Optimize…don’t cut limbs

Come recession and every company in every corner of the world is wants to cut costs. Sustenance is the name of the game. Every organization went on dieting. However, cutting flab does not mean cutting limbs. Healthy cost reduction is an art and science. Great amount of planning, discipline and strategic focus is required for healty cost reduction. We do need some fat to run the show. Need of the day is to optimize.

In logistics lingo, ‘optimization’ has better re-call with ‘route’ , ‘load’ and more recently ‘network’. However,  in the generic meaning of the term, just about every process can be optimized. Some of the successful companies did look at almost every process, every activity, every task and attempted to optimize cost, service levels and resources. However, cost, quality and velocity of the process do not often move in tandem. Rather they act as opposive forces.

At a very high level, logistics processes can be bucketized as sales and marketing,  operations and backoffice process clusters.

What processes are mostly outsourced?

Most of the outsourcing in tier3 logistics companies involve payroll processing, FAO. When it comes to tier2 and majority of the tier1 logistics companies,  tariff publishing, rate quotes, tender management, customer support, driver log entry, freight booking, freight broking, AWB entry, B/L entry, Dock receipt preparation, KJ form processing, customs clearance, freight bill auditing and several such processes are outsouced.

How optimization is different from outsourcing:

When it comes to outsourcing, companies are essentially lifting and shifting the process. Level of cost reduction is limited to labor arbitrage and improved productivity. One of the key business risk handled is business volatility. However, to achieve cost optimization beyond these levels, organizations have to look beyond their legacy systems and broken processes. There are organizations that embarked on process transformation initiatives with deep investments in busines transformation and IT platforms. However, these initiatives have a longterm payback period and several players who are just coming out of recession find this as an incongruent lever.

To achive higher levels of optimization without disturbing the applecart calls for differentiated approach. Key lies in selecting the process areas that have highest levels of manual intervention, broken process clusters that slow down the entire chain, processes with high customer dissatisfaction rates. Identifying the right process might be pretty easy in some organizations while it could call for a thorogh study when it comes to some other. Once the right set of processes are identified, next level of decision making is on the systems on which these processes need to operate. Either they can be shifted to all new IT systems which call for higher investments or existing legacy systems have to be upgraded to fill the gap. Most companies get stuck between the devil and the deep sea here. There is a third option. To use productized services and niche platforms to fill such gaps. Analysts have been tracking several systems integrators and IT service providers who are building solution accelarators and productized solutions to address this gap and organziations can really leverage such productized services as a middlepath.

Further levels of optimization can be achieved using process benchmarking.

Brahna Mutya
brahma.mutya@wipro.com