So who needs logistics?

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Are we sufficiently aware of its potential to bring down governments?

As logistics and supply chain professionals, we all know the pivotal role that our profession enjoys for UK plc. Are we sufficiently aware, however, of its potential to make or bring down governments in this time of turbulence in the northern hemisphere?

Economist Uri Dadush, former director of international trade at the World Bank, has stated that “as a main driver of competitiveness, logistics can make you or break you as a country in today’s globalised world”. (World Bank 2009)

The last decade or so has seen considerable changes in the global structure of trade as volume manufacturing has “decamped” en masse from the UK to low labour cost Asian countries. That is gone, never to return unless logistics costs reach the point where they outweigh the benefits of cheap labour and scale production. However, global supply chain costs cannot be completely discounted, especially if the costs of environmental externalities are forced into the equation.

To mitigate this, in some industries there will be an increasing trend towards assembly of product near to each major market. The implication of all this is that if we wish to attract foreign direct investment (FDI) into the UK to fuel economic recovery, we must have a competitive and efficient logistics infrastructure that is able to serve both our own and adjacent markets.

There is an old joke which features two friends packing for a safari in Africa. When one questions why his friend is packing his running shoes given he will never outrun a lion, the reply he gets is that “I don’t need to outrun the lion – I just need to outrun you.”

We need to be able to outrun our near neighbours if we are to benefit from the FDI which would come with a strong offer to global supply chains.

In “The Logistics Performance Index” (LPI) produced by the International Bank for Reconstruction & Development and the World Bank (2009), the UK is only the eighth most competitive economy in logistics terms. What does that mean?

The index is based on six aspects including competence and quality of logistics services, frequency of on time, in full deliveries, ability to track and trace consignments and ease of arranging competitively priced shipments. The performance of every one of those is directly influenced by the skill levels of employees.

So if we in the UK wish to play a major role in the European part of global supply chains we are already in some trouble as eight of the top ten countries in the Logistics Performance Index are uncomfortably close neighbours (Germany was first and the Netherlands was fourth) and they represent real competition when it comes to attracting the assembly and distribution activities discussed above.

But it gets worse. If we look at the Global Competitiveness Report produced by the World Economic Forum in 2009, the UK ranks 25th in the “extent of staff training” index. That’s below all the usual suspects but also below the likes of New Zealand and Iceland. We may well struggle in the medium-term to hold on the eighth place in the competitiveness rankings as the likes of Belgium, France and Denmark rank well above us.

In the light of this, and in an economy which is striving for economic growth, Uri Dadush’s comment carries with it a sense of foreboding.

In 2010 the UK received $46 billion in FDI, less than many of our competitors, including the $51 billion received by Belgium (figures from United Nations Conference on trade and development).

If the World Bank is correct when it suggests that the logistics function is central to attracting inward investment, the value of improving the UK logistics sector cannot be overstated. Attracting just one per cent more FDI equates to an extra $4.6 billion for the UK.

We are putting this economic argument forward to government as evidence of the need to invest in skills in the logistics sector. A note in the House of Commons Library supports this.

If you need examples of this, look at the car industry. At the time of writing, BMW has announced increased output from its UK plants and Nissan has committed to production of the Qashqui in Sunderland.
They have both built the infrastructure necessary to sustain those operations to serve the European market. We should not take others for granted into the future.
So back to the original question – who needs logistics? Right now, I reckon it’s the chancellor, the prime minister and the rest of the coalition government.

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