parties will only get you so far, and the gains may not be sustainable if you

The Importance of Logistics and Supply Chain Management
13
proposition holds great bearing on the way in which companies structure rela-
tionships with suppliers and customers. While it is unlikely that suppliers serv-
ing both beverage makers would choose to serve only one at the loss of the
other, there are clearly opportunities to structure a closer, more fruitful relation-
ship with one. A supplier may choose to develop customer-specific ingredients
or engage in cooperative promotional efforts with the preferred customer.
Therefore, even while inputs might be gathered from the same source, the final
product can be differentiated and so can the services provided to that favored
customer. When advantage is gained based on the way in which the companies
interact, supply chain management is at work.
What is also interesting is that while products can often be duplicated through
reverse engineering, relationships are far more difficult to duplicate. Have you
ever tried to reverse engineer a relationship? Once the bonds of collaborative
effort and shared gains are formed, they can be very difficult to disrupt through
simple interloping. So while the challenge is great to get one’s own house in
order and then extend the ropes of coordinated action to outside parties, the
benefits can be even greater. Unfortunately, companies often find themselves
tangled in their own ropes.
It is easy to say that a company must first get its own house in order, but,
as suggested, this can be the most difficult aspect of supply chain integration.
How can a company get on the same page without imploding? Not all com-
panies are blessed with a culture that is driven from top to bottom and end to
end by overall company performance. Rather, most companies are driven by
functional performance — striving for excellence within each of the various
functional areas, like manufacturing, procurement, customer service, finance,
and logistics. Clearly, excellence must be achieved throughout the company in
order to survive and thrive, but it is coordinated action toward a worthy ob-
jective that sets really great companies apart from everyone else.
As in life, business is about managing trade-offs. Trade-offs are found not
only across the business functions but within each one. For instance, in manu-
facturing, it is commonly recognized that small batches provide greatest flex-
ibility in accommodating customer demand, yet incur higher per-unit costs of
production. So, there is a trade-off found among small and large batches in
production. In marketing, small-budget promotions tend to enjoy lesser impact
than big-budget promotions, but obviously cost less — another trade-off. Lo-
gistics is full of trade-offs. The most commonly held trade-off in logistics is the
one between the level of service offered to customers and the cost incurred in
providing that service. Occasionally, something comes along that can improve
service and reduce costs. Technology advancements are often credited with the
creation of these rare but beautiful moments when you can have your cake and

14
Lean Six Sigma Logistics
eat it too. Lean Six Sigma Logistics can bring about these beautiful moments
too, by maximizing the capabilities and balancing their contribution to logistics
excellence, leading to overall enterprise success.
Lean Six Sigma Logistics is about capturing the trade-offs present within
logistics and between logistics and other functions found in the company. Once
you can manage these trade-offs effectively, you have the beginnings of inte-
gration at a higher level — supply chain management, where the levers at work
in your company match up with the levers at work in trading partner companies.
When you do this, you are essentially putting the environment to work in your
favor rather than working against it. And it is through this level of coordination
that your supply chain can outpace the supply chains of rivals.
In sum, logistics is a necessary function for all companies. No business can
live without it. Companies that do not do it well, in fact, threaten their very
survival. Companies that recognize and manage the trade-offs by measuring
total cost can extend this “systems” thinking to the larger environment, the
supply chain in which they operate. In the absence of integrated logistics and
total cost perspective, the logistics wastes are inevitable. These wastes are
overviewed next.

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