Providing strategic advice and market insights for optimizing manufacturing relationships and achieving profitable environmental strategies to clients in the Americas, EMEA, and Asia since 1987.
By Jonathan Gilbert, TFI Senior Logistics Consultant
It’s incredibly common to outsource the design, manufacturing, and logistics of products these days. So much so, that among start-ups, we see many companies putting off decisions about the order fulfillment process until it’s nearly too late. This is understandable, as start-ups are focusing on patents, funding, markets, and IPO strategies; with little concern about the details of schematics, supply chains, regulations, or perhaps least of all, product logistics. In this week’s TFI blog post we explain why product movement should garner start-ups’ mind share earlier.
Start-ups’ business plans should include supply and logistics as part of the initial strategy, and not as an add-on after the “big decisions” have been made. The cost and time implications of supply-chain designs generally drive much of the value proposition to customers. Start-ups place themselves at risk when they don’t fully explore the inherent risks and impacts of their supply strategy.
As an example of the challenges, look at the fundamental shifts in the economics and efficiency of doing business in China today. Oil prices are creeping up once again. Add growing inflation, port congestion, and other logistical concerns in China, and nearshore or onshore strategies start to look more attractive.
Looking at all of the options doesn’t just minimize risk, it also maximizes reward. Consider the differences between a nearshore, high-velocity replenishment supply chain versus an offshore high-volume, low-velocity replenishment supply chain. Which is more likely to offer a winning service strategy and tie up the least amount of working capital? The question isn’t which model we would want; at equal cost, everyone would prefer the high-velocity model. A better question is: “What are the total risks, costs, and benefits of both models for our expected growth scenario(s)?”
Understanding the supply chain is critical upfront in the business planning process. When optimizing product logistics, start-ups must consider the following factors:
Logistics efficiency: Are the products on the shortest path from creation to consumption?
Manufacturing capability and capacity: Is secure product supply available at the right cost?
Country and supply risk: Are there undue political and economic concerns, worries about inflation, labor, or raw material supply?
Cost of transport: What will inland freight, consolidation, ocean, air, transload, domestic inland, and distribution centers cost?
Supply-chain velocity: What is the manufacturing lead time? In-transit time? How reliable are these estimates?
Trade regulations: What are the potential duties and taxes? What regulations and restrictions might impact product movement?
3PL and carrier capabilities: What logistics offerings are available? How reliable are available transport and logistics options?
Reputation and ethics: Do the chosen finalists have proper working and environmental conditions? Could your brand be damaged by allegations of supplier misconduct?
Scalability: Will chosen finalists be able to grow with your business?
Our clients experience challenges in nearly all of these categories at some time or another. In each case, success comes from allowing enough time to pre-plan and develop alternatives. When is the right time to start thinking about product logistics? The right time is right now.
If you work for a start-up or manufacture for one, what product-logistics issues have you averted or encountered? Post a comment or contact us at info@techforecasters.com.
Tags: business plans, logistics, start-ups
End-of-life logistics planning is also critical to the bottom line.
Freight charges are obviously incurred whenever items are shipped from location to location but considering that end-of-life materials are often squeezed for any last values, strategic plans should be made to determine thresholds for revenue recovery from reverse logistics efforts to help ensure ROI is better than a zero-sum gain. Potential end-of-life solutions may include any or all of the following:
(1) The customer may ship items to a manufacturer’s returns/repair center.
(2) The manufacturer may then redeploy any repaired items back to the customer or sell items to the secondary market.
(3) Any items that are unable to be repaired would be shipped to a recycling center.
(4) If the manufacturer requires parts harvesting, the recycling center may need to return-ship pulled parts or redeploy as per the manufacturer.
Moving materials about is expensive in terms of freight costs and environmental concerns. When it comes to end-of-life materials and maximizing ROI, consolidation and redeployment strategies as well as parts harvesting and asset management solutions should be considered in terms of freight because any potential gains could easily be negated by freight costs.
If you work for a start-up or manufacture for one, what product-logistics issues have you averted or encountered?
This is an interesting topic. As a project manager working in a post-IPO start-up environment, we rely heavily on our experienced logistics team. For us, logistics is embedded together with supply chain support. Logistics’ responsibility for getting raw materials, intermediates, and finished products from point A to points B, C, and D is just the tip of the iceberg. In addition, we rely on their expertise for driving new product storage stability and materials compatibility testing as well. This has proven to be challenging as verification relies both on real-time data as well as statistical evidence reported from ongoing accelerated forced degradation studies.
When sales order volumes by sku are low, it is difficult to manage inventory levels that optimize replenishment capability with the high per unit costs associated with low volume. As part of your logistics and distribution strategy, do you consolidate production orders and ship from a central location or do you ship each order directly to the customer? In thinking about logistics up-front, you begin to think about these types of questions, the nuances of each of your customers and how to best service your customers and remain competitive. Leaving those thoughts to the end may put you in a situation where you are making decisions to meet on-time deliveries at extremes costs. These costs, among others, could be avoided with upfront end-to-end planning.
I completely agree that failure to plan ahead can result in “extreme costs” when the logistics strategy fails to properly support expected service levels.
It’s often difficult to balance the immediate needs of a startup with the longer-term requirements of a growing business. Some companies never make it to maturity for this very reason.