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What do the spokes on a bicycle have to do with a perfect supply chain?

Logistics is omnipresent, 24/7: toothpaste in the morning and before bed, the egg at breakfast, the prefabricated concrete components on the construction site, the spare part for the industrial machine – it's all logistics.

Without replenishment the supply chain would come to a standstill, as would the production lines at BMW, hospitals wouldn't be able to use the faulty MRT anymore, no windows would be delivered to construction sites and Amazon wouldn't turn over 100 billion dollars' worth of goods!

A warehouse full of expensive replacement parts ensures that there are no production stops, but it is far too expensive to maintain. Being too frugal, on the other hand, may keep the costs for spare parts and storage low, but if production ceases because no replacement is on hand for a broken part, this can prove costly for an OEM!

So a perfect balance between costs, reliability, speed, reaction times, needs and many other things has to be found. Deliveries from A to B also have to be on time, inexpensive and environmentally friendly! This requires an ingenious total concept made up of modern supply chain management, network planning, collaborative planning, cloud-data management and much more besides, which due to the complexity of the task is usually an optimization equation within a multivariate simulation model.

Within the overall concept there are many interesting methods for supporting the logistics and supply chain management. There are some pretty clever ideas behind much of the logistics terminology! Here is a brief selection of some common ones:

PUDO: The "Pick-Up-Drop-Off Point" is a lockable box at a central location – for example a locker at a petrol station or packing center – where spare-parts can be left. They mean that technicians don't have to drive all the way to the warehouse every time they need something. Instead, the PUDO, which is normally unmanned, is filled by a delivery van that also takes old parts out. The benefit for our customers here is a radical shortening of transport distances!

FSL: The essence of the "Forward Stocking Location" lies in the word "forward", which means "closer to the customer". Similarly to the PUDO, the FSL is a kind of miniature warehouse – in this case staffed – that the manufacturer itself operates or has managed by an external service provide such as DHL. It means that the key parts or products can be where they are needed more quickly.

Hub & Spoke: This is a logistics concept that is now used in millions of cases and it owes its name to its similarity with the wheel on a bike, with the hub in the middle and the spokes that radiate off it. These warehouses are not exclusive between one sender and one recipient, instead parts are stored here for many parties and can be sent out in joint bundles to anywhere in the world, which is cheaper and more eco-friendly than sending every part individually.

Crossdocking is a concept that makes use of the time and cost benefits of pre-packaging at the supplier. Consignments then only have to be transshipped at interim warehouses and distribution centers, where they can once again be bundled with products from other customers, lowering the unit costs of logistics for all involved!

Merge in Transit: Another logistics concept we make use of frequently! Here, parts from various locations or warehouses come together somewhere along the transport route to the customer, where they can be re-grouped and taken to the required location more cheaply, quickly and efficiently!

So much for clever logistics concepts. Our next article is about having the "right" inventory. Much of logistics and supply chain management is about making sure that the right amounts of the right things get to the right place on time. So the "right" inventory is a key variable at the start of an interdependent chain of activities. But what factors and variables influence whether an inventory is "right" or not?

More on this in our blog entry 'The "right" inventory? This is how supply chain works!'