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In many organizations, there are two systems for rewarding people. The most important people in the company usually get to share in the proceeds of the business in the way of salaries, bonuses, and stock options. The least important people in the company usually only re­ceive a paycheck. The question now becomes, what is your organiza­tion doing to ensure that when the organization does well, everyone who is involved will be compensated in an equitable manner? We are dealing with the concept of skill-based pay, pay for overall performance, and team incentives becoming more important than individual perfor­mance reviews and incentives.

With all these challenges facing organizations, there will undoubt­edly be a major impact in the area of logistics and distribution. The first action that any organization should take is to review its distribu­tion channels from the standpoint of a customer. The customer doesn't care where the product or service came from, the customer doesn't care how or why it arrived, provided that the right product or service was delivered at the right time and in the right place, in the right condi­tion at the right price. The customer only asks where or how questions when these criteria have not been met. Customers today expect and demand delivery assurance. Our logistics and distribution systems must be capable of providing guaranteed delivery commitments. Most dis­tribution systems consist of multiple stocking points where inventory is stockpiled based on forecasted sales. These sales forecasts are noto­rious for their inaccuracy, and there is an incredible amount of duplica­tion and waste in most supply chains. Recent initiatives such as col­laborative planning forecast and replenishment (CPFAR) enable com­panies to share information and reduce the amount of wasted inven­tory in the supply chain.

Many activities in organization distribution channels add waste of time, waste of space, waste of movement, waste of effort, and waste of cost into the supply chain. Customers expect these wastes to be elimi­nated because they are not prepared to pay for them. Customers have a right to expect direct delivery from their suppliers without any interme­diate stocking points, material loading and unloading, and repackaging.


One company analyzed one supply chain for a fairly simple product. They discovered that of 81 activities that occurred from planning the item through the shipment to customer and payment of the invoice, only 6 activities added value, the supply chain stretched over 7,000 miles, and the entire process took an elapsed time of 94 days. This type of supply chain is typical in a lot of companies today. There is a tre­mendous opportunity to redesign the supply chain and reduce the waste that is present. When companies realize that information is a valuable commodity, they will start the paradigm shift necessary to convert from physical warehouses and distribution networks to data warehouses and information networks.


Already companies such as Avon Cosmetics, Amway, Nuskin, and Rexall Showcase have shown that significant product price reductions can be passed on to the customer by simply eliminating traditional distribution networks and replacing them with network marketing ar­rangements. A company cannot invoice a warehouse, a company can­not sell to finished goods stock, a company does not get any credit by completing production, a company only makes money by exchanging goods and services for cash. The new business paradigm will be elec­tronic cash on delivery. Wal-Mart has already paved the way for a new way of looking at the retail business and has revolutionized the whole industry. The Internet provides the capability of reaching millions of customers worldwide instantly and is rapidly becoming the way in which all commerce will be conducted. We are on the brink on the new mil­lennium, and we should not enter it with product and service delivery systems from the previous century.

For balance of this article, click on the below link:

Lean Manufacturing Articles and click on Series 11

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