Logistics Centralization
The more we get together, the happier we’ll be.
More than half of the participants in APQC’s Open Standards Research logistics survey indicate that their logistics operations are centralized (Figure 1). Whereas many organizational structural choices have both positive and negative outcomes, centralization appears to be a solid choice. For organizations that cannot centralize, standardization should be considered as an alternative.
The benefits of centralization are numerous, but perhaps none are as important as the boost to the bottom line. Organizations that are centralized report lower costs for both their outbound freight costs (Figure 2) and their total cost of logistics (Figure 3). If the median total logistics costs shown in Figure 3 occurred for two organizations with $5 billion in revenue, then the centralized organization would have a savings of more than $90 million per year. By centralizing the logistics function, organizations are able to leverage their size to get more advantageous contracts. In addition, they may be able to use their personnel more efficiently and cross-functionally, as well as streamline warehousing and outbound processes.
In addition to lower costs, organizations with centralized logistics functions report:
- lower costs for damaged products as a percentage of sales,
- higher percentages of ship-from-stock orders delivered in full within 24 hours of order receipt, and
- higher perfect condition rates.
Centralizing logistics is likely to require an investment of time and money that might seem daunting, but the long-term benefits of centralization outweigh the short-term costs.
The assistance of Marisa Brown from APQC in the development of this material is appreciated. APQC works with organizations across all industries to find practical, cost-effective solutions to drive productivity and quality improvement. Go to www.apqc.org for more information.
An essential part of enterprise excellence is knowing where you are in comparison with where you’ve been before — and with what’s possible. Target selects graphs, charts, and tables from recently-published research to provide a snapshot of informative points that you can use to assess your organization.
