Design for Logistics - The Quest for Margin...

Sometimes, you just have to make some concessions to 

logistics when designing a product...

Let's face it - manufacturing (for those of us not manufacturing iPhones or drugs) and logistics (for those of us not shipping drugs) are a tough business duo these days. Competition is brutal, profits are thin enough to shave with and the financial statements consequently tend to make you reach for the Prozac initially and the cyanide eventually. It's a story of relatively big top line revenue figures...but very mediocre EBITDA et al.

No surprise when management gets the blowtorch applied by shareholders for better returns. But how do you do that when you are all Lean Six Sigma'ed out? You have extremely efficient manufacturing, your warehousing is visited by companies worldwide as a global benchmark, you are screwing the shipping companies to oblivion with ultra low rates, your staff are on a really low base and fair commission/ambitious performance bonuses, your trucks are utilized 24 hours a day and few things really go wrong...except the fact you have no control over pricing...and that you're not making any decent returns. You are at the stage where you spend more dollars trying to find pennies to save than actually saving them. Try as you might, you can't seem to get the operation any more efficient. A good - and a terrible - place to be. What the hell can you do when the Board is breathing down your neck? Perhaps there is really nothing you can do...?

Ah, but there is.

You can indeed make your logistics more efficient...but to do so, you need to go outside your comfort zone...and probably your knowledge zone. You are no longer logistics professionals...you need to enter the Twilight Zone of product specialists: designers.

What if you could optimize the product completely for the value chain and throughout the product lifecycle?

Design for Logistics is a concept which is a subset of the DfX Body of Knowledge (Design for eXcellence or Design for {variable}, depending on who you speak to - I'll have a lot more to say about this in a future article) and whilst it has been around for a while, surprisingly few people know about it, fewer apply it and far fewer apply it with any true effect. A pity, because this is an amazingly powerful tool to minimize so many costs along the value chain and throughout the entire product lifecycle.

The concept had its genesis by Professor Hau Lee of Stanford University. It is based on 3 key components.

1. Economic packaging and transportation
2. Concurrent and parallel processing
3. Standardization

Economic packaging and transport is pretty self explanatory. Concurrent and parallel processing requires that various stages of a process be done at the same time rather than sequentially. Standardization means basically to use as many common parts and materials as possible.

Of course, there's a lot more to it than the above when you get down into the details. In fact, you need to drill down into a huge number of considerations, then do some complex analysis to discover the hidden costs. For example, economic packaging and transport is achieved when you take into account the following:

1. Product designed to be simple/cost effective to secure raw materials for
2. Product designed to be simple/cost effective to manufacture within the factory
3. Product designed to be simple/cost effective to store in factory
4. Product designed to be simple/cost effective to package
5. Product designed to be simple/cost effective to pack
6. Product designed to be simple/cost effective to track
7. Product designed to be simple/cost effective to transport (rail / air / sea / road)
8. Product designed to be simple/cost effective to store at warehouse
9. Product designed to be simple/cost effective to store at retail
10. Product designed to be simple/cost effective to unpack
11. Product designed to be simple/cost effective to assemble
12. Product designed to be simple/cost effective to return back to service
13. Product designed to be simple/cost effective to upgrade
14. Product designed to be simple/cost effective to dispose of
15. Product designed to be simple/cost effective to enact reverse logistics 

And there is more - the above can break down further into issues such as safe movement, robustness and error tolerance, step minimization and visual appeal of packages. A lot of analysis must be done within those points...and then the comparative analysis between these points must be made, discounting for risk.

And you thought Lean Six Sigma was complex enough! :-) Sorry, my dear readers, you just have to roll the sleeves up: this is global best practice that you need to strive for. It breaks down the barriers between manufacturing and logistics within the thought space - and it needs to take into account knowledge from both disciplines. And it works: you can cut costs further if you strike the right balance.

For example, it may be the case that the design of a piece of furniture will allow for a certain type of knockdown and with thinner packaging will permit a 12% increase in the number of items per container...but this will need to cope with rough handling (that earlier efforts have proven unable to resolve) which will possibly mean a higher percentage of the units will arrive damaged, with a total cost that may be higher than otherwise. Then there is the issue of damage during assembly...all of these need to be compared and contrasted to work out what is the best option.

This is the reality of the highest levels of logistics: it goes beyond logistics and looks at what steps both earlier and later in the 'normal' timeline of logistics considerations can be modified to take into account logistics needs.

No one needs me to harp on about the challenge to profitability in this space. It's hard to get. But here is the key to unlocking what previously remained hidden. You can make more money. But you need to think outside your normal parameters.

For many of my friends who are finding themselves out of a job in the logistics sector, this is what I am recommending: there are lots of individuals out there with logistics expertise and they can pretty much do the same thing. But the DfX (Logistics) level of knowledge gives a real, decisive edge in profitability to a business. However, it does require moving into new areas of knowledge, at least in part. Logistics knowledge alone can no longer exist by itself if you want to provide a true solution that is superior to others.

Logistics can no longer start with the finished product. It must now start with the conceptualized product.