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Supply Chain 101 (10 minute read + infographics)

Who are all the players and what do I need to know

· Krystian

Another day and another conversation about logistics and talking to people who are curious about what is ‘logistics and supply chain’ how it all works. So, in the name of efficiency (a sound supply chain practice… see we are learning already), here is the 101 of what is L&SCM (that’s a bit more industry talk there ay).

 

It starts with an idea, you need to come up with something to sell. Stimulate customer demand. If you are a pizza shop, it means selling pizzas, clothing you need a shirt, imports you need to sell something then get it delivered. The point is … make the sale, that’s step one.

 

And now, let’s fast forward past the point where you have gone through testing the product, refining, finding initial customers and in general – validating that you have a business worth putting money into. Moving on to the part of the process where you need to operate a supply chain.

At this point, if you have kept reading after looking at the infogrpahics, it’s important to realize that there is a difference between logistics and supply chain, put simply logistics is the mechanics of how a single thing (like a warehouse, a shop, a transport company, AKA: node) coordinates itself (processes). In any operation, there will be multiple nodes working together to accomplish the desired outcome, in this scenario we are talking about the delivery of product to a customer. All of these nodes, combined and working together, are called a supply chain. Coordinating this network is called supply chain management.

L&SCM is something you need to understand because when you want do... understanding even the basics makes the whole game a lot easier and more fun to navigate. Gone are the late nights wondering about the things you didn’t know because you couldn’t even know which questions to ask.

So, hopefully, after reading this, you’ll have enough understanding to ask the right questions, and asking the right questions gets you closer to getting the right answers.

But if you talk about supply chain why are you called LMN?
I know I know we are called the Logistics Media Network, but LMN (lemon) sounds catchy, it works on various levels AND it sounds a lot better than “the supply chain operations and media organization”…

Back to the point, now that you know what logistics and supply chain is as well as the difference. Here are the key elements of any supply chain, the quantities and configurations of these elements vary from organization to organization. Some supply chains will have more suppliers and fewer transport companies while some will have fewer suppliers and more transport companies. It at really depends on what you're dealing with. But the basic players are fundamentally the same, the concept of what they are trying to do is simple as well as scalable...

So here are the basic players in what is the global and high stakes game of logistics and supply chain management. Explained with a Chess metaphor.

The game pieces
1. An idea (the Pawns): you’ve come up with something, like a new t-shirt design.

  • Why are ideas the pawns? Because they are interchangeable and not things to be stubborn about, it takes many ideas to achieve victory.

2. Marketing & Research (the Knight): you tell your friends, run a basic Facebook and Google ad campaign and work out that people want your idea, and that it's different enough for them to want and to buy.

  • Why the knight? Because marketing and proper research can help you see around corners.

3. Sales & Orders (the Opponent): someone goes to your store (physical or online) and buys one of your shirts for money, now you have the task of delivering it.

  • Why are orders the opponent? Because you need an opponent to have a game and just like in Chess, whatever the opponent does you need to pre-empt or react accordingly, also, traditionally… logisticians and salespeople never really see eye to eye...

4. Production (the Rook): you make the shirt, in this scenario we are ignoring bulk ordering concepts.

  • Why the rook? Because you’ll find that production is a sequence which can only move in a single direction.

5. Shipping (the Bishop): you get it from where you manufactured it (China), to Australia

  • Why the bishop? Because there are many ways to get something delivered…

6. Storage (the Chessboard): because you want to deliver a quality product, you get the shirt delivered to your house, and then check that it’s up to spec for the customer.

  • Why? Storage holds all the pieces, without a board you don’t have anything to play with (no inventory to use).

7. Delivery (the Queen): you have the shirt, the customer order and now you must get it to the customer, this part of the process is often called the last mile of delivery. You put it into a bag and AusPost takes it to the customer. Your customer is happy, you are happy, your supply chain has functioned correctly.

  • Why is delivery the Queen? Because the last mile is the most flexible, it has almost unlimited power and if it falls in the game, you are in a lot of trouble.

8: something went wrong, the customer doesn’t want the shirt anymore, the stock is damaged, or has reached the end of life for the product. You need to get it from the customer back to your storage location (house) and do something with it or you need to tell your customer what they can do with the item. This is called, reverse logistics. In chess, this would be a pawn getting to the other end of the board and being swapped out for something new, though… in the supply chain it's often not a fancy new piece. Plus reverse logistics usually takes a lot of the pieces on the board to deal with and is usually pretty annoying to have to handle.

Analysis (the Player)
You know what the pieces are, you know which direction they move in, now you need to play the game. Analyzing what’s going on with all the pieces on the board and keeping track of details like:

  • Inventory: managing this is very important, Dick Smith went out of business because they had too many batteries in stock, you likely will have the same issue if you don't manage your inventory. Keeping track of inventory also means you know which promises or offers you can make to customers. Plus will help you know financially – how much money you have invested in the stock (Don't do a Dick Smith).

If we want to keep on with the chess metaphor this (analysis) is like the making sure your chess board doesn’t expand too far and wide. The more opponents you have the harder your pieces are going to have to work. Though to win you need to expand your team in order to combat the enemy and win… please note that in this metaphor I have removed the traditional size constraint of the board. But besides that small detail … I think the metaphor is generally going quite well.

  • Performance: if you put something on a truck and don’t know if it got to your customer unless they call and complain, your life will be very stressful. Having reports on deliveries and tracking what’s going on for orders, this will help keep your customers happy and help you sleep easier in the night.

Again, the chess link would be your performance stats, if you played a game – a seemingly perfect game – but never kept score. Who would know what you’re capable of doing?

The overall here, the most consistent theme, is information and visibility, this impacts you by being able to monitor what’s going on, manage elements (like communicating details to a customer or being able to make better plans – like when a load is to be picked up). This can also help with things like sustainability and transparency, if you know how everything works and where it has come from / what has been done to it along the way. You can create a unique proposition for customers.

Strategy (the King)
Just like cash flow is king and supply chain strategy is your ticket to keeping the king fed, fat and not dead. The key to do that is to keep the king’s people happy, that means keeping your customers (orders/opponents) from attacking you… and as per the metaphor which we now have to stick to because it’s almost the end of the piece and I no longer have a choice.

The biggest impact on keeping the king alive is time and what you want to do with it. How quickly does the product need to get to the customer? How much of that product? How frequently? What sort of service promise has been made to the customer?

These are some of the basic questions to ask when looking at supply chain strategy and when understood it is the defining piece of work which sets your operation apart from the competition (in this case it would be… other chess players trying to sell the same product as you are). A strategy is the bread and butter of supply chain, it’s the art of execution and the ability to get things done: it is also the specialty of a good logistician whether they are delivering a Rolls Royce, Office Chairs or a Dishwasher.

Rolls Royce: pull strategy, meaning you sell a car then make it for delivery.
You create a brand and make people want your product, i.e. a Rolls Royce, then when someone buys it you configure what they want and send it to the customer.

Office chairs: push, meaning you buy stock (often in anticipation of a forecasted quantity) then sell.
Given the pointlessness of importing a single office chair (or shirt) and shipping it from China, it makes sense to buy a bunch of office chairs, a full container load for example, then when you have stock. You push that product, in this case, office chairs, to customers and then ship (the last mile) accordingly.

Lastly, there are dishwashers, drop shipping. This is where you make the sale but outsource the delivery of the actual product.
Think of an eBay store, they might be advertising a Kmart dishwasher, but because you went to eBay and looked for the item, found this one, a drop shipper has put themselves into the equation. When done well it means a drop shipper makes money because they have zero physical inventory and none of the associated costs. The customer gets access to products, sure you could have gone to Kmart online and found that same dishwasher but because your so used to and happy with the eBay experience, you went through that portal to do it. You have a chair, Kmart sold a dishwasher, eBay made some money, the drop shipper made money, everyone is happy.

The bad part of this is when people charge prices which are… crap. Over the top. Charging more for the exact same product then if you were to look around a little bit. Point is, if you have the time, look around.

Look at it this way, a strategy is not just how to do something once, in supply chain whatever strategy you choose will be repeated many times over. If not enough emphasis is put on the strategy you become susceptible to operating blindly and letting the game control you. With a basic understanding of how a supply chain works you can learn what’s going on, instead of letting it control you, you can control it – or at least start to do so.

Understanding is what you need, then supply chain becomes another tool, a tool just like SEO marketing, a forklift, capital and other stuff. Though given the impact of a supply chain on your organization, learning how to play this game will perhaps give you the most powerful tool in your modern-day arsenal.

But I have an online business, I don’t need logistics and supply chain management?!
False, take LMN as an example, to create a blog post, you need resources (laptop, internet, power, Red Bull, pizza), time, information/ideas/inspiration, editing, grammar (Grammarly), peer review, create the post (adjust visuals), post. All of this is a process and the coordination of such is the logistics of getting it done.

 

What do logisticians do?
Logisticians are high-speed coordinators of information and assets throughout the supply chain. We have to think on our feet and make things happen – smarter and faster than we did it the day before. And with the changes in demands and continual advents of new technologies, logisticians must stay on top of their game like never before. This is a tribe of people who strive not only to get the job done but observe how to do it better next time (cheaper, faster, better quality, less complains).

 

As per the LMN mantra, we are here to get the job done and have a fun time doing it, we don’t look for praise, but we will appreciate the understanding. That is the point of LMN to share knowledge and understanding in a fun way so that we can all (different businesses and departments within an organization) work well together (even uniting enemies for example) in a world which is changing and moving faster then we can actually handle. Working as a unit and understanding what each player brings to the table is a step forward in handling the world we live in.

Thanks for your time.

If you want to know more or need help please get in touch (like sending an email to connect@thelmnpost.com) if we can’t help you, we will know someone that can. Happy logistics.

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