LOGISTICS Trade Cost Reductions with increase in Profit Gains

1. Trade Logistics Cost Reductions
with increase in Profit Gains
Presented
By
Luis Cabrera
03/10/2013

2. Presentation
• Opening statement
• Abstract
• Capacity Investment
• Operational Costs
• Profit Gains
• Supply Chain Logistics Operational Cost
– Demand planning
– Inventory planning
– Procurement planning
– Production/sales planning
– Production lines/sales team balancing
– Customer Sales order processing
– Invoicing and picking processing
– Transportation
– Transportation Capacity planning
– Delivery route planning
– Staging and truck loading processing
– Sea/Air freight forwarding (import/export) in-land transportation
– Waste/spoils/damage control processing
• After sales/service process
• Economic threats posed by neighboring Asian countries
• The development of human resources

3. Opening statement

4. After the second world war, Asian economies have been continuously
growing, fueled by the expansion of Japanese International Joint Ventures in
ASIA, though to some extent with significant up and down fluctuations, due to
long economic recessions in Japan, Europe and the Americas; whereby
China is probably the most affected, besides collateral effect in the Japanese
economic performance
Nevertheless, Japan economic expansion and growth has not declined and
will continue its trend over the next decades, as the economies in ASIA get
stronger and stronger, in spite of global economic fluctuations in the European
Union, the Americas and Thailand domestic political crisis

5. The question for Thailand Entrepreneurs is how to take advantage of this unique
economic position which is not comparable with the economy of the rest of ASIA
One way to answer this challenge is through improvements in their Trade logistics
Cost Reductions focus in added Profit Gains; by sustaining and expanding their
installed production/trade capacity and increasing effectively their net capacity
utilization achieving optimal production/trade yields and rates
Thailand leads the Japanese International Joint Ventures in ASIA, and this means
that trade in Thailand will continue growing in all Industrial Sectors, with its ups and
downs, reflected mostly in the services and retail sectors

6. Installed Production/Trade Capacity, Logistics
Operational Costs and related Profit Gains

7. Abstract
Today we are going to talk about installed Production/Trade Capacity, its Logistics
Operational Costs and its related Profit Gains; but first we have to define and
differentiate production/trade capacity investments from operational costs,
operational waste, production/trade yields, production/trade rates, and its financial
impact from its production/trade operations profit gains
Then we will talk about the threats posed by its neighboring Asian countries for
Global Economic Gains
Finally we will close with observations over what is happening in the development
of human resources and where are the gaps that need to be closed to continue
having the lead and competitive advantage edge within Asian countries

8. Capacity Investment
Profit Gains
Operational Costs

9. 1.Capacity Investment
The size of any production/trade facility, their technology in place, and their
operational processes systems, are determined by their financial investments made
to build, install and operate their production and trade capacity; which includes plant
facilities, production/trade machinery and equipments, processes quality, and
human resources skills operating their facilities capacity installed
Investing in capacity has nothing to do with operational costs; as with or without
operations, the facilities investment expenses are fixed and need to be covered.

10. The capacity installed is there to be used and whether the capacity is
sufficient or short from requirements; the capacity is build based on a strategy
supporting the Entrepreneurial Goals and objectives
The financial investment made to build the capacity is reflected on all fixed
expenses; which they need to be differentiated from the typical accounting
cost concept

11. Investing in capacity is not a cost, and Enterprises with large capacities and those
with small capacities are in competition with each other for the same markets within
the same industries, though in different competition scale
The key factor is how to use their existing capacity; how to meet the challenges of
the market and the industry with the existing capacity, how to prepare oneself to
meet the future with the existing capacity and how and when to expand it
This is where a vision for the future and strategic planning is required; though not
every enterprise has the skills and resources, neither the interest to see into the
future, or to plan and prepare for it through investments in capacity expansions

12. 2. Operational Costs
In the Supply Chain Operational costs, there are two major important factors
affecting profit gains; one is the production/trade yields, and the other is the
production/trade rates
When the enterprise capacity is used in the best operational way; this means that all
standard operational procedures have been thought in great detail, covering all
potential and possible risks of creating waste, spoils and damages which increase
unnecessary operational costs, using innovative technology and having the best
technical and management skills in human resources available

13. Capacity provides a strong platform with competitive advantage
over all competitors
When the production/trade process is also designed in great detail to get the maximum
possible yields and rates; this means that all production/trade systems are fine tuned to
provide maximum coordination, communication, flow and synergies to give the most
operational cost effective production/trade throughput with zero waste, spoils, and
damages incurred in the production/trade process
How to make sure that you are getting optimal production/trade yields and rates
The answer to that is found in your human resources technical and management skills,
including your workers operational skills, tools and technology available, with a proper
human resources, and facilities management system, with sound company policies,
rules and regulations, including attention to maintenance and vigilance of the
production/trade operational processes in place

14. We do not focus on meaningless operational costs reductions
But rather on getting maximum production/trade yields and rates, with zero waste,
spoils and higher capacity utilization, with a view to promote expansion and growth,
Rather than focus on penny cents cost cutting practices, creating processes
bottlenecks, inefficiencies, with low production/trade yields and rates
Reducing considerably the profit gains and the capacity utilization at the same time,
with very low productivity, and declining production/trade yields and rates

15. 3. Profit Gains
Price - Profits are the results of gains generated through the conversion of value
created in the production/trade operational processes, less all costs, expenses
management fees and percentage margin included and accepted in their industry
The price structure of Finished Goods/Services from production/trade included in
the accounting system are all fixed expenses; expressed as capacity financial
expenses, as well as other operational expenses like utilities and communications

16. However, it is really in the accounting variable costs where we can see and analyze
the actual operational costs incurred in the production/trade activity, and observe
how they relate to their existing installed production/trade capacity utilization
We can see from the pricing point of view, how the production/trade activity capacity
installed expenses, and its corresponding variable costs are covered, and see what
is left generated as a profit gain or a result as profit losses

17. Supply Chain Logistics Operational Cost
•Demand planning

18. 4. Supply Chain Logistics Operational Cost
•Demand planning
Without a deep understanding of the demand planning or sales forecast process,
you will either miss real sales opportunities or over estimate your sales, incurring in
high operational costs and profit losses. Proper Demand planning leads you to have
almost accurate sales forecasts, which will trigger correct business decisions
Use a Statistical Process Control chart to understand each sales item trend and get
your sales staff to understand it correctly including their sales promotions effect,
without entering into the guessing game of macroeconomics discussion; also get
your marketing staff involved in the demand forecast brain storming process; the
cost of not doing it, and its profit gain losses are so high, that you cannot afford it

19. •Inventory planning
Supply Chain Logistics Operational Cost
•Procurement planning

20. Inventory planning
Your money is where your inventory is; if you are short of the needed items or
over stocked with the wrong items, you are losing profits and financing dead
inventories, plus spoils, damaged and at the end, financing real waste
You need to be very precise in determining how much inventory you need to
have on hand and maximize their turning around, the faster you turn your
inventories, the faster you are recovering your inventory investment and making
more profits, and by having your AB inventories under tight control and
managing your obsolete slow moving CD inventories, it will help you to generate
profits and minimize cost
Consider the first 65% to 85% of the sales items to be in your group AB, and
then your items from 85% to 95% to be within the group C; then get rid of the
rest of the slow 5% moving items in the group D, and refine the group C into
group Ca, Cb, Cc then try to do without those items in the group Cb and Cc if
you can; in that way you will end up only with the items that bring you about 90%
of your sales; then manage those items in the best way possible, without
shortages/over stocks

21. Procurement planning
If you have a large storage facility you will end up using it; the question is whether it
is filled with the right items and the right inventory levels; besides the financial
expenses you have to consider the total expenses from ownership, and for that, you
need to consider the costs of: stocks transportation, handling, holding stocks,
packaging, damages, other purchasing and warehousing administration costs
Consider the competitiveness of the price that you pay for the items; what if you
order only what you need and get it delivered just in time with a minimum buffer
stock, rather than ordering because the purchase price is attractive or fit one truck

22. When you negotiate the purchase price of anything do it with one, two or three
years demand volume in mind; check on your supplier items quality, their quality
control process, and see if they really match your process quality requirements; if
not, then you are wasting money
When you decide to purchase anything, what matters most is that supplier meet
your items specified quality parameters, then its ex-factory price, decide who
should carry the stocks, you or your supplier and at what cost and shortages, or
over stocks risk; do your ownership cost analysis before you decide your purchase

23. Supply Chain Logistics Operational Cost
•Production/sales planning

24. •Production/sales planning
Your production/sales process has to be optimal; anything below optimal point is
considered a lost due to waste, low production/sales yields and rates. It means you
are not using your installed capacity to the best of what you can do with it; which
reflects your management skills, resources and capacity available waste; including
poor usage of your installed technology and human resources; waste means high
operational cost and profit gain losses
You need to have the highest possible production/sales process quality standards
that you can manage; define clearly your process quality standard parameters and
commit to meet them over and over to eliminate waste, and to improve your yield
and rates; zero waste means lower operational costs and higher profit gains

25. Supply Chain Logistics Operational Cost
•Production lines/sales team balancing

26. •Production lines/sales team balancing
To achieve higher production/sales yields and rates, first you need to have your
production lines and sales teams balanced in all your process components;
imbalances generate process bottlenecks, waste, lost time never to be recovered
Balancing the lines/teams is a serious exercise which requires detail operational
process analysis, strong technical skill and process knowledge; without knowledge
your operational inefficiencies generate waste, higher cost and low profit gains

27. Supply Chain Logistics Operational Cost
•Customer Sales order processing

28. •Customer Sales order processing
Getting a customer is the hardest part of the production/trading process, and
loosing the customer is the easiest way in the process
Not attending properly a customer sales order is like throwing away a customer,
processing the customer sales order with mistakes is the easiest way to lose a
customer; the cost of getting a new customer is extremely high compared with the
cost of attending a customer sales order with zero mistakes
This includes deliveries 100 % in full, complete and on time at all times, within the
receiving window time, fully documented, without rejections due to damages, spoils,
or wrong items

29. The production/trade process is most vulnerable at the time of processing a
customer sales order, when a mistake is done at this stage, all operational cost is
increased in multiples and so are the profit gain losses; worst case is the customer
loss of credibility for your company performance, and risk of losing the business
Doing everything that you need to make the order processing right, the first time and
at all times is what you need to minimize operational costs and maximize profit
gains

30. Supply Chain Logistics Operational Cost
•Invoicing and picking processing

31. •Invoicing and picking processing
Once the customer sales order processing is perfect, you are one step ahead of
making profit gains and minimize operational cost
Next you need to have great efficiency in you invoicing and picking process with
100% accuracy
This means your ERP computer system is accurate, reliable and flexible, matching
your WH operations, and your warehousing process is one of your best operational
tools to get the customer order goods picked and ready for delivery with 100%
accuracy, in full, complete and with zero mistakes
There is no room for mistakes at all

32. Supply Chain Logistics Operational Cost
•Transportation
•Transportation Capacity planning

33. •Transportation
Transportation cost can become one of the major contributors to total operational
costs; this includes inbound and outbound transportation regardless of what mode
of operation you decide to use
If you own the trucks fleet and manage it professionally, you could have
considerable cost saving; but if you do not have a professional truck fleet
management, your transportation cost can be even higher, as this is one is the
easiest way to get into corruption practices
If you use a truck fleet owner you are paying for the services with little or no control
at all on the service price which is your cost

34. If you use a third party logistics, you will end up paying a premium brand price for a
similar service as if you were using a truck fleet owner without any additional benefit,
except for nice marketing talks and public relations meetings, selling to you their
company brand image as a benefit
You have to get to know your trucks purchasing cost, maintenance cost, fuel cost,
driver salaries and over all company transport administration cost
Transportation fleet trucks capacity is not a cost but an investment expense which
needs to match your requirements and overall business goals, objectives and strategy

35. •Transportation Capacity planning
The planning of your transportation requirements needs special assets and
operational cost analysis consideration, as it has financial impact on your taxes
level, and in your profit earnings, as well as a direct impact on your assets ratios
The choice is based on your financial strategy, whatever way you choose, the
operational costs are real, and the total cost of ownership has a financial impact

36. A third party transportation contractor will not bring that quality of management
required by your company, as it will only bring additional cost and a brand name to
display in your management meetings.
With the same token, a transporter company will only provide what they can only
provide to a third party transportation company; the trucks and driver and nothing
else to your benefit
So if you are serious about having an optimal company’s transportation, you must
invest in capacity, with proper operations management and the right trucks size

37. Supply Chain Logistics Operational Cost
•Delivery route planning
•Staging and truck loading processing
Sea/Air freight
forwarding
(import/export)
in-land
transportation

38. •Delivery route planning
Your delivery route plan has a direct impact on the day to day transportation cost, it
includes the transportation capacity utilization in kg /m3, maintenance cost, fuel
consumption and related costs, travelling speed, traffic jam wasted time, waiting
time at customer site, and customer delivery satisfaction which has a hidden cost
from losing the business, or cost of fixing a problem with an un happy customer
Planning is very important as there are not 100% fixed routes, due to seasonality,
road constructions, and other factors affecting the full trucks capacity available
utilization, which at the end is money wasted if it is not used to the fullest capacity

39. •Staging and truck loading processing
Optimal production/trade yields and rates mean zero waste, spoils and damages; in
the transportation operation it means operational speed, zero waiting time and
100% accuracy. Your customer sales orders have to be processed within a tight
schedule, with picking list, invoicing, delivery documents, routing truck allocation,
picking, staging, dispatch inspection, loading and outbound departure control
All within a zero errors operational process in full and on time to meet the customer
inbound window time, regardless of traffic jams and other bottleneck situations
Trucks have to be taken as any other production machine, with optimal preventive
maintenance, high skilled drivers, zero truck breaks down risk and road accidents
This is achieved by professional transportation management, just as professional as
it has to be the sales and production management; it needs to be internally
controlled

40. •Sea/Air freight forwarding (import/export) In-land transportation
Your decision to transport your import/exports by Se/Air or by Land transportation is
always based on your particular requirements in time and geographical location
The optimal cost is not really on your control as transportation tariff rates varies from
service provider to service provider, which supply different levels of trust, reliability,
safety, security in handling your goods or materials cargo with different credit terms
and information accuracy throughout the whole service from end to end
Other customs clearance expenses are rather standard and their commission is
based on their service quality and market rates. So there is not much to save on
your transportation operation; however, at the end, you pay for what you get

41. Supply Chain Logistics Operational Cost
Waste/spoils/damage control processing
After sales/service process

42. 5. Waste/spoils/damage control processing
Without a business vision, clear goals, objectives and a sound strategy, there is no
planning, just a day to day routine work, waiting for the business to come alone and
uninvited. The result of lacking strategic plans lead to waste, spoils, damage and
eventually lose control of the complete production/trade operation
Cost reductions do not mean and will never mean cutting on electricity/water use,
stationeries, employees financial benefits, plant facilities maintenance, production
and trade machinery and equipment, workers/supervisors/management skills cost
That practice leads to waste/spoils/damage/low employee morale and operational
process control as the direct message is, you are not going to invest in the future, in
other words there is no future to go for

43. Do not fall into the macroeconomics gossip displayed by the news, coffee talks
and other government political news
To trust the news, it only shows clear ignorance on economics and marketing
knowledge, as well as to understand how technology and market forces affect
globally each nation
To understand what are the industrial economic processes, how innovation
technology plays an important role in the economic performance and how
marketing influence markets, you have to read and listen not from the news media,
but from international institutions such as the London University LSE, MIT, Harvard
and many other well known universities with expertise in these fields

44. You have to read and understand the history of economics and political power, as
well as the history of innovation technology, the history of social developments and
reflect that knowledge in your business vision, goals, objectives and strategies
Waste comes from all operational areas, lacking professional management skills,
down to the worker skills, reflecting the overall production/trade performance
measured in low yields, rates and profit gains
To minimize waste focus on growth; manage capacity expansion and go for the
future, developing the highest skills possible within your organization; make use of
the available technology and invest in capacity and technology for your future

45. 6. After sales/service process
Customer is king is being said over and over
However that is true for as long as it falls within your business vision, goals,
objectives and overall strategy; customers have to be analyzed with that long term
view, and not with ABC or Pareto analysis
The whole organization, production/trade operations have to be build to do one
thing perfect; that is to be able to provide the goods/service to your customers and
to the markets where all other potential customers are, or will be
In this way you are creating a sustainable production/trade operational costs
reductions

46. Economic threats posed by
neighboring Asian countries

47. 7. Economic threats posed by neighboring Asian countries
International Japanese Joint Venture with Thai companies are the top target for all
neighboring countries, as Thailand resources and consumer markets outnumber
similar resources and markets in other Asian countries, excluding China and India
In this respect you have to consider China not in direct competition with Thailand as
other Asian countries are; however India is included among the competitors group
with direct investments in Thailand and Joint Ventures with Thai companies, focus
on Thai domestic markets, competing with local companies as Japanese do
The Asian government’s policies and infrastructure support to their home base
companies play an important role in the competition for International Joint venture
financial resources and international markets, within ASIA

48. However, Japanese International Joint Ventures penetrate each country with a long
term view, to cover domestically their markets consumer’s demands, and make use
of their available resources in manufacturing, retail and services reducing the
market share ground for local companies in each Asian country
In this respect Thai International Joint venture companies have the opportunity to
expand their markets within ASIA, although this apply not only to International Thai
Japanese Joint Ventures, but to all Thai companies, wanting to expand their
products market share in ASIA
There are also the European Union and Americas Markets with greatest
opportunities for all Thai companies

49. Other difficult markets exist in the Middle East, South Africa, China and India, as
well as other easy markets for Thai companies in Myanmar, Laos, Vietnam and
Cambodia, and harder competition in Malaysia, Singapore, Australia, and Korea
There are several trade barriers, one being cultural differences, reflected in trust and
discrimination, another is ASIAN foreign languages and Business Management
which differs from the European Union International Business practices, which suit
best to Thai Business Management culture and style rather than copying from the
Americans or Japanese management cultures and styles among others
European management culture and style applied in Thailand, accelerate the speed
of generating higher yields and rates with sustainable profit gains, and minimum
waste, with best management practices and use of plant capacity and technology

50. The development of human resources

51. 8. The development of human resources
Professional Education is the key to success in business, from top management to the
basic worker level; they all need training, couching and continuous learning of best
operations practices, operational processes; use of innovative technology and deep
learning and understanding of general systems thinking process
The existing gap at all levels from top management to worker has its origin in the Thai
education system, which differs greatly from the European education system, besides
cultural barriers such as tradition, and technical skills, discipline and the human touch
which is pretty much a priority in the European management culture
Thai companies need to have a closer look at European management culture, style and
focus on technical skills development, and human behavior science from the European
point of view, rather than from Thai or American or Asian point of view

52. This will benefit more to Thai companies in the long term, once their management
improves in all counts, influencing and affecting the production/trade yields, rates
performance, with greater profit gains and confidence in the company’s future
European companies, traditionally are very comfortable doing business with Thai
companies, whereby Thai culture and language are not a barrier as Europeans
are interested to understand deeply the Thai culture and learn Thai language
Europeans mix around socially with all Thai people at all social and business
management levels, creating a culture of two ways fair communication and social
values sharing