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Low cost is often very high cost
Aim for the moon
Logistics is the management of the flow of goods, information and other resources, including energy and people, between the point of origin and the point of consumption in order to meet the requirements of manufacturers and consumers.
It may sound simple but it’s not. It demands the integration of information, transport, inventory, warehousing, materials handling, packaging and security. The goal is to have the right item in the right quantity at the right time at the right place for the right price in the right condition to the right customer. There is considerable value in achieving that.
A good example of different approaches to and perceptions of cost and value is American astronaut Neil Armstrong’s comment. The first man to set foot on the Moon, Armstrong was asked what he had feared most before getting into the Apollo 11 space capsule. It was not the fact that that he was sitting atop one million litres of highly flammable rocket fuel; nor was it because he was going where no man had been before.
His biggest fear? That the two million separate components installed in the Apollo 11 space craft were manufactured by the lowest bidder! Armstrong obviously had gathered previous experience of lowest cost not equating to best value!
Today, more than 40 years later, mankind continues to regularly encounter and debate the topic of lowest cost and value for money so neatly highlighted by Neil Armstrong’s simple retort.
The current international downturn and credit crunch is prompting new pre-occupation with low cost, and manufacturers and suppliers have become more cost conscious at all levels within their organisations.
There is an impact on the logistics industry. Logistics, sitting at the end of the supply chain, is invariably hardest hit when it comes to cost cutting, despite the fact that logistics in many cases contributes less than 10% of the total cost in the manufacturing and supply chain. Come what may, its status as a cost focus point seems permanent.
We have asked ourselves: “Is there value in being the cheapest transport contractor?” Our answer is no and we drive the added-value proposition much harder than cutting costs for our customers. By adding value, we reduce cost. The result is that our customers stay with us for very long periods, primarily because they appreciate the value and benefits that we invariably bring to their businesses.
Such value derives from backward integration within our customers’ supply chains and commitment to delivering a very high service level at all times, without fail! In support of this we have implemented a branch best practice system within all our contracts that focuses on each customer and the specific needs of that customer.
The results, when compared with international standards, show significant improvements. The comparison against the total acceptable levels of service and complaints in, for example, the chemical industry, shows improvement by leaps and bounds.
We subscribes to the POOGI (process of on going improvement) approach as detailed within the concepts of the Theory of Constraints (TOC) published by Eli Goldratt, a renowned Israeli physicist and business guru who also developed, among others, the concept of OPT (Optimised Production Technology) and Critical Chain Project Management, which emphasise the resources required to properly plan and manage projects.
The way South African commercial and industrial enterprises do business changes on a daily basis, and even more so in the current challenging economic times. With POOGI and TOC woven into our business culture and methodology, we understand this and embrace the challenges associated with change, at the same time being committed to continuously extract value for our customers and shareholders.
Low cost logistics services and solutions simply cannot deliver the required depth of experience and industry expertise. They invariably require short cuts that result in unforeseen costs being incurred elsewhere through late, lost or incorrect delivery, inadequate storage, vehicle accidents, damaged loads and product loss and liability.
The real value of expert logistics services and solutions usually becomes apparent only as a company experiences the real costs of low-cost logistics when “the wheels fall off”. Major contracts can be compromised or cancelled and essential product may not reach its destination on time, invoking heavy financial penalties. There are many other variables that can go wrong if a low cost approach is adopted. Simply stated, low cost is often very high cost.
(This article was written by Andre Jansen van Vuuren, divisional director marketing, Cargo Carriers)
