Page 120 - Performance Leadership

Chapter 7 Business Interfaces Drive Collaboration • 109

a problem arises if both the production and logistics plan are not
optimized with one another. If production and logistics are not
aligned, a warehouse will be needed. The goods produced would be
stored in this warehouse until these goods are picked up by logistics.
From a purely logistical point of view, a large warehouse with many
products would make it easier to combine different orders for differ-
ent products for a single customer, geography, or transportation
means. Although the optimization of both the production and the
logistics plans may save costs for each, the additional cost of such a
warehouse most likely will outweigh the saved costs in the optimized
plans. First, the warehouse itself costs money to build and maintain,
including the staffing. Second, the goods that are waiting to be trans-
ported, delivered, and paid for are not considered to be sold and are
considered capital of the organization. And some goods may be per-
ishable. We tend to think of perishable goods in terms of fruits or veg-
etables, but in many markets consumer preferences and product
specifications evolve so fast that the warehousing of products almost
immediately makes the sales window of opportunity shorter. Think for
instance of consumer electronics that are only up-to-date for a few
months until a new version emerges on the market. As a result, every
day that these products are on stock in a warehouse the quality and
associated value deteriorate.
The cost of goods sold (COGS), an important part of the organiza-
tion’s margin, is not only determined by the cost, speed, and quality
of the processes in the manufacturing and logistics department, but
also—and perhaps even particularly—in the business interface. See
Figure 7.5.
The business interface here is defined as the handover point
between manufacturing and logistics. The manufacturing and logis-
tics manager should be jointly responsible for an optimized joint pro-
duction and logistics plan. Inclusion of distribution criteria may create
a better balance between the yield of the production lines and the
yield of the distribution capacity. A lower yield in production may be
overcompensated by a better distribution yield. Some metrics that
would measure the success of that collaboration are the average stor-
ing time of the produced units, before they get distributed, and the
number of units in storage during a certain time frame.