Strategy, connectivity and measurement in warehousing
Tuesday, December 01, 2015
If there once was a time when executives considered a strategic plan as a sacred document that is rarely revised, that day is certainly over. Today, such documents often lose value each month after they are published.
Strategy statements have been replaced by strategic management, and strategic management is the day-to-day application of a corporate strategy. Sometimes the application part is called connectivity. For example, if the strategic goal of your organization is fast growth, you manage the warehouse differently than if the corporate goal is cost reduction.
In this article, we will explore how strategic management works in a warehousing organization, and how it is implemented through connectivity. We will consider those corporate strategies that should be published, as well as those that must be confidential.
Expressing strategic management
In today's corporate world, mission statements and vision statements provide a more concise profile of strategic management than elegant strategy documents. Consider the effective strategic statement used by Advocate, a medical billing company in central Ohio: "We only do one thing, but we do it better than anyone else." In just 13 words, the company states its strategy in a way everyone can understand.
No one needs to fear the publication of Advocate's strategic statement, but other strategies must remain confidential. What if your strategic plan is to position your company for sale or liquidation within three years? Owners and senior managers need to understand the strategy, but no one else should know about it.
Is there anything in your strategic management that would intimidate clients or make employees nervous? If there is, confidentiality will avoid trouble.
What kinds of strategy are considered?
In a warehousing organization, you might include growth strategy, marketing strategy and resilience. These three strategic options provide a distinct role in the development of the company. Let's examine each:
Here are two contrasting strategic management statements:
- We will grow by being the lowest-cost provider in our market.
- Quality management stimulates our growth.
Connectivity, or the way the warehouse is managed, will be greatly different depending on which of the two options you choose.
A strategic statement may also set growth limits. Consider these contrasting statements:
- We will be the largest warehouse in Ohio.
- We intend to remain small, while enhancing our reputation for quality.
Again, the warehouse will be managed differently depending on which of the two statements you choose. If your goal is to become a global provider of warehousing services, your strategy will be far different than if you expect to simply be the largest in your community.
What about innovation? If your strategic goal is to provide more innovative changes than any other company in your industry, your warehouses will be managed differently from the low-cost provider or the growth-oriented management team.
A common strategic question is the specialist versus the generalist. Advocate is proud to be a specialist, as you see from their strategic statement.
In warehousing, some companies want to offer the broadest possible range of services, right up to the provision of light manufacturing and packaging. Some companies intend to offer these services to everyone in the world, and another firm might limit the client base to the chemical industry.
Here are two contrasting marketing strategies:
- We intend to be the leading grocery product warehouse in our market.
- We offer logistics services to a wide variety of manufacturers and wholesale distributors.
If you would be a generalist, publication of the strategy can be healthy. But if you want to be a specialist, it could be risky to publicize a policy that announces your intention to exclude existing clients who are outside your specialty.
Some warehousing companies want only a few large customers, and others prefer to have limited reliance on one or a few major clients. A strategy of limiting dependence may be safer, but it could make it difficult to serve large clients.
Also known as survival, these are the strategic initiatives that ensure the ability of the company to weather the storm. The process of developing the strategies is sometimes called contingency planning. Consider each of the things that could threaten stability of your organization.
Here are some of the strategic management policies that result from contingency planning:
- Not more than two members of our senior management will ride in the same vehicle.
- No client will exceed 10 percent of total revenue.
- Not more than $________ value of product inventory will be stored in any single warehouse.
Some operators will consult insurance carriers for guidelines on disaster planning. Because American managers are incurable optimists, resilience strategy is an area most frequently neglected.
Some companies may use warehousing as a method of optimizing a single aspect of their business. Such strategies are usually confidential.
Consider these different strategy statements:
- Our company will maximize profits through effective development of real estate assets.
- We will develop warehouse services that feed additional revenue to our transport business.
- We will use warehousing as a vehicle to enhance our ocean freight forwarding operation.
Some logistics service providers are real estate development firms that use warehousing as an incubator to create a market for industrial buildings. Others have their core business in transportation, and they use warehousing as a way to grow their transportation business. The warehousing function can be a means of optimizing revenues of related businesses.
Nothing wrong with this, but it is a strategy that may not be prudent to publicize. No customer wants to be seen as a second-class citizen.
Strategies to build business value
Some strategic statements can do nothing but enhance the prestige and value of the warehousing organization. These are the ones that should be heavily publicized, since they make your company more attractive and enhance the morale of your people. Here is one example:
- Our priority is the development of talented people.
Who can object to that? As you consider connectivity, different management policies will be followed by a company that is dedicated to people development. However, if you add to the strategy statement:
- We intend to maintain a union-free environment.
This might wave a red flag in front of the union bull.
Consider strategies that aim toward improvement of your logistics capability. Here is one example:
- We aim to continuously reduce order cycle time.
That is what the logistics business is all about.
The role of measurement
Strategy can be a cloudy subject that is ignored by the operating people who get the job done. Yet every strategic initiative can be monitored through measurement.
We described several options for a growth strategy. How well is this area of strategic management working? The answer can be measured by recording and comparing the growth records. How much has volume increased each month over the past five years?
The success of marketing strategy can be measured in a similar way. To what extent has connectivity allowed your company to reach its marketing goal.
Resilience strategy is harder to measure. If the company has survived, the strategy must be a success. The success of the optimization strategy is measured by growth of the core business and the amount of that growth that came from warehousing.
The success of a people development strategy may be measured by tracking longevity of employee service. In a people-friendly company, most of the people who join the team will stay there until retirement.
Order cycle time is easily measured, and your success in implementing this strategy can be evaluated without any complex technology.
Putting it together
Never let strategic planning degenerate into elegant documents that sit on a shelf. Once the plan is defined, strategic management procedures are developed, and the connectivity to execute on the warehouse floor is initiated.
Consider strategic management as the answer to one fundamental question: What do you want your company to look like when it grows up?
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