Israel: Don’t Use Old Logistics Tools to Build an Advanced Supply Chain

Last Updated: 3 November 2004
Article by Wally Klatch

You may think you’re using the right tool for the job when the tool is actually preventing you from doing the job right. Look at American car manufacturers – they used standard slotted screws in all their assembly lines until 1936, when Henry Phillips got Cadillac to use his cross-grooved screw and power screwdriver. Phillips screws and drivers worked better than slotted screws on automated lines – the driver seated better in the groove during screwing and "jumped out" of the groove when the screw was fully embedded – and by 1940 virtually all car manufacturers were using Phillips-head screws and drivers. Slotted screws had worked well in a manual production environment, but caused inefficiencies in an automated environment that the Phillips screw eliminated.

Supply Chain thinking often suffers from what could be called a "slotted screw approach" – applying traditional logistics methods to an advanced Supply Chain environment without adjusting those methods to meet updated demands. Just as a slotted screw can work on an automated production line, traditional logistics can work in an advanced environment but it is not always the best tool for the job. Like the Phillips screw, a modified approach to standard Supply Chain can truly bring innovation to a company’s operations. The first step toward forward-looking Supply Chain is to take a close look at your current logistics situation from an angle that is often overlooked: the logistics characteristics of the products.

The Classic Logistics Confusion: Product Versus Package

Every company knows what products it uses in its own operations and what products it offers to its customers – or does it? In fact there are many companies that, from a supply chain perspective, have lost sight of what their products are, and have built entire supply chains that are not appropriate to their true products.

How can a company lose touch with its products, either those that it uses in its own processes or those that it sells to customers? There are several ways in which this happens. A common error is to confuse the packaging with the product itself. For example, when a liquid handsoap company offers its customers several options ranging from a 500 ml bottle to a five-gallon pail it is logistically offering the package, not the product. The entire supply chain is built around the package – discrete bottles or pails – rather than being built around the product – a liquid. This is the "slotted screw" approach, using the traditional logistics approach even within the context of implementing a more advanced supply chain approach.

The importance of this distinction between product and package is literally worth millions to American industry. There are 24 billion gallons of liquids that flow through the U.S. civilian market each year that are produced as liquids and used as liquids, but are put in packages only for logistics purposes. Liquid products that may be handled as a liquid through the entire supply stream lead to great savings in cost – up to 48% – and reduction in complexity in the Supply Chain. Using the liquid handsoap example, handsoap for consumer use (B2C) is most conveniently sold in small bottles that the customer can purchase, easily transport home, and keep for use as needed. Traditional supply chain handling of bottles within cartons on pallets is appropriate for this channel. However, handsoaps used in commercial environments (B2B) are produced, transported within the supply chain, and held at the customer in bulk quantities, and dispensed by the user directly from a dispense unit. Thinking of a supply chain for liquids in liquid logistics terms, the advantages of a liquid-based logistics method become clear – the elimination of packaging; the simplicity and effectiveness of liquid handling versus discrete (package) handling for the producer, the distributor, and the customer; vastly improved ease-of-use by the end consumer with all of the savings and benefits that this entails, and many other advantages. The liquid-based approach to logistics is described in detail in the book "Supply Chain for Liquids®: Out-of-the-Box Approaches to Liquid Logistics" published by CRC Press. Like slotted screws that are appropriate for manual environments and Phillips screws that are appropriate for automated environments, a standard Supply Chain approach is appropriate in some cases while a liquid-based method is the more appropriate tool in many logistics situations.

Our "discrete" package-based habits are so deeply ingrained that many companies have a difficult time identifying how large the potential benefit is for thinking in terms of supply chain for liquid products. Most manufacturing companies use liquids in large quantities in various forms, from components for their products to machine lubricants to facility maintenance liquids such as cleaning fluids to the beverages that are consumed by employees. However, most of these liquids are purchased in discrete form – by the container, carton, drum, pallet, etc. – and thus are "invisible" in terms of the liquid nature of these products. Similarly, many companies that produce liquids automatically think in terms of packages/containers for their sales, logistics, and supply chain processes – for supply chain purposes, the package is the product. Again, slotted screws work, but companies that tasted of Henry Phillips’ invention quickly understood the value of something that they hadn’t even considered before. As mentioned above, there are huge segments of the American economy for whom laying a liquid-based supply stream next to their supply chain would be enormously beneficial.

The Right Tool for Each Environment

Standard supply chain practices work for many types of products, but for some products a liquid-based approach is much more effective logistically, financially, and strategically. Taking liquid products and converting them into discrete products by putting them into packages, only to have the end consumer re-convert them to a liquid for use, is incredibly wasteful in environments in which bulk quantities of liquids are used. A supply chain is appropriate for discrete products, and a liquid-based approach is appropriate for many liquid products – each the right tool for its own set of products and logistics needs.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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