When I walk into a Giant Eagle, I know exactly where I can find my favorite multigrain Cheerios. I also know a box will be waiting for me when I want it. The logistical engineering behind making that happen never occurred to me until a recent presentation by Prof. Thomas Goldsby for our MBOE industry cohort on lean logistics.
Lean logistics and a supply chain make many processes seem like magic. Think, for example, about a company like DeBeers, exploring unknown lands, discovering diamonds, cutting and polishing them and then supplying them all over the world. Or a hospital, well-stocked with syringes, needles and oxygen cylinders. Logistics account for $1.2 trillion of the U.S. economy, or about 8 percent, meaning that for every $1 spent, nearly a dime of it goes to logistics. Of that cost, 63 percent is transportation.
So what is a supply chain? It’s the network of companies that work together to provide a product or service for the end-use market. Simply put, an apple grown in an orchard doesn’t come to grocery stores in baskets. Logistics facilitates the flow of materials and products into and beyond a facility. Lean logistics facilitates the flow by minimizing wastes.
Back to those apples: If a store stocks up on a ton because a farmer had a good season, those take up not only too much space but likely will result in waste. On the other hand, if demand spikes that doesn’t mean retailers, distribution centers and farmers should go into overdrive. Supply chain and logistics is about balancing demand, inventory and the number of trips needed. The question: Are you going to manage your supply chain, or is it going to manage you?
Next time I visit my grocery store for those Cheerios, I’ll have a completely different perspective.
How do logistics and supply chain management affect what happens in your organization?