Economic quantities - or a pallet's tale
This is the story of an old but wise pallet. Over the years, it has seen supply chain thinking evolve and lived through many changes.
Many years ago the pallet would have only ever been shipped full or retrieved empty. But about eight years ago our pallet began being shipped even if only part full, because customers were no longer happy to wait. The cost of slow customer service or extra stock for the sake of filling the pallet was greater than the loss of 'local optimisation'.
Today, our pallet is often shipped with a combination of products on it. It is told that the advent of radio frequency identification (RFID) tags will make it even easier to combine its content while speeding up the chain. Sometimes, it is even lucky enough to be managed by a fourth-party logistics provider, so there are even fewer empty journeys.
However, our pallet keeps catching glimpses of the past. Minimum order quantities (MOQ) and economical batch quantities (EBQ) are causing conflict and frustration. They are leftovers from the old 'local optimisation' school. They often cause the pallet to carry much more stock than is required, sometimes causing it to sit around catching dust before eventually having its content written off.
Our pallet does not understand why MOQs and EBQs are still so powerful. Surely with most businesses needing to follow the 'pull' approach, driven by demand because of over-capacity and strong competition, it does not make sense to keep performance drivers that will push stock through the chain?
But the pallet knows change does not happen overnight. Eventually, these drivers too will be reviewed in line with faster and leaner supply chain thinking. It will require training and education of the practitioners and suppliers. Some will only happen once the management has worked its way down to the root causes of its challenges.
Our pallet will just have to be patient as the story continues ...
Hugh Williams is founder of supply chain planning specialist Hughenden
