, you can use tools like flow charts, swim lane diagrams, root cause analysis, Pareto charts, or queuing models, but it is critical to define what is the step that is limiting the system.

It’s important to understand that being a bottleneck doesn’t mean a person or team is bad at what they do or that they’re doing anything wrong.  Being the bottleneck is neither good nor bad; it’s just a fact of the system.  There’s always one constraint, and as we will say later on, once that constraint has been addressed, a new one will come up.

Step 2: Exploit the bottleneck

Once we have identified the step that is constrained, the first way to address it is to “exploit” it.

Exploiting the bottleneck means eliminating any work done by the bottleneck that doesn’t contribute towards the throughput.

There are several options when it comes to exploiting a bottleneck:

      -      Make sure the bottleneck works on only one thing at a time.

-      Remove any non-throughput producing work from the bottleneck.

-      Shield the bottleneck from interruptions.

-      Make sure that the bottleneck is never idle or waiting for information, equipment, or materials.

It’s important to only change one thing at a time as if multiple changes are made it will be impossible to tell what change had the positive effect.

After each change, it’s important to go back to the beginning to make sure the bottleneck hasn’t changed to a point where it is no longer the constraint.

Step 3: Subordinate Decisions to the Bottleneck

After you’ve exhausted what you can do through exploiting the bottleneck, the next step is to subordinate decisions to the bottleneck. Subordinating decisions means the rest of the system works to help the bottleneck produce maximum value.

In a constrained system, anyone working beyond the pace of the bottleneck is not increasing the throughput of the system, therefore instead of working faster, it’s more productive to work to the pace of the bottleneck and use the extra capacity to support the bottleneck further.

As with the exploit step, measure the result and go back to the beginning. 

Step 4: Elevate the bottleneck

After doing what you can to exploit and subordinate, you can elevate the performance of the bottleneck.

Elevating the bottleneck requires time and money, so it’s done only after exploiting and subordinating.

Some of the below examples can help elevate the bottleneck and improve performance:

 

-       Get more people that can do the same work as the bottleneck.

-       Buy more or faster machines.

-       Give people training and better tools.

-       Coach for individual improvement.

-       Improve the workspace.

-       Change organisational policies.

Often, we jump right directly to elevating by adding people, getting training, buying equipment and tools.  These changes can be expensive, and it takes time to get a positive impact on throughput.  They could even have a negative effect in the short term.

Elevate as a last resort when you can’t find any more ways to exploit or subordinate.

Step 5: Repeat

Every time you find a potential improvement, implement it, measure the results, and go back to the beginning.  Make sure the goal is still valid and see if the constraint has moved.

The shortage of HGV drivers in the UK

 

Whether is Brexit, COVID-19 or the change in workforce dynamics the undeniable truth is that the UK is having a problem to secure enough trucks and drivers to maintain what up until now has been a normal service level into retailers.

It's no secret that business large and small have already started seeing the consequences of this shortage and are anticipating further disruption in the coming weeks as the situation progressively gets worse with the ease of lock-down measurements and the new Brexit regulations expected to come in place from October 2021.

The next few videos illustrate the scale of the problem and the what's and how's of how we got here as well as some interesting stats that help understand the dimensions of the problem and what is potentially still to come.

Gartner 2021 top 25 Supply Chain companies

 

Gartner recently announced its list of the top 25 Supply Chain companies, and also recognised the companies that have sustained a high level of Supply Chain excellence over the years in what they have named "Masters" category.

Gartner introduced the “Masters” category in 2015, and to be considered Masters, companies must have attained top-five composite scores for at least seven out of the last 10 years. All of 2020 Masters, Amazon, Apple, P&G, McDonald’s, and Unilever, qualified for the category this year.

Cisco Systems scored the top spot in the ranking for the second consecutive year, followed by Colgate-Palmolive, Johnson & Johnson, Schneider Electric and Nestlé.

Four new companies joined this year’s list: Dell Technologies, Pfizer, General Mills, and Bristol Myers Squibb.

Agile methodology

If you have been following this blog for a while, you would know that we have already shared some insights on the world of project management methodologies that you can find below:

Project Management: Waterfall VS Agile

Agile methodology: Kanban VS Scrum

Today we will get another step closer into understanding what Agile methodologies are and what are the differences as well as the similarities among the different options. 

We will also discover, what are the benefits of these methodologies and when we should apply them.

Hope you enjoy the video!

Agile methodologies

Cold Chain mission: Vaccines

With the outbreak of the COVID-19 pandemic, and subsequent the roll out of the vaccination program in 2021, cold chains have become a concept that a lot of people have become familiar with.

 

We already talked about the Cold Chain in a previous post that you can read in the below link:

 

Cold Chain

 

But with this term now becoming a hot topic, a post of itself should be dedicated to vaccines specific cold chain!

 

Let’s start from the beginning; a cold chain is a temperature-controlled Supply Chain. In particular, the term is used to describe the cold temperature conditions in which certain products need to be kept during storage and distribution.

 

The cold chain is used in the supply and storage of many perishable products, including vaccines, however, maintaining a continuous cold chain in resource-limited places where power supply is unreliable, or even non-existent, is a considerable task.

For vaccines, there are different types of requirements.

 

-    There is an ultralow, or deep freeze, cold chain for vaccines that require -70 degrees C (the Ebola vaccine require this level).

 

-     Next the frozen chain requires -20 degrees C (varicella and zoster vaccinations require this level)

 

-     The refrigerated chain, which requires temperatures between two and eight degrees C (most flu vaccinations only require refrigeration).

 

As an anecdote, the Pfizer COVID-19 vaccine also needs ultracold storage and transportation temperatures as cold as −70 °C, requiring what has been referred to as a "colder chain infrastructure” which has created some issues of distribution as it is estimated that only 25 to 30 countries in the world have the infrastructure for the required ultracold cold chain.

 

If you want to see first-hand how critical cold chain is when distributing vaccines, I recommend watching the series Cold Chain missions, with Ewan McGregor. Here is a taste for it:

Cold Chain Mission - The Congo

 

And if you want more information, check the below document from the World Health Organisation on vaccines cold chain.

Cold Chain vaccines WHO

Logistionary: Vendor Managed inventory (VMI)

 

Vendor Managed Inventory (VMI) is an inventory management practice in which a supplier of goods, usually the manufacturer, is responsible for optimising the inventory held by a distributor/retailer.

In traditional inventory management, a retailer makes its own decisions regarding the order size and frequency, while in VMI the retailer share their inventory data with the supplier such that the supplier is the decision-maker who determines the order size and frequency.

In VMI practice, inventory location depends on the arrangement between the vendor and the customer. The first option is for the inventory to be located both at the customer's and the supplier's premises. For the supplier, this serves as a safeguard against short delivery cycles or synchronised production cycles.

Another option can be for the supplier to deliver to the retailer’s central warehouse or alternatively, to a third party's warehouse. Managing the inventory at the central warehouse enables better optimisation of deliveries and lower costs.

Finally, a third option would be for the inventory to be located directly at the retailer’s premises such as the shop floor itself.

From an inventory ownership point of view, in vendor managed inventory, there are several solutions in terms of payment and transfer of ownership.

In the first alternative, the supplier is the owner of inventory at the premises of retailer. Invoice is issued when the items are sold from the stock.

In the second alternative, retailer assumes ownership of the inventory receiving an invoice upon delivery. However, the supplier is not paid until the retailer sells the items from.

In the third alternative, retailer owns the inventory upon delivery, while the supplier invoices the retailer once the shipment has been made.

In the majority of the cases, the products will be in the possession of the retailer but will not be owned by them until the sale takes place, meaning that the retailer simply houses the product. This is referred to as consignment stock.

There a many advantage for both supplier and retailer of using VMI:

Retailers benefit from reduced risk of going out of stock since the supplier can have information about how the products are selling. 

Retailers also benefit from reduced carrying costs since they shouldn’t need to carry as much excess stock.

Supplier benefit from more control and more customer contact.

Suppliers get to gather information as to the demand for the products, this should also help reduce the amount of safety stock that suppliers need in their warehouse.

This practice can prevent the bullwhip effect since the supplier will have control over the end to end inventory.

 

Retailer-Manufacturer Collaboration - Keys to success

It is not new news that customers have become more and more savvy and educated when it comes to in stores and online shopping. This has lead to increase competition as well as higher expectations from both customers and retailers.

It's clear that the retail game has changed however many retailers and manufacturers are still playing by the old rules and therefore missing out on sales and customer loyalty.

In the current landscape, retailers and manufacturers need to identify opportunities to work together. In the article that you can find clicking in the below link, we explore some examples and case studies of collaborative work between manufacturers and retailers and how this has impacted consumers for the better.

You can fin the article here, hope you enjoy it!

Until next time!

Do you know how Amazon receives your inventory?

 

Even wondered why Amazon is able to receive, pick and dispatch orders within hours?

Have a look at how Amazon receives inventory from their suppliers. Did you noticed how streamlined and strict their policies are when it comes to accepting new parcels into their fulfilment centres?

Porter's Five Forces

Porter's Five Forces Framework is a method for analysing competition of a business and determine the competitive intensity and, therefore, the attractiveness of an industry in terms of its profitability. An "unattractive" industry is one in which the effect of these five forces reduces overall profitability.

This framework was developed by Michael E. Porter and includes three forces from 'horizontal' competition, the threat of substitute products or services, the threat of established rivals, and the threat of new entrants, and two others from 'vertical' competition, the bargaining power of suppliers and the bargaining power of customers.

Threat of new entrants:

Profitable industries that yield high returns will consequently attract new entities. New entrants eventually will decrease profitability for other firms in the industry. Unless the entry of new firms can be made more difficult, profitability will fall towards zero. The most attractive markets are the ones in which entry barriers are high and exit barriers are low; the less time and money it costs for a competitor to enter a company's market and be an effective competitor, the more an established company's position could be significantly weakened.

Threat of substitutes:

Substitute goods or services can be used in place of a company's products or services and pose a threat to the existing company. Companies that produce goods or services for which there are no close substitutes will have more power to increase prices.

Bargaining power of customers:

Defined as the ability of customers to put the firm under pressure and drive prices low. Consumer’s power is high if they have many alternatives but it weakens if they only have few choices. A smaller and more powerful client base means that each customer has more power to negotiate for lower prices and better deals, on the other hand a company that has many, smaller, independent customers will have an easier time charging higher prices to increase profitability.

Bargaining power of suppliers:

Similarly to the consumers bargaining power, the fewer suppliers to an industry, the more a company would depend on a supplier, and as a result, the supplier has more power and can drive up prices. On the other hand, when there are many suppliers a company can keep its costs lower and enhance its profits.

Competitive rivalry:

It refers to the number of competitors and it’s the biggest determinant of the competitiveness of the industry. The larger the number of competitors, along with the number of equivalent products and services they offer, the lesser the power of a company. Conversely, when competitive rivalry is low, a company has greater power to charge higher prices and achieve higher sales and profits.