The engineers versus the accountants

As I write this, it is the end of an old year. As you read it, it will be the beginning of the new. It’s a time for reflection, and re-dedication.

Here are a few of the things that I have learned in the past year – and hope to not forget in the next.

Even though products are shipped from production plants to distribution centers in quantities that easily warrant palletizing for easier unloading and storage, there is a good reason that they are hand-stacked in the trailer. Shipping density is worth more than palletizing labor. And transportation costs are rising much faster than labor.

It’s easy to be frustrated by corporate structures and policies that don’t recognize the brilliance of a cost effective capital investment proposal or a cost saving process improvement. But, running a business and maintaining its image and momentum is a lot more complicated than just running a warehouse.

Detailed cost analysis may prove beyond a shadow of a doubt that a single facility in Memphis is the right logistics network solution. However, if that facility holds the only inventory that we have, and it will take six weeks to replace it and it is the only place that we have the capability and capacity to process complicated orders, then probably those who argue for a second location for at least some redundancy will win the day.

Just-in-time and lean thinking have become so ingrained that we are made to feel unpatriotic if we suggest that a little more inventory might significantly reduce transportation costs. In fact, if it weren’t for the risk of obsolescence, transportation expense almost always trumps inventory carrying cost. We just have to be careful that we don’t use the inventory to cover a multitude of other sins.

Private trucking fleets are normally considered to be expensive fixed overhead, and often only a tribute to the ego of a company. Contracting out transportation provides flexibility to handle variation in demand and puts the operation in the hands of true professionals. What a lesson it was to discover that full control of delivery timing, making route changes at the last minute, management of unloading and installation of products and return of valuable packing materials would turn the tables on conventional wisdom.

A company was recently facing a decision on the best plan to support westward expansion.

As the plans became more detailed, we sat stewing over the realities of some additional start-up costs, and struggling with which of two locations was most optimal.

Fortunately, an inspiration to graph the cumulative cash flow of the project, including the impact of a couple of upside scenarios made the troubling start-up costs look insignificant. And, it was clear that choosing the optimal location was far less important than simply getting the project started. Refining the analysis would only delay the attractive benefits.

As engineers, it’s sometimes hard to admit that we’ll never get a perfect plan, that passing time will erode the value of what we had planned and that for every question that is answered, two more can be asked. Someone has to step-up and say that it’s time to get going.

An adage, oft repeated by my old partner, John White, goes: “The time comes when it is necessary to shoot the engineers and start production.”

In 2005, keep your muskets ready!

ABOUT THE AUTHOR

James M. Apple, Jr. is a Director in The Progress Group. Prior to co-founding The Progress Group in 1991, he was a Partner with Coopers & Lybrand's SysteCon division. During 1992-1995 he served as a Senior Systems Advisor with Vanderlande Industries, a major conveyor and systems provider in Europe.

Jim is an internationally recognized thought leader in the area of facility design and integrated distribution systems. His contributions to the improvement of distribution practices have been recognized by his receipt of the prestigious Reed-Apple Award, which is given for lifetime contributions to the advancement of the material handling profession. Jim has also received the Institute of Industrial Engineers' Facilities Planning and Design Award. He has written numerous articles and handbook chapters on warehousing and logistics operations and is a popular speaker on logistics seminar and conference programs.

Prior to SysteCon, Jim worked as an Industrial Engineer with IBM, was Supervisor of Facilities Planning for the Oldsmobile Division of General Motors and was Executive Vice President for an automotive aftermarket parts supplier. He holds B.S. and M.S. degrees in Industrial and Systems Engineering from the Georgia Institute of Technology.