Trade Logistics Cost Reductions
with increase in Profit Gains
Presented
By
Luis Cabrera
03/10/2013
Presentation
• Opening statement
• Abstract
• Capacity Investment
• Operational Costs
• Profit Gains
• Supply Chain Logist...
Opening statement
After the second world war, Asian economies have been continuously
growing, fueled by the expansion of Japanese Internatio...
The question for Thailand Entrepreneurs is how to take advantage of this unique
economic position which is not comparable ...
Installed Production/Trade Capacity, Logistics
Operational Costs and related Profit Gains
Abstract
Today we are going to talk about installed Production/Trade Capacity, its Logistics
Operational Costs and its rel...
Capacity Investment
Profit Gains
Operational Costs
1.Capacity Investment
The size of any production/trade facility, their technology in place, and their
operational processe...
The capacity installed is there to be used and whether the capacity is
sufficient or short from requirements; the capacity...
Investing in capacity is not a cost, and Enterprises with large capacities and those
with small capacities are in competit...
2. Operational Costs
In the Supply Chain Operational costs, there are two major important factors
affecting profit gains; ...
Capacity provides a strong platform with competitive advantage
over all competitors
When the production/trade process is a...
We do not focus on meaningless operational costs reductions
But rather on getting maximum production/trade yields and rate...
3. Profit Gains
Price - Profits are the results of gains generated through the conversion of value
created in the producti...
However, it is really in the accounting variable costs where we can see and analyze
the actual operational costs incurred ...
Supply Chain Logistics Operational Cost
•Demand planning
4. Supply Chain Logistics Operational Cost
•Demand planning
Without a deep understanding of the demand planning or sales f...
•Inventory planning
Supply Chain Logistics Operational Cost
•Procurement planning
Inventory planning
Your money is where your inventory is; if you are short of the needed items or
over stocked with the wr...
Procurement planning
If you have a large storage facility you will end up using it; the question is whether it
is filled w...
When you negotiate the purchase price of anything do it with one, two or three
years demand volume in mind; check on your ...
Supply Chain Logistics Operational Cost
•Production/sales planning
•Production/sales planning
Your production/sales process has to be optimal; anything below optimal point is
considered a l...
Supply Chain Logistics Operational Cost
•Production lines/sales team balancing
•Production lines/sales team balancing
To achieve higher production/sales yields and rates, first you need to have your
pr...
Supply Chain Logistics Operational Cost
•Customer Sales order processing
•Customer Sales order processing
Getting a customer is the hardest part of the production/trading process, and
loosing the...
The production/trade process is most vulnerable at the time of processing a
customer sales order, when a mistake is done a...
Supply Chain Logistics Operational Cost
•Invoicing and picking processing
•Invoicing and picking processing
Once the customer sales order processing is perfect, you are one step ahead of
making pr...
Supply Chain Logistics Operational Cost
•Transportation
•Transportation Capacity planning
•Transportation
Transportation cost can become one of the major contributors to total operational
costs; this includes inb...
If you use a third party logistics, you will end up paying a premium brand price for a
similar service as if you were usin...
•Transportation Capacity planning
The planning of your transportation requirements needs special assets and
operational co...
A third party transportation contractor will not bring that quality of management
required by your company, as it will onl...
Supply Chain Logistics Operational Cost
•Delivery route planning
•Staging and truck loading processing
Sea/Air freight
for...
•Delivery route planning
Your delivery route plan has a direct impact on the day to day transportation cost, it
includes t...
•Staging and truck loading processing
Optimal production/trade yields and rates mean zero waste, spoils and damages; in
th...
•Sea/Air freight forwarding (import/export) In-land transportation
Your decision to transport your import/exports by Se/Ai...
Supply Chain Logistics Operational Cost
Waste/spoils/damage control processing
After sales/service process
5. Waste/spoils/damage control processing
Without a business vision, clear goals, objectives and a sound strategy, there i...
Do not fall into the macroeconomics gossip displayed by the news, coffee talks
and other government political news
To trus...
You have to read and understand the history of economics and political power, as
well as the history of innovation technol...
6. After sales/service process
Customer is king is being said over and over
However that is true for as long as it falls w...
Economic threats posed by
neighboring Asian countries
7. Economic threats posed by neighboring Asian countries
International Japanese Joint Venture with Thai companies are the ...
However, Japanese International Joint Ventures penetrate each country with a long
term view, to cover domestically their m...
Other difficult markets exist in the Middle East, South Africa, China and India, as
well as other easy markets for Thai co...
The development of human resources
8. The development of human resources
Professional Education is the key to success in business, from top management to the...
This will benefit more to Thai companies in the long term, once their management
improves in all counts, influencing and a...
LOGISTICS Trade Cost Reductions with increase in Profit Gains
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LOGISTICS Trade Cost Reductions with increase in Profit Gains

  1. 1. Trade Logistics Cost Reductions with increase in Profit Gains Presented By Luis Cabrera 03/10/2013
  2. 2. Presentation • Opening statement • Abstract • Capacity Investment • Operational Costs • Profit Gains • Supply Chain Logistics Operational Cost – Demand planning – Inventory planning – Procurement planning – Production/sales planning – Production lines/sales team balancing – Customer Sales order processing – Invoicing and picking processing – Transportation – Transportation Capacity planning – Delivery route planning – Staging and truck loading processing – Sea/Air freight forwarding (import/export) in-land transportation – Waste/spoils/damage control processing • After sales/service process • Economic threats posed by neighboring Asian countries • The development of human resources
  3. 3. Opening statement
  4. 4. After the second world war, Asian economies have been continuously growing, fueled by the expansion of Japanese International Joint Ventures in ASIA, though to some extent with significant up and down fluctuations, due to long economic recessions in Japan, Europe and the Americas; whereby China is probably the most affected, besides collateral effect in the Japanese economic performance Nevertheless, Japan economic expansion and growth has not declined and will continue its trend over the next decades, as the economies in ASIA get stronger and stronger, in spite of global economic fluctuations in the European Union, the Americas and Thailand domestic political crisis
  5. 5. The question for Thailand Entrepreneurs is how to take advantage of this unique economic position which is not comparable with the economy of the rest of ASIA One way to answer this challenge is through improvements in their Trade logistics Cost Reductions focus in added Profit Gains; by sustaining and expanding their installed production/trade capacity and increasing effectively their net capacity utilization achieving optimal production/trade yields and rates Thailand leads the Japanese International Joint Ventures in ASIA, and this means that trade in Thailand will continue growing in all Industrial Sectors, with its ups and downs, reflected mostly in the services and retail sectors
  6. 6. Installed Production/Trade Capacity, Logistics Operational Costs and related Profit Gains
  7. 7. Abstract Today we are going to talk about installed Production/Trade Capacity, its Logistics Operational Costs and its related Profit Gains; but first we have to define and differentiate production/trade capacity investments from operational costs, operational waste, production/trade yields, production/trade rates, and its financial impact from its production/trade operations profit gains Then we will talk about the threats posed by its neighboring Asian countries for Global Economic Gains Finally we will close with observations over what is happening in the development of human resources and where are the gaps that need to be closed to continue having the lead and competitive advantage edge within Asian countries
  8. 8. Capacity Investment Profit Gains Operational Costs
  9. 9. 1.Capacity Investment The size of any production/trade facility, their technology in place, and their operational processes systems, are determined by their financial investments made to build, install and operate their production and trade capacity; which includes plant facilities, production/trade machinery and equipments, processes quality, and human resources skills operating their facilities capacity installed Investing in capacity has nothing to do with operational costs; as with or without operations, the facilities investment expenses are fixed and need to be covered.
  10. 10. The capacity installed is there to be used and whether the capacity is sufficient or short from requirements; the capacity is build based on a strategy supporting the Entrepreneurial Goals and objectives The financial investment made to build the capacity is reflected on all fixed expenses; which they need to be differentiated from the typical accounting cost concept
  11. 11. Investing in capacity is not a cost, and Enterprises with large capacities and those with small capacities are in competition with each other for the same markets within the same industries, though in different competition scale The key factor is how to use their existing capacity; how to meet the challenges of the market and the industry with the existing capacity, how to prepare oneself to meet the future with the existing capacity and how and when to expand it This is where a vision for the future and strategic planning is required; though not every enterprise has the skills and resources, neither the interest to see into the future, or to plan and prepare for it through investments in capacity expansions
  12. 12. 2. Operational Costs In the Supply Chain Operational costs, there are two major important factors affecting profit gains; one is the production/trade yields, and the other is the production/trade rates When the enterprise capacity is used in the best operational way; this means that all standard operational procedures have been thought in great detail, covering all potential and possible risks of creating waste, spoils and damages which increase unnecessary operational costs, using innovative technology and having the best technical and management skills in human resources available
  13. 13. Capacity provides a strong platform with competitive advantage over all competitors When the production/trade process is also designed in great detail to get the maximum possible yields and rates; this means that all production/trade systems are fine tuned to provide maximum coordination, communication, flow and synergies to give the most operational cost effective production/trade throughput with zero waste, spoils, and damages incurred in the production/trade process How to make sure that you are getting optimal production/trade yields and rates The answer to that is found in your human resources technical and management skills, including your workers operational skills, tools and technology available, with a proper human resources, and facilities management system, with sound company policies, rules and regulations, including attention to maintenance and vigilance of the production/trade operational processes in place
  14. 14. We do not focus on meaningless operational costs reductions But rather on getting maximum production/trade yields and rates, with zero waste, spoils and higher capacity utilization, with a view to promote expansion and growth, Rather than focus on penny cents cost cutting practices, creating processes bottlenecks, inefficiencies, with low production/trade yields and rates Reducing considerably the profit gains and the capacity utilization at the same time, with very low productivity, and declining production/trade yields and rates
  15. 15. 3. Profit Gains Price - Profits are the results of gains generated through the conversion of value created in the production/trade operational processes, less all costs, expenses management fees and percentage margin included and accepted in their industry The price structure of Finished Goods/Services from production/trade included in the accounting system are all fixed expenses; expressed as capacity financial expenses, as well as other operational expenses like utilities and communications
  16. 16. However, it is really in the accounting variable costs where we can see and analyze the actual operational costs incurred in the production/trade activity, and observe how they relate to their existing installed production/trade capacity utilization We can see from the pricing point of view, how the production/trade activity capacity installed expenses, and its corresponding variable costs are covered, and see what is left generated as a profit gain or a result as profit losses
  17. 17. Supply Chain Logistics Operational Cost •Demand planning
  18. 18. 4. Supply Chain Logistics Operational Cost •Demand planning Without a deep understanding of the demand planning or sales forecast process, you will either miss real sales opportunities or over estimate your sales, incurring in high operational costs and profit losses. Proper Demand planning leads you to have almost accurate sales forecasts, which will trigger correct business decisions Use a Statistical Process Control chart to understand each sales item trend and get your sales staff to understand it correctly including their sales promotions effect, without entering into the guessing game of macroeconomics discussion; also get your marketing staff involved in the demand forecast brain storming process; the cost of not doing it, and its profit gain losses are so high, that you cannot afford it
  19. 19. •Inventory planning Supply Chain Logistics Operational Cost •Procurement planning
  20. 20. Inventory planning Your money is where your inventory is; if you are short of the needed items or over stocked with the wrong items, you are losing profits and financing dead inventories, plus spoils, damaged and at the end, financing real waste You need to be very precise in determining how much inventory you need to have on hand and maximize their turning around, the faster you turn your inventories, the faster you are recovering your inventory investment and making more profits, and by having your AB inventories under tight control and managing your obsolete slow moving CD inventories, it will help you to generate profits and minimize cost Consider the first 65% to 85% of the sales items to be in your group AB, and then your items from 85% to 95% to be within the group C; then get rid of the rest of the slow 5% moving items in the group D, and refine the group C into group Ca, Cb, Cc then try to do without those items in the group Cb and Cc if you can; in that way you will end up only with the items that bring you about 90% of your sales; then manage those items in the best way possible, without shortages/over stocks
  21. 21. Procurement planning If you have a large storage facility you will end up using it; the question is whether it is filled with the right items and the right inventory levels; besides the financial expenses you have to consider the total expenses from ownership, and for that, you need to consider the costs of: stocks transportation, handling, holding stocks, packaging, damages, other purchasing and warehousing administration costs Consider the competitiveness of the price that you pay for the items; what if you order only what you need and get it delivered just in time with a minimum buffer stock, rather than ordering because the purchase price is attractive or fit one truck
  22. 22. When you negotiate the purchase price of anything do it with one, two or three years demand volume in mind; check on your supplier items quality, their quality control process, and see if they really match your process quality requirements; if not, then you are wasting money When you decide to purchase anything, what matters most is that supplier meet your items specified quality parameters, then its ex-factory price, decide who should carry the stocks, you or your supplier and at what cost and shortages, or over stocks risk; do your ownership cost analysis before you decide your purchase
  23. 23. Supply Chain Logistics Operational Cost •Production/sales planning
  24. 24. •Production/sales planning Your production/sales process has to be optimal; anything below optimal point is considered a lost due to waste, low production/sales yields and rates. It means you are not using your installed capacity to the best of what you can do with it; which reflects your management skills, resources and capacity available waste; including poor usage of your installed technology and human resources; waste means high operational cost and profit gain losses You need to have the highest possible production/sales process quality standards that you can manage; define clearly your process quality standard parameters and commit to meet them over and over to eliminate waste, and to improve your yield and rates; zero waste means lower operational costs and higher profit gains
  25. 25. Supply Chain Logistics Operational Cost •Production lines/sales team balancing
  26. 26. •Production lines/sales team balancing To achieve higher production/sales yields and rates, first you need to have your production lines and sales teams balanced in all your process components; imbalances generate process bottlenecks, waste, lost time never to be recovered Balancing the lines/teams is a serious exercise which requires detail operational process analysis, strong technical skill and process knowledge; without knowledge your operational inefficiencies generate waste, higher cost and low profit gains
  27. 27. Supply Chain Logistics Operational Cost •Customer Sales order processing
  28. 28. •Customer Sales order processing Getting a customer is the hardest part of the production/trading process, and loosing the customer is the easiest way in the process Not attending properly a customer sales order is like throwing away a customer, processing the customer sales order with mistakes is the easiest way to lose a customer; the cost of getting a new customer is extremely high compared with the cost of attending a customer sales order with zero mistakes This includes deliveries 100 % in full, complete and on time at all times, within the receiving window time, fully documented, without rejections due to damages, spoils, or wrong items
  29. 29. The production/trade process is most vulnerable at the time of processing a customer sales order, when a mistake is done at this stage, all operational cost is increased in multiples and so are the profit gain losses; worst case is the customer loss of credibility for your company performance, and risk of losing the business Doing everything that you need to make the order processing right, the first time and at all times is what you need to minimize operational costs and maximize profit gains
  30. 30. Supply Chain Logistics Operational Cost •Invoicing and picking processing
  31. 31. •Invoicing and picking processing Once the customer sales order processing is perfect, you are one step ahead of making profit gains and minimize operational cost Next you need to have great efficiency in you invoicing and picking process with 100% accuracy This means your ERP computer system is accurate, reliable and flexible, matching your WH operations, and your warehousing process is one of your best operational tools to get the customer order goods picked and ready for delivery with 100% accuracy, in full, complete and with zero mistakes There is no room for mistakes at all
  32. 32. Supply Chain Logistics Operational Cost •Transportation •Transportation Capacity planning
  33. 33. •Transportation Transportation cost can become one of the major contributors to total operational costs; this includes inbound and outbound transportation regardless of what mode of operation you decide to use If you own the trucks fleet and manage it professionally, you could have considerable cost saving; but if you do not have a professional truck fleet management, your transportation cost can be even higher, as this is one is the easiest way to get into corruption practices If you use a truck fleet owner you are paying for the services with little or no control at all on the service price which is your cost
  34. 34. If you use a third party logistics, you will end up paying a premium brand price for a similar service as if you were using a truck fleet owner without any additional benefit, except for nice marketing talks and public relations meetings, selling to you their company brand image as a benefit You have to get to know your trucks purchasing cost, maintenance cost, fuel cost, driver salaries and over all company transport administration cost Transportation fleet trucks capacity is not a cost but an investment expense which needs to match your requirements and overall business goals, objectives and strategy
  35. 35. •Transportation Capacity planning The planning of your transportation requirements needs special assets and operational cost analysis consideration, as it has financial impact on your taxes level, and in your profit earnings, as well as a direct impact on your assets ratios The choice is based on your financial strategy, whatever way you choose, the operational costs are real, and the total cost of ownership has a financial impact
  36. 36. A third party transportation contractor will not bring that quality of management required by your company, as it will only bring additional cost and a brand name to display in your management meetings. With the same token, a transporter company will only provide what they can only provide to a third party transportation company; the trucks and driver and nothing else to your benefit So if you are serious about having an optimal company’s transportation, you must invest in capacity, with proper operations management and the right trucks size
  37. 37. Supply Chain Logistics Operational Cost •Delivery route planning •Staging and truck loading processing Sea/Air freight forwarding (import/export) in-land transportation
  38. 38. •Delivery route planning Your delivery route plan has a direct impact on the day to day transportation cost, it includes the transportation capacity utilization in kg /m3, maintenance cost, fuel consumption and related costs, travelling speed, traffic jam wasted time, waiting time at customer site, and customer delivery satisfaction which has a hidden cost from losing the business, or cost of fixing a problem with an un happy customer Planning is very important as there are not 100% fixed routes, due to seasonality, road constructions, and other factors affecting the full trucks capacity available utilization, which at the end is money wasted if it is not used to the fullest capacity
  39. 39. •Staging and truck loading processing Optimal production/trade yields and rates mean zero waste, spoils and damages; in the transportation operation it means operational speed, zero waiting time and 100% accuracy. Your customer sales orders have to be processed within a tight schedule, with picking list, invoicing, delivery documents, routing truck allocation, picking, staging, dispatch inspection, loading and outbound departure control All within a zero errors operational process in full and on time to meet the customer inbound window time, regardless of traffic jams and other bottleneck situations Trucks have to be taken as any other production machine, with optimal preventive maintenance, high skilled drivers, zero truck breaks down risk and road accidents This is achieved by professional transportation management, just as professional as it has to be the sales and production management; it needs to be internally controlled
  40. 40. •Sea/Air freight forwarding (import/export) In-land transportation Your decision to transport your import/exports by Se/Air or by Land transportation is always based on your particular requirements in time and geographical location The optimal cost is not really on your control as transportation tariff rates varies from service provider to service provider, which supply different levels of trust, reliability, safety, security in handling your goods or materials cargo with different credit terms and information accuracy throughout the whole service from end to end Other customs clearance expenses are rather standard and their commission is based on their service quality and market rates. So there is not much to save on your transportation operation; however, at the end, you pay for what you get
  41. 41. Supply Chain Logistics Operational Cost Waste/spoils/damage control processing After sales/service process
  42. 42. 5. Waste/spoils/damage control processing Without a business vision, clear goals, objectives and a sound strategy, there is no planning, just a day to day routine work, waiting for the business to come alone and uninvited. The result of lacking strategic plans lead to waste, spoils, damage and eventually lose control of the complete production/trade operation Cost reductions do not mean and will never mean cutting on electricity/water use, stationeries, employees financial benefits, plant facilities maintenance, production and trade machinery and equipment, workers/supervisors/management skills cost That practice leads to waste/spoils/damage/low employee morale and operational process control as the direct message is, you are not going to invest in the future, in other words there is no future to go for
  43. 43. Do not fall into the macroeconomics gossip displayed by the news, coffee talks and other government political news To trust the news, it only shows clear ignorance on economics and marketing knowledge, as well as to understand how technology and market forces affect globally each nation To understand what are the industrial economic processes, how innovation technology plays an important role in the economic performance and how marketing influence markets, you have to read and listen not from the news media, but from international institutions such as the London University LSE, MIT, Harvard and many other well known universities with expertise in these fields
  44. 44. You have to read and understand the history of economics and political power, as well as the history of innovation technology, the history of social developments and reflect that knowledge in your business vision, goals, objectives and strategies Waste comes from all operational areas, lacking professional management skills, down to the worker skills, reflecting the overall production/trade performance measured in low yields, rates and profit gains To minimize waste focus on growth; manage capacity expansion and go for the future, developing the highest skills possible within your organization; make use of the available technology and invest in capacity and technology for your future
  45. 45. 6. After sales/service process Customer is king is being said over and over However that is true for as long as it falls within your business vision, goals, objectives and overall strategy; customers have to be analyzed with that long term view, and not with ABC or Pareto analysis The whole organization, production/trade operations have to be build to do one thing perfect; that is to be able to provide the goods/service to your customers and to the markets where all other potential customers are, or will be In this way you are creating a sustainable production/trade operational costs reductions
  46. 46. Economic threats posed by neighboring Asian countries
  47. 47. 7. Economic threats posed by neighboring Asian countries International Japanese Joint Venture with Thai companies are the top target for all neighboring countries, as Thailand resources and consumer markets outnumber similar resources and markets in other Asian countries, excluding China and India In this respect you have to consider China not in direct competition with Thailand as other Asian countries are; however India is included among the competitors group with direct investments in Thailand and Joint Ventures with Thai companies, focus on Thai domestic markets, competing with local companies as Japanese do The Asian government’s policies and infrastructure support to their home base companies play an important role in the competition for International Joint venture financial resources and international markets, within ASIA
  48. 48. However, Japanese International Joint Ventures penetrate each country with a long term view, to cover domestically their markets consumer’s demands, and make use of their available resources in manufacturing, retail and services reducing the market share ground for local companies in each Asian country In this respect Thai International Joint venture companies have the opportunity to expand their markets within ASIA, although this apply not only to International Thai Japanese Joint Ventures, but to all Thai companies, wanting to expand their products market share in ASIA There are also the European Union and Americas Markets with greatest opportunities for all Thai companies
  49. 49. Other difficult markets exist in the Middle East, South Africa, China and India, as well as other easy markets for Thai companies in Myanmar, Laos, Vietnam and Cambodia, and harder competition in Malaysia, Singapore, Australia, and Korea There are several trade barriers, one being cultural differences, reflected in trust and discrimination, another is ASIAN foreign languages and Business Management which differs from the European Union International Business practices, which suit best to Thai Business Management culture and style rather than copying from the Americans or Japanese management cultures and styles among others European management culture and style applied in Thailand, accelerate the speed of generating higher yields and rates with sustainable profit gains, and minimum waste, with best management practices and use of plant capacity and technology
  50. 50. The development of human resources
  51. 51. 8. The development of human resources Professional Education is the key to success in business, from top management to the basic worker level; they all need training, couching and continuous learning of best operations practices, operational processes; use of innovative technology and deep learning and understanding of general systems thinking process The existing gap at all levels from top management to worker has its origin in the Thai education system, which differs greatly from the European education system, besides cultural barriers such as tradition, and technical skills, discipline and the human touch which is pretty much a priority in the European management culture Thai companies need to have a closer look at European management culture, style and focus on technical skills development, and human behavior science from the European point of view, rather than from Thai or American or Asian point of view
  52. 52. This will benefit more to Thai companies in the long term, once their management improves in all counts, influencing and affecting the production/trade yields, rates performance, with greater profit gains and confidence in the company’s future European companies, traditionally are very comfortable doing business with Thai companies, whereby Thai culture and language are not a barrier as Europeans are interested to understand deeply the Thai culture and learn Thai language Europeans mix around socially with all Thai people at all social and business management levels, creating a culture of two ways fair communication and social values sharing

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