Two years ago who would have predicted that the Conservatives would lead a majority government, that Jeremy Corbyn would become leader of the labour party or that the price of oil would be below $50 a barrel.
The unexpected has become the norm, both domestically and around the World, where uncertainty is reflected in the rapid price movements of global stock markets. For many, the UK economy is recovering strongly but the recent announcement from the steel plant at Redcar quickly reminds us how vulnerable we are to international developments as China cuts prices in the face of reduced demand.
Faced with so many imponderables, many companies keep putting off the day when decisions have to be made about their future operational needs. Others may simply try and hand the problem to a third party in the form of outsourcing, hoping that the contractor will be able to continually adapt to meet changing demands. Both approaches carry significant risks.
The current rapid rise in land and property prices for warehousing reflects the fact that, in the past, in face of economic uncertainty, many companies simply put off any decisions on infrastructure development until they had greater confidence in the future. The result has been a slump in warehouse development, followed by demand outstripping supply as the economy recovers. Companies seeking increased warehouse capacity are now faced with two problems: an increase in cost and inefficient operations whilst waiting for new sites to be developed.
Outsourcing is not a panacea. Few logistics contractors carry spare warehouse stock and, in return for a properly designed and resourced solution, will either be seeking a long term commitment or high margins to cover the risk of underutilised resources or unrecovered depreciation. Few contractors, if any, will provide logistics infrastructure that is risk free and low cost to enable their customers to avoid planning for future requirements.
Unfortunately, there is no substitute for timely, well considered and executed development plans.
So, how do you go about planning in uncertain times?
Perhaps the first step is recognising that the situation is nothing new. Few organisations have ever had the luxury of knowing what the future holds. The difference now is the speed of change. Today, the amount of change that can take place in five years is the equivalent of twenty years a century ago. The challenge is to embrace the uncertainty rather than shying away from it.
The most important part of the planning process is to seek to identify possible future changes in the market place that could impact on your organisation. Logistics infrastructure planning should not start off with potential storage and distribution requirements, but with the widest possible view as to where the organisation might be in five, ten or even twenty years' time.
This should involve a far wider group than just the logistics team. In particular, it needs to involve those most in touch with current and potential customers, competitors and suppliers and those with an insight into the possible impact of emerging technologies and global change.
From this analysis a series of possible scenarios can emerge ranging from the optimistic to the pessimistic and the highly likely to the highly unlikely. The team can agree a series of possible scenarios worthy of further evaluation.
But how do you evaluate a wide range of complex alternative scenarios? It is at this point that logistics modelling comes into its own. Logistics modelling enables the rapid evaluation of a whole range of scenarios in order to identify resource levels, capital costs and operating costs. Alternative scenarios can include changes in one or all of the following:
- Sales volumes
- Customer locations and type
- Customer order size and minimum order quantity
- Product range
- Order lead time
- Supplier minimum order quantities
- Supplier delivery lead times
- Introduction of automation
- Alternative routes to market
- Packaging and unitisation
- Operating cost movements
- Road congestion
- Alternative transport modes
Typically a modelling exercise will begin with a detailed analysis of the productivity and costs of the current operation to establish a base case against which alternative scenarios and operational solutions can be compared. Where additional information is required, Davies & Robson will use its own extensive library of benchmark costs and productivities.
Once the modelling is completed, detailed consideration can be given to the financial risks and opportunities arising from alternative operational plans. 'What if' questions can be answered quickly and accurately and at minimal additional cost. This process inevitably brings greater insight as to the impact of the key risk factors and their financial impact on future profits - often with surprising results.
Through this process, the senior management team can balance future certainties and uncertainties with risk and opportunity for a final plan to emerge. No modelling system will ever replace business judgement and the associated risks. What it does do however is provide increased insight and evaluate the scale of the risks involved.
Over the years Davies & Robson has helped numerous organisations across many sectors develop their logistics plan. If you would like to know how we could assist your organisation please call Brian Templar on 01327 349090.