Economy of scale is great when you’ve got it, Bill Waddell says. The problem comes when you try to create it out of thin air. Freight is the tail, not the dog:
Peter Drucker, in an amazingly forward looking article he wrote way back in 1990 called “The Emerging Theory of Manufacturing,” wrote “the new system sees the plant as little more than a wide place in the manufacturing stream.” Just how “wide” the plant is depends largely on just how hung up the freight people are on gaining economies of scale from truckload and container load shipments to save a few percent on the material cost. In way too many manufacturers the drive to save pennies from truckload scale sabotages the entire lean effort.
Buy stuff from China — or from two states away for that matter — when you only need a pallet a day of whatever you are buying to meet customer demand. The freight guy, aided and abetted by cost accounting, and measured and given raises and bonuses based on freight cost as a percentage of material cost, raises a ruckus and makes an eloquent case for buying truckloads of the material — a month’s worth at a time. So instead of paying 6% for a bunch of LTL or LCL shipments, he pays 3% for truckloads and container loads.
Instead of Drucker’s stream, you end up with a dry creek bed for 3.8 weeks, then a dam burst akin to the Johnstown flood. Floor space is consumed, racks and forklifts are wearing out, material handlers are working overtime, transactions to keep track of it all, cycle counting programs flourish, and each item is handled multiple times — but the freight guy saved his 3%. All that other stuff is just overhead which can’t be directly tied to the individual material items — so it isn’t entered into the equation. And, of course, not factored into the metric used to measure the freight person’s performance.