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LOGISTIC CONCEPT How do you develop a logistic concept? Learning goals

To understand the elements of the logistic concept; To understand the cohesion between various measures in developing a logistic

concept for a company; To formulate the questions that need to be answered while developing a logistic

concept.

Every year, the Logistic Management Cooperation (vlm) rewards a company for good logistics. This company needs to function as an example for other companies. In 2006, Heineken received the award. Previous winners were DHL, Centraal Boekhuis, Hema and Wehkamp. In 2007 TomTom WORK was given the prize. Since 1999, Heineken has worked on the STARchain project for better logistics. The reason to start STARchain was the strongly increasing export of the beer Heineken brews in Zouterwoude. In the early 90s, the export consisted of only half of the volume and by the end of 2006 export already formed 60% of the volume, with a large contribution to the profit of the Heineken NV. However the logistics were not able to follow the success of the marketing and sales of Heineken. The availability of the beer was bad, the beer was no longer fresh enough when it arrived at the consumers and the logistics costs increased profoundly. STARchain formed a change of the flow of goods towards the largest export markets, with the use of modern ICT and a clever planning of the flow of goods from the brewery in the Netherlands up to the Heineken distribution centres in the export markets. Premium brand Heineken now also has premium logistics. The new logistic organisation is capable of following the growing export of Heineken. Due to this, advantages are obtained in the flow of goods, at the side of the customer, as well as in Heinekens own distribution, production, purchase and sales. In the project, the customer was central. The availability and freshness of the beer were strongly improved. Now that the logistic organization is arranged well, In the future, Heineken will be able to further involve its customers in the logistics. The extra costs of the supply and the new distribution centres in the export markets are earned back by a smarter loading of the transport containers that are spread all over the world. Karel Vuursteen, the CEO at that time, was actively involved in the project, took care of the decision making and gave the STARchain project priority within Heineken. The support of the CEO is an example of a good involvement of the top in a logistic project. There was also a lot of attention for the culture and the change management. Heineken has shown that there wasnt just one

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person, but an entire team of Heineken people responsible for the success. Heineken has shown that logistics mainly is human labour and that only a top team can achieve the highest results. The successful implementation of new ICT in a complex, worldwide organization is very educational. A bold approach with long-term efforts, whereby the improvements of the logistics have strengthened the success of the Heineken brand in the market. 2.1 The core of this chapter Logistics are quite comprehensive. The example of price winner Heineken shows that successful logistics require customer focus, a good organization, a well-thought out location of storage points and distribution centres, cooperation with customers, insight into the costs, modern information and communication technology (ICT) and, not in the least, clever employees. Thus an approach on all fronts. Partial solutions are symptom treatment. An extra helpdesk helps to keep customers happy for a little while. Increasing stocks means a higher availability of products, but by the end of the year, there will be no money left for the really important investments. That special order for which the entire production had to be turned upside down did deliver that new product to the customers in time, but during that period, the other products were not available. Or the urgently created products were delivered by the transporter days too late. Logistics require real solutions and thus a complete, well-structured approach. We will discuss this approach in this chapter. The logistic concept is presented in paragraph 2.2. We will use this concept in every following chapter. Therefore we will end this book with an extensive case. Every part of the logistic concept will be discussed in a paragraph. The strategy of the company, to which the logistics need to be fine-tuned, is central in paragraph 2.3. Subsequently we will discuss the structure of the flow of goods (paragraph 2.4), the control of the flow of goods (paragraph 2.5), the information and communication technology (paragraph 2.6), the logistic organization (paragraph 2.7), and the logistic performance indicators (paragraph 2.8). The last paragraph discusses how the logistic concept can be charted in practice. 2.2 Logistic concept This book assumes a complete approach with the so-called logistic concept. Applying a logistic concept offers a complete approach, whereby the entire supply chain has to be looked at, and not just the individual chains in the flow of goods. Thereby we prevent improvements having disadvantages for another chain further in the logistic chain. It offers a common thread for a change plan, whereby you can work from step to step. A complete

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approach means that the management synchronizes all decisions regarding the flow of goods, the planning and guidance of the flow of goods, the supporting ICT as well as the organization. Before you can fill in the logistic concept, the goals of the company, the chosen strategy and the to be derived logistic goals have to be clear. This is a task for the management. The logistic concept is not finished until the performance indicators by which the management can follow the quality of the logistic performances are determined. All elements constantly have to connect to each other. By this we find out the coherence between the various solutions in developing a logistic concept for a company. The implementation of this concept determines the logistic performances and the profit a company can make with its logistics. Of course, the way the logistics are arranged has to suit the companys strategy. Heineken wants to put an exclusive beer into the worldwide market and that includes special logistics. This paragraph explains the elements of the logistic concept.

Figure 2.1 Logistic concept (based on Van Goor and Visser, 2004) In the heart of the logistic concept (see figure 2.1) we find the four elements. Determining for the implementation of the concept is the strategy of the company; the logistics need to contribute to reaching that strategy. The logistic performances are measured with

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performance indicators. The following paragraphs contain the questions a company has to answer for each element of the logistic concept. The logistic concept determines whether the company can meet the expectations of the customers now and in the future. The transport time between the customer and a distribution centre for example determines how fast the company can deliver. And the logistic concept on the long term determines the costs of the logistics and the investments the company needs to make. The company establishes the cost structure for various years as soon as they invest in factories and distribution centres, buy software, hire staff and close contracts with suppliers and service providers. An incorrect logistic concept means that the company cannot compete will have unhappy customers, and high logistic costs. The following example of Sony Music shows this. Sony Music in Haarlem In 1998, Sony Music (now part of Sony BMG) opened a factory and distribution centre with a total of 23,000 square meters in Haarlem. An investment of more than 25 million for Sony Music. When the sales of CDs stagnated due to increasing piracy, the rise of iTunes and the decreasing popularity of Sony artists such as Michael Jackson, a reorganisation was needed. Therefore the distribution centre already closed in 2003. The production of CDs went to Sonys CD-plant in Austria. The delivery to all stores in the Benelux was transferred to the Sony distribution centre in France. It was very difficult to find a new destination for such a special building as that of Sony. The distribution centre therefore stood empty for a long period, until Ikea took over the distribution centre for only a penny. Not without problems, by the way. When Ikea fixed its eyes on Haarlem, it was not obvious that the location would actually come about. Normally, Ikea builds in accordance with its own demands. The Sony building was still brand new and fortunately could be adjusted to the Ikea-formula. The municipality however wanted to have the problems with the traffic examined and the zoning plan needed to be changed because retail was not allowed in the industrial zone. At first, the other companies were not happy with the arrival of retail on the industrial zone because of possible nuisance of visitors. What this logistic failure has cost is one of the best kept secrets of Sony Music. The concept needs only one correct sequence. That is not entirely true. Some companies have adjusted their strategy based on the possibilities the clever structure of their flow of goods or their ICT offer. Amazon.com first started selling books via the internet and when everything worked correctly, Amazon added toys, games, sports articles and even food. The cigarettes and confectionary wholesaler Lekkerland already had all gas stations as its clients. With the rise of snacks, sandwiches and telephone cards that were being sold in gas stations Lekkerland was able to expand its service to new products and new customers. Lekkerland now forms the ultimate Convenience Company. The modern consumer prefers speed and conv