Integrating logistics at a ceramic tile manufacturer
A supply chain transformation at Philkeram-Johnson S.A. in Thessaloniki. Logistics activities that sat in four departments were brought under one integrated logistics function. The diagnosis behind it was published in the International Journal of Enterprise Network Management in 2007.
- Company
- Philkeram-Johnson S.A., Thessaloniki, founded 1962
- Group
- Norcros, with tile divisions in the UK, South Africa, India and Australia
- Role
- Head of Logistics, 2002–2008
The problem: a fragmented function
Until 2002 logistics had no single owner. Eight key activities were run by four departments and coordinated informally between them. Each department worked towards its own targets, which raised logistics costs and weakened customer service. Between them, the four departments used 20 performance measures and 12 information systems.
Before: 8 activities, 4 departments
- Control
- Procurement
- Logistics
- Sales
- Inbound transport
- Outbound transport
- Production planning
- Procurement of raw materials, spare parts & equipment
- Procurement of finished products
- Warehousing & storage
- Inventory management
- Customer service
Coordinated informally · 20 measures · 12 systems
After: one logistics department
- Inbound transport
- Outbound transport
- Production planning
- Procurement of raw materials, spare parts & equipment
- Procurement of finished products
- Warehousing & storage
- Inventory management
One manager · same level as finance, marketing and sales
The diagnosis: a logistics audit
In 2005 Dimitris led a logistics audit, adapted from the Stock & Lambert model, built around one question: how do service performance and logistics costs affect sales volume, profitability and cash flow?
How
- Structured interviews with five key staff
- Analysis of 1,844 customer orders (April–May 2005)
- Survey of 70 customers in Greece, 39 responses
- Cost analysis for fiscal 2004 from stock-control and accounting records
- Benchmark with the Norcros divisions in the UK and Australia
What the audit found
| Order cycle time | 1.97 days |
|---|---|
| Fill rate | 96.5% |
| Backorder recovery time | 13.4 days |
| Transport, warehousing and purchasing costs | 61.9% of net sales |
| Inventory value | 31.5% of net sales |
| Inventory turnover | 3.81, about 96 days of capital tied up |
| Customers who cancel or buy elsewhere after a stockout | 21.8% |
What it meant for the business
Sales volume
Roughly one stockout in five risked a lost sale.
Profitability
A 3% change in the logistics costs within cost of goods sold moved gross profit by 3.9%.
Cash flow
Raising inventory turnover from 3.81 to 4 would free about €313,000.
The model: one integrated logistics department
The proposed structure placed seven activities under one Logistics Manager, at the same level of authority as finance, marketing and sales: three management layers and 35 people. The semi-formal arrangement gave way to a formal logistics function.
Roles in the new department
- Logistics Manager and Logistics Executive
- Production planner
- Buyer of raw materials, spare parts and equipment
- Buyer of finished products
- Supervisors of the finished-goods and raw-material warehouses
- Systems administrator
Conditions set for the change
- Full support from top management
- Gradual integration over two to four years
- Better measurement of service and logistics costs
- Information systems that support logistics, with ERP planned
Results
- Purchasing, inventory management, production scheduling and warehousing integrated into a single logistics department.
- €2.2m of cash flow over three years through stock management.
- Order-management system for domestic purchases, designed with IT: +9% service level, −17% inventory carrying cost.
- Product-flow information system for the sales team: −50% wait time for backorder information.
- Inventory-management system that supported a 5× increase in SKU assortment; WMS with RF technology.
The same sequence (audit, a link to business goals, a structure, then systems) applies wherever planning, buying and stock sit in different departments.
Sources
Diagnosis and model: Dakos, D. and Ketikidis, P.H. (2007), “Proposing an integrated logistics department model: the case of Philkeram-Johnson S.A.”, International Journal of Enterprise Network Management, Vol. 1, No. 3, pp. 299–311. Results: company records, 2002–2008. Read the paper (DOI) ↗