As a general rule the most successful man in life is the man who has the best information.
Benjamin Disraeli said that more than 100 years ago but it’s still certainly applies to doing business
The logistics world runs on information systems and information sharing.
One cannot overemphasize the important role of information and knowledge in a successful logistics strategy
information provides logistics managers with critical visibility into their activities often spread
all over the globe.
A wide variety of information is needed for both day to day and long term decision making in today’s
In general business information has five characteristics information must be accessible and it is today’s
advanced information technology systems that help to get the right information in the right hands.
But accessibility goes beyond just the I.T. Department logistics managers have to be willing to share
information throughout their network not just within their own organization but with suppliers contractors
and customers as well.
Information must be relevant.
We all know that there is an abundance of data in the business world.
Companies need the ability to analyze that data and turn it into meaningful information that can be
used to make effective decisions for their logistic systems.
Of course we also want information to be accurate and timely.
Good Decisions require accurate information to be received at the appropriate time.
Lastly we need this information to be transferable and that brings us full circle back to the I.T. Department.
Information has to be in the right format to move quickly through our logistics network.
Many people believe information flow to be the most critical process to effective logistics manager.
Information Flow relates to how information moves throughout your organization as logistics system spread
further and further from corporate headquarters.
Information becomes even more important for business success.
Information flows between you and your customers between you and your suppliers and within your organization
among your employees keeping those information paths and communication processes as simple as possible
helps to ensure your information is both accurate and timely information has two key characteristics
that are important for us to consider.
Speed which is how fast the information moves through your logistics network and variability which indicates
the amount of uncertainty related to the information variability can also refer to the rate at which
information is transferred or made available.
Sometimes we get a lot of information and sometimes we get little information.
One strong recommendation to help you understand your information flow is to map the process itself
to simply draw a picture of it.
This first step can help you to better understand how information moves and where potential problems
If you cannot easily draw the process map perhaps your information and communications systems are too
complex one key to achieve an effective information flow.
It is a very good enterprise resource planning system ERP system start with a centralized data warehouse.
They tied together the key functions of your organization like finance and manufacturing and purchasing
and distribution and they connect you with your key logistics partners.
Ideally everyone in your supply chain is working with the same information selecting and implementing
the right ERP system is a major project in any organization.
Very expensive and very difficult to accomplish but also very important.
From the initial system ERP is generally add modules to bring in such activities as supplier management
and customer management within the logistics area.
ERP systems connect with logistics software systems to help manage such things as warehouses and transportation
and returns good communication and information sharing throughout your logistics network and with your
logistics partners can lead to better forecasting lower inventory levels and decreased order cycle times
which is a clear benefit for any organization.
I believe that inventory management is the most important fundamental of logistics.
If you do everything else perfectly but do not properly control your inventory.
I believe long term success will be very difficult if not impossible to attain.
Many companies serve as examples of this if you effectively and efficiently manage your Him and Tori
I believe your logistics system will be very forgiving of inefficiencies and mistakes in other areas
the importance of controlling your inventory simply cannot be overstated.
But inventory management certainly is not so simple to begin with.
All inventory is not the same.
Your inventory is spread out all through your logistics network dependent upon where the inventory is.
You might want to manage it in a slightly different manner.
Take materials coming into my factory for example very expensive components are bulky heavy components
might be brought into the factory on a just in time basis as the component is needed.
Storing this type of material can be very expensive some electronic components for example are not only
very expensive but could become obsolete due to technology advances.
So I certainly do not want to hold a lot of him and Tory here but some suppliers might give me a price
discount for making a large purchase of a particular component.
In this case I take a close look at the inventory holding costs and storage capabilities versus that
My decision might be to take the discount and warehouse the extra components until they are needed.
So inventory management of incoming materials is often driven by warehousing and storage considerations.
What about my finished products.
In most cases my inventory management decisions are driven by transportation costs and shipping from
the factory is most efficient if done in full truck loads.
So I may hold finished goods at the shipping dock until I have enough to completely fill each truck.
Normally I think we all agree that we don’t want to hold the finished product any longer than necessary
because of its high value finished goods are the most expensive inventory to hold.
So what if I have a sales promotion coming up in this case I certainly want to ensure that I have enough
product to meet the expected surge in demand when this item goes on sale.
I think Coca-Cola before a holiday weekend is a pretty good example of this.
So I’m going to intentionally overproduce and store that product in advance ready for quick distribution
just before and during the sale.
By the way this is called anticipation inventory inventory intentionally built in anticipation of a
specific event and my management approach here is definitely driven by market demand.
All this kind of inventory is called Cycle Lemon Torri.
The inventory I build into my logistics system because of all these factors driving my business I need
cycle inventory to conduct my day to day operations.
The key here is to recognize that there is no one rule for managing and controlling cycle and Tori.
It totally depends upon where the inventory is located within your logistics network and what factors
are driving your decision.
We also want to consider safety inventory in our system.
We hold safety inventory in case actual demand exceeds our expectations or demand forecast.
Of course our first thought is to hold extra finished products in our warehouses and distribution centers
to meet an increase in customer orders.
But don’t forget that increased orders resonate back along your logistics system also it impacts more
than just finished goods.
I should also hold some safety inventory of key components and materials so that the factory does not
have to place rush orders with suppliers when those additional orders come in.
Depending upon how many products I make.
And most companies do make more than one product.
You can see that calculating the proper level of safety inventory throughout my logistics network is
no simple matter all your inventory decisions have to take into account your customer service level
which drives the amount of product you have available at any time.
Most customers of course would like for you to have a 100 percent customer service level which means
you have no stock outs or back orders but the inventory levels needed to make that happen are just too
You have to determine your customer service goals and build an inventory management system that supports
those goals and your company’s overall business strategy to do less is to invite failure.
How about you to account for a surge in demand.
Do you calculate safety stock at the distribution centers at your warehouse and at the factory.
A thorough inventory analysis done on a regular basis is well worth the effort.