Logistics
...logy. Client collections and deliveries are considered mass processes, as they are essentially repetitive and largely predictable. The route structuring and optimisation allow Kite to offer customers a degree of predictability regarding timeous deliveries and collection. Batch processing is one form of intermittent processing and it used by Kite in the accepting of delivery paperwork and the imaging of these documents. Batch output may either be standardised (e.g. paint, ice-cream) or it may be customised. An example of a customised output is printing (e.g. magazines, newspapers). The organisations batching process allows an easy retrieval of archived delivery documentation, and it is one that is customised. There has been a historical evolution of operation management and recent trends in the logistics environment (Senior, 2002). Among those trends is global competition; increasing emphasis on quality; integrating technology into customers production systems; increasing emphasis on flexibility and time reduction; increasing attention to environmental issues; supply chain management; and lean production. In order for the organisation to remain significant in this space, operations and operating processes need to be responsive, flexible and reliable in response to customer demands. 2. The major strengths and weaknesses of the operations function in the organisation with special reference to the conflicting objectives of customer service and resource optimisation. A clear distinction is made between Kite customers and clients. Clients are the manufacturers or wholesalers whose products are distributed by Kite. Customers are the end dispensers (pharmacists, dispensing doctors, hospitals and State health facilities) who purchase the product. While many companies say that customer service is a key factor in their operations, few carry this through in action. The customer service ethic is ingrained into Kite processes and driven through technology. Strengths § The organisation is able to offer predictable, timeous deliveries. § Economies of scale present due to IHD. § Dedicated pharmaceutical delivery network. § Process driven organisation. § High security on all vehicles due to the cost and nature of product. § Minimal human intervention in the routing, weighing and dimensioning of parcels. Weaknesses § Under utilization of resources. § Disintegrated billing system. § A single customer accounts for 80% of the organisations revenue. § Dependence on suppliers. § Small customer base. Customer satisfaction is important, yet it is loyalty that is the true indicator of the health or relationship with one’s customers. If customers are satisfied but not loyal there is no tangible business benefit from satisfying them. Profitability and loyalty are key support business objectives and must be measured. Kite Logistics has identified the importance of placing metrics and measurements in place to track the elements that lead to the desired end business results. There are two primary categories of metrics for measuring the “means” to a desired business “end”, they are: Efficiency and Effectiveness. Efficiency The organisation use efficiency metrics to indicate how productive resources are working to achieve the desired business objectives. When compared with support industry benchmarks, and tracked internally from year to year, it is possible to identify areas that are running smoothly as well as opportunities to improve performance. Key efficiency metrics within the organisation include: § Cost per incident – The fully burdened cost (salary, fringe, overhead) to a single incident including reps time and overhead. § Cost per case – The cost to receive, manage and close a case from start to finish. This will include the fully burdened time and effort of all people involved with the resolution. § Self-service success rate – The rate by which customers find answers to there question using online tools and resources. This metric includes the rate at which the system automatically detects and reports a problem before a customer is aware. To achieve the optimal efficiency you must have the right quantity of the right skill set on hand to process new and existing cases. Effectiveness Efficiency without a measure of effectiveness has little meaning (Armstrong, 1994). Effectiveness of support has a direct impact on customer satisfaction and loyalty. The number one customer complaint year after year is time to resolve a case. The organisation have initiated the following effectiveness metrics: § Closure rates – Industry wide fifty five percent of new cases are closed at first contact and two thirds are closed within twenty-four hours. § Resolution Time – The industry average resolution time for cases not closed within twenty-four hours of receipt is approximately three days. § Transaction Satisfaction – When a case is closed determining the satisfaction and effectiveness of the support transaction provides the best indicator of effectiveness. The organisation makes use of these metrics in an attempt to balance the conflicting objectives of customer service and resource optimisation. A sister company of Kite Logistics, namely UTi Sun Couriers, has recently begun Six Sigma which could soon be adopted by Kite Logistics. Six Sigma companies save money by focusing on customer-critical issues and functioning as a higher level of efficiency. Reduced defects, scrap and re-work lead to immediate bottom-line benefits. Better transactional processes reduce errors and increase productivity. As the company’s reputation for quality increases, it creates advantage attracting new customers and higher revenues. 3. My view of the extent to which the operations function pursues consistent objectives across all its elements and the extent to which it supports the broader business strategy of the organisation. Since the acquisition of Kite Logistics and IHD by UTi Worldwide, the strategic focus of both these organisations has been aligned with that of UTi. UTi has a very definite strategic focus within their group called Next Leap (2000). Next Leap is simplified as 20^5: 20% Annual Revenue Growth Rate 20% Operating ratio 20 Strategic Customers 20 Quarters of deliverables 20 Performance metrics The first twenty is 20 STRATEGIC CUSTOMERS. The organisations goal is to have 20 strategic primary logistics partners (PLP), or S-20 PLP accounts by the end of NextLeap. We now have 7 candidates that are very close to reaching S-20 PLP status. The criteria to become a Strategic PLP account is … 1. Have a large proportion of an account’s outsourced logistics spend. 2. Generate greater than $20M Gross/ $5M Net Revenue of business from the account. 3. Provide a broad range of services and solutions, more than just freight forwarding or contract logistics alone. The operation has identified the importance of working together as a team to grow these accounts through sales and providing high levels of customer service. The operation correctly and consistently adheres to their standard operating procedures (SOPs) and applies a personalized service to the customer. The second twenty is a 20% ANNUAL REVENUE GROWTH RATE. The NextLeap plan is to accelerate the organisations growth rate to 20% per year. The second 20 apply first and foremost to Net Revenue Growth. While gross revenue growth is also important, net revenue can grow faster than gross revenue through effective yield management, and it should be priority to grow net revenue faster than gross revenue. Each branch has set its growth target in the light of the opportunities presented in the marketplace. Some branches should grow and are growing at rates greater than 20%. The organization has been and needs to continue focusing on the following operationally: • Customer service quality and customer retention. • Capitalizing on new products being rolled out for customers. • Teamwork on implementing new accounts. The third twenty is 20% OPERATING RATIO. This means simply operating profit as a percentage of Net Revenue. Some branches are currently performing at levels higher than 20%, while others are at very low levels. Every branch needs to take the necessary actions to consistently improve their operating ratio. Building a rising operating ratio is the key to long-term profitability. How do the various branches do this? • Grow the business: Net revenue growth, is essential to improving operating ratio. Profit goals cannot be achieved without it. • Customer profitability: Action is taken to improve customer profitability, especially for unprofitable accounts, through intelligent changes in pricing, transportation cost and service levels, and by expanding and upgrading relationships with all customers. • Control costs: The Operations Manager ensures that costs rise at a slower pace than net revenue. This one simple accomplishment causes an automatic, ongoing acceleration in the operating ratio. Focus on staff productivity; streamlining internal processes, and controlling discretionary spending are priority at Kite Logistics. The fourth twenty is 20 PERFORMANCE METRICS. A performance metric is a measurement. The organization measures their actual performance against the Key Company Standards, which they set for themselves. They have created 3 Dashboards as indicators to target and track their performance around key metrics in Freight Forwarding, Contract Logistics, and the Company overall. Management are in the process of building these metrics into their Business Intelligence tool to allow for easy monitoring and also using these metrics to drive management process’ for annual objectives (MBO). Over the five years of NextLeap, UTi is becoming increasingly metrics-driven and are developing and introducing new specific performance metrics for different parts of the company. There are already a few, for example: • Pick accuracy for contract logistics. • Revenue growth rate for the sales organization. • Operating profit ratio for the branches and logistics centres. Metrics are based on the needs of customers, investors, and other stakeholders. The fifth and last twenty is 20 QUARTERS OF DELIVERABLES. The organization has made progress in this area and has completed a number of enterprise projects, like launching a Solution Selling Process, Acquisition Strategy, etc. The operations need active involvement and an understanding of the financials in order to reach NextLeap target. 4. Recommendations for improving the operations function, with a financial motivation (whilst leaving the broader business policy unchanged). Porter has argued that a firm’s strength ultimately fall into one of two headings: cost leadership and differentiation. By applying these strengths in either a broad or narrow product market, four generic strategies result: cost leadership, differentiation, cost...