Supply Chain Management... Basics - and why it starts at home
By Holger Wagner?? -?? Head of Supply Chain Management
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After being over more than 30 years in logistics, procurement, stock management or short - Supply Chain Management - and having the luck to see and live the digital development thru the decades, I find it is time to go back to the roots of logistics and even to supply chain management as they are around over thousands of years.
However, I don′t want to go too much on a history lesson, as this would be too long. But just an interesting side note.
Logistics was even important to the Persians or Egyptians, as they transported to other places something we call beer today (it was beer, but warm, as it could not be stored cold as we can today. So, it was something more like met or chicha (Quechua term), fermented wheats, fruits, or beets. Moreover, not to forget the transport of wine in those days, mainly in ceramic jars.
So, only as an idea, imagine transporting this beer and wine from Persia to Alexandria or Damascus via camels or wagons. This had to be planned…how to transport it over day’s even weeks before it arrives to the consignee.
But this will be an issue in one of the next posts, when I will make a short dive into logistics in the old, old days, with its military components of feeding troops and material to the battlefields.
?Now back into our backyard:
Logistics, Procurement and even Supply Chain does start at home…even since we are children…
?Remember…: Your mother asks you to get some milk to make your favourite chocolate pudding as a dessert after lunch.
Now, what do you do? You plan, right? But we don’t do it consciously… as we are kids.
?Anyhow, let’s break it down, as a professional today:
A.??????????? Where to get the milk???? grocery store, supermarket, gas station or farmer.
B. ?????????? Which seller or producer is more close or easier to get to and surely has the product?
C. ?????????? How to transport it? ????????? basket on the bike, bags (plastic, paper, or cloth bag) or does the seller do the
packing
D.??????????? How much does Mom need?
E.???????????? Where to store it and is there sufficient place to store it?
F.???????????? How much money do I have or get, or will the seller charge us end of the week or month?
G.??????????? We are calculating how much time we will need to get to the source and back.
Understanding, that we don’t have an order to all the thinking we are doing, but at the end, this is what we are doing…
And this is the start of… logistics... and procurement… and supply chain.
In the coming weeks I will go over a lot of chapters, so that anyone is able to understand supply chain and sooner or later also understand the dynamics behind the software are handling and advancing in our professional life and as well in our practical professional life ?
?Let′s go back with our little example of milk
?A.??????Where to get the milk????? grocery store, supermarket, gas station or farmer
B.??????Which seller or producer is more close or easier to get to and surely has the product?
??It seems that these points are not very important, but I guess that would be wrong. Everything we do and looking this from a perspective of big scale purchases, we will have costs.
In addition, we have the price of the milk and so we touch the area of purchase or more common, also named procurement.
We want to have the best milk for the best price. Now, what is the best price? Is it the cheapest, or the best product for the lowest price? Alternatively, do you want a cheap product for the lowest price?
?We normally and intuitively go for the cheapest price, but this is not every time the best decision. Because, if on products which must have a certain time of durability or safety/security, very often not a good idea to go for the cheapest.
?Just an example from the area of the machinery or automotive industry. To buy a cheap replacement for the broken part, should be considered twice.
?For example, headlights, this normally very often come from one provider. You can read it on the light itself. However, it is made by another, specialized company, which is also selling it on the market, but normally 20-30% lower, then, of course you by the original producer, not the original installer or provider to the factory. And you know you still have a quality product.
?On the other hand, you don’t buy cheap break parts for replacement, if you don’t know the original producer or if the product is equal to the original, right?
??Well, milk is easier, as standards or norms had been given by the state, so all the milk is more or less the same.
And you normally, in milk, you know your brands, mom or you usually buy.
Being my point is, doing a good buy, it does need a lot of good research to know what, from whom and where you purchase it. In the professional life, it is very common you do procurement together with specialist in the technical, engineer, chemical, electronic or other area, where you are not very familiar with. And this is no shame or devaluation of yourself. We cannot know everything nowadays.
?Just a few hundred years back, with our common knowledge of medicine, the most of us would be medic to a king. Today, nearly impossible.
?This clarified, so we know where to go…we go to the grocery around the corner. In addition, we know, as we had seen the flyer, which came in yesterday, the grocery store has a special offer on our milk.
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?So, off we go, getting our bike and driving to the grocery store…
Before I state what is logistics and procurement. This I am demonstrating in an example, that all logistics is already thousands of years old, starts even from home. And so, I show this on milk which we need at home.
?And we have to return to the question of which seller or producer is more close or easier to get to and surely has the product?
We have established that we go to the grocery store, as a flyer has informed us, that he has an offer for a the milk we are normally using, or better said, Mom does use. In addition, we get there with our bike which as a basket in the back, so we can transport things.
?As we get there, we, park our bike and then enter the store, which is like a small supermarket with many products.?In the fourth aisle, we will find our milk. We have the product, good… but we must do some things first. We check the ingredients list, so we don’t get by accident soya milk, if we don’t want to, and we check the expiration date.
?Here some information about expiration dates:
?1- The most expiration dates are for fresh products, as they really may expire quite quickly, as they are on meat, dairy products, vegetables, and fruit. These are called perishable good and come inside a cold chain, which I will also explain more detailed further on.
?2- On products, which are sealed, in cans or glass, expiration dates are becoming more flexible. This means, that they should, or it is recommended, to consume before expiration date as they may perish, but it is known that apricots in cans have been eaten even years after expiration dates have expired without problems.
?3- In dry products, expiration dates can be passed due often without problems, as long as their package is not damaged. As an example, I like to mention pasta, rice, beans besides others. These are products for safety of the producer and by law, have an expiration date, but have a very long shelf life.
?The products in Point?3?can be store for a long time as they have normally a long shelf life and can help you to pass through emergency or catastrophes, without starving.
?Our milk has still 7 days to expiration date, and as we know, it will be used today, so no problem. We pick up four, as we know that four packs of milk of 1 lt (1/4 gallon) will fit perfectly into the basket of the bike. We recheck the price, if it is according to the flyer and we check, if we are taking the same or less quantity, if mentioned in the flyer. As we know, very often there may be a quantity limit attached to the offer.
?We did here a few things, which we do also as professionals:
Later I will come back to these items, at least some, then when I try to explain a definition which are called INCOTERMs. They are very important in logistics, as they are an international agreement, or even rules, and in some way laws which are connected to the part at logistics of delivery, pick up and transport.
Now we pass the cashier, pay, stuff the milk into the basket and off we go home.
?Arriving at home, we take the milk boxes to the kitchen, and we want to store it where we get used to putting it.
However, oh, what a surprise, there are more than three boxes...! After a good look, we realize that one box of milk seems to be thicker than the others. I take it out and I check it, the box has passed the expiration date and, additionally, it became sour...
?How do I know? Sour milk produces gases with its bacteria and inflates the box… Therefore, I do not even open it up!
?Why did all this happen?
In storage and almost everything, there are two ways to store and remove products, which are normally described with the terms LIFO and FIFO.
?LIFO means in its English terms: ??????????????????????????????????? Last in - First out
?So, we usually store this way at home, since we know that the products have quite high turnover.
Also, in many grocery or small stores stored like this and, yes, in restaurants many times...
Just have a look at Gordon Ramsey Restaurant Rescue Shows.
?FIFO, on the other hand, means in its English terms: ???????First in - First out
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This is generally stored in department stores or in a supermarket, where you can observe the staff removes things from behind the shelf and puts them first.
Moreover, the customer, who does know, takes his yogurt from the last row, instead of the first, because he knows that the freshest products are stored behind.
In the same way, we should also store our products at home, especially in the refrigerated one. How many times it happened to us that we found a yogurt last month in the darkest corner of the refrigerator. Or the last tomato, very soft and watery, in the vegetable drawer. So, review the refrigerator minimum once a week.
And believe me, I am not a big fan of order ... and here is the big but: the things we throw away, costs money and what we throw away is literally money. Imagine if this happens in a store or department store ... a lot of money is lost, and to regain it, they finally raise prices, although only a few cents, which we may not even realize. However, many cents finally make many bills
?This also happens many times in warehouses for spare parts and for this reason the inventory is very important, and not only for the value that are stored there, but also what old spare parts are found.
What many people are unclear with, especially in small stores ... to storage products is a cost; it is money, which are stuck on your shelves ... literally.
?Yes, they are goods, but what if you turn it into an acquisition force again - that is, to make purchases for new products - correct, you can offer more products to your customers.
?Accountants, the detailed ones, do say that a product originates cost from its first day in the storage. Technically, it is correct, but for us ordinary mortals, products really cause costs after 15-30 days, it depends on the invoicing of your provider, when he asks you to pay.
?So, give it a few thoughts about I have told you and I hope it makes sense, at least a tiny bit.
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