Operational Logistics

Internal operational logistics are at least as complex as the external logistics of supply chain management and require as much information. Information is, for example, a baseline necessity in the package delivery business.

FedEx

For FedEx, logistics is their business. Fortunately the company has information in its DNA. The company goal is to have the information about every shipment available as nearly as possible in real-time. At FedEx there s no such thing as too much information.

A FedEx package is scanned an average of 12 times between pickup (or drop-off) and delivery:

• at pickup

• at the origin station

• on leaving the origin station

• at the airport on ramp

• at loading on the aircraft

• at off-loading from the aircraft

• at loading onto an outbound container at the hub

• on arrival at the destination ramp

• on leaving the destination ramp

• on arrival at the destination station

• at loading onto the delivery van

• at delivery

  FedEx operates under the guiding principle that it can t manage what it can t measure. At every one of those scanning points, FedEx can break down the actual performance and measure it against expected results.

 

The operational logistics of the airline business are equally complex.

Australian Airlines

Denis Adams, CEO of the new Australian Airlines, a subsidiary owned 100 percent by Qantas, was collecting information on pricing, revenue management and schedules before the airline even flew its first route. Adams knows that the real value of the data the airline collects is in tracking the booking trends, even at an early stage.

For example, before the airline officially started flying, Adams noticed a directional imbalance on the Hong Kong flights . People were booked to join Australian Airlines service from Southern China, but they were not using it in the opposite direction, to fly to Southern China. Adams knew that the sales team needed to work with travel wholesalers to provide incentives to them to fill the northbound routes, so the aircraft could profitably fly to China to pick up the southbound passengers.

On other occasions, it s important to take a detailed second look at the overbooking profile on a flight. Understanding the particular characteristics of different flights is essential to setting an appropriate overbooking allowance. For example, when there are group bookings the overbooking allowance might need to be changed to reflect the risk that a group no-show will occur. The risk of a group not showing up for a flight is significantly different quantitatively than the risk of a selection of individuals not showing up. So it s crucial to drill down to the detailed information and identify the precise nature of a flight s bookings.

 

The key in any logistics puzzle is to look outside the standard reporting process to spot unusual trends.

The better the leaders of a company understand its whole business, the smoother operations will be. Here s an example from the restaurant business, where allocations across a nationwide chain can be a complex logistical puzzle.

Applebee s

Until mid-1999 Applebee s, a chain of more than 1,300 restaurants across the United States, plotted demand and distribution, marketing campaigns and the allocation of food product and staff by using spreadsheets and gut instinct. No particular consideration was given to regional or individual restaurant trends. Projections were generally linear. The result might be an equal distribution of porterhouse steaks among Applebee s restaurants in Maine and Texas. Then when the Texas restaurants ran out and the Maine restaurants were overstocked, the steaks were shipped for the second time, from Maine down to Texas.

Now Applebee s has centralized its information. Throughout the company there is access to historical performance by restaurant and product. Food stock, campaign management, staffing and costs can be tightly and accurately controlled. Unnecessary costs aren t cut. They are avoided. With this new internal information transparency, a higher return on investment is inevitable.

 

Without transparency between business units and adequate information, internal logistics can go wrong, erode trust and erode value. If, for example, a retailer s marketing department launches a major product campaign, stores need to be told. More companies than care to admit have been caught short by stealth marketing campaigns. Stock-outs are inevitable if the stores don t know a product is on special. Instead of creating a lift in sales, the marketing campaign results in dissatisfied customers who couldn t take advantage of the product offer. This erodes trust between company and consumer and internally between store buyers and the marketing group.

We ve talked a lot about trust and information transparency as the basis for sound decision-making. Of course, the ultimate erosion of trust is fraud, but again information is the weapon to combat it. The better we understand our business, the tangibles of costs and the intangibles of normal behavior, the better we can prevent fraud. It s all part of the operational logistics of a company.