Sunday 19th Nov 2017 - Logistics Manager

An agenda for growth

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Logistics is an exciting, vibrant industry that faces many challenges. What influences have propelled it to prominence and what forces are continuing to effect change?

First some macro-economic trends that have helped shape the sector. Arguably the most important of these has been the globalisation of production and trade. While world economic output increased by 2.4 per cent per annum during the 1990s, global trade grew twice as fast. Over the forthcoming decade, global trade is projected to rise by an average of 6.8 per cent a year – again more than double the expected growth in world output.

Globalisation has been fuelled by four principal forces. Firstly the progressive removal of trade barriers around the world and the arrival of new trading blocs, led by the World Trade Organisation. Secondly, the unprecedented development of information and communications technologies – including the most important of them all, the internet. Thirdly, of course, the emergence of cheaper sources of production – through the eastern migration of manufacturing. And, last but not least, the dramatic reduction in intercontinental transport costs.

After globalisation, a second major macro-economic trend driving the sector is the move towards ever shorter product life cycles and the rise of the ‘on demand’ world. Across the globe, increasing living standards continue to raise expectations for new and improved products, fuelling consumer spending. This trend is particularly apparent in the clothing sector, where the development of so-called ‘throw away’ fashion presents a huge challenge for supply chain managers. It’s not just a matter of meeting customer requirements for speed – but also of dealing with longer, more complex, and often continually changing supply chains.

Thirdly, there has been the discovery that integrated supply chain management can offer significant competitive advantage. Much current management best practice is based on the realisation that the ways in which economic activities link to each other has a decisive impact on production costs and quality, along with reaction speed and the ability to adapt to changing consumer demands.

Increased shareholder value
A fourth influence is the continuing move towards concentration on core competencies and the delivery of increased shareholder value. Manufacturers and retailers across geographies and sectors are becoming more streamlined and focused – creating opportunities for outsourcing specialists to apply their expertise to non-core tasks.

And then there are issues surrounding environmental sensitivity and corporate social responsibility. Quite simply, any organisation serious about doing business in the 21st century cannot afford to ignore questions of sustainability, recycling/reuse, carbon emissions and involvement in the communities in which it operates.

So where is all this taking us? My first observation is that with a compound annual growth rate of around 10 per cent over the past decade, logistics outsourcing shows absolutely no signs of slowing-down.

Globalisation. One of the biggest challenges faced by our customers is to continue to meet the demands of globalisation and global competition. To survive in a demanding worldwide marketplace they need to develop smart, capital-intensive and efficient infrastructures to help offset their higher labour costs. To support such organisations, our industry must take an ever greater role in driving efficiencies and cutting costs by designing and managing more fully integrated, end-to-end supply chain solutions. It is conceivable, for example, that service providers will develop closer ties to their customers’ products – via joint ownership projects or ‘gainshare’ arrangements in which their futures become inextricably linked.

Availability vs inventory. Beyond that, probably the most pressing need for manufacturers and retailers is to achieve an optimal balance between product availability and inventory levels in the supply chain. I expect inventory optimisation – explored in some detail in the last Global View (see January-February 2006) – to remain a hot topic in the sector, along with its close cousins supplier management, forecasting and demand-driven (or ‘synchronous’) supply chain management.

Market positioning. A growing problem for logistics providers is the commoditisation of their core services. Major 3PL contractors need to reposition themselves as purveyors of strategic solutions rather than mere tactical services. They must concentrate on increasing the breadth and depth of their service offerings and on creating innovative new solutions. I expect to see much higher R&D expenditure across the sector, as companies invest in developing new products.

Exploiting IT. As we have seen, the rapid advance in information and communications technologies over the past two decades has been one of the primary drivers of globalisation and logistics development. Yet current market research suggests that – although overwhelmingly satisfied in other areas – a majority of client companies are unhappy with the IT capabilities of their 3PLs, and that levels of dissatisfaction are growing.

This is something that the industry really needs to get to grips with in 2006. For instance, we must be more proactive in helping our customers adopt RFID technology – eg by offering real-world trials that demonstrate our ability to capture, manage and exploit the wealth of information that these systems generate. Similar fertile areas for further investment include systems integration, web services, warehouse automation, visibility systems and telematics. Continuing exploitation of new technologies will play a vital role in our transformation from service providers to strategic partners in the global game.

Extending the supply chain. Over the next year, I expect to see logistics service providers extending operations up and down the supply chain and developing their value-add. Some may enhance existing supply chain analysis, modelling, optimisation and other collaborative tools; others may expand into new areas, such as inventory finance – ie assisting customers to finance product in the supply chain.

Additional added-value services to watch include supplier management, QA/compliance management, pick-to-store/shelf, kitting, co-packing and postponement. Also known as deferred completion, ‘postponement’ is already practiced by some drinks, packaged goods and pharmaceutical manufacturers, and involves delaying final consumer packaging/presentation – enabling manufacturers to produce economical runs of standardised products, to be tailored later in the supply chain to local market requirements. This is a key element in delivering additional inventory savings, and is a process that is highly compatible with outsourcing.

Retailers will seek to control even more of the supply chain, leading to further disintermediation – sourcing directly rather than using agents. One result will be increased stock held in distribution centres in the destination supply chain, as retailers attempt to overcome perceived availability issues. They will then need additional support from their supply chain management partners to influence the upstream supply chain – in an effort to minimise these new downstream costs.

Environmental pressures. Eco-environmentalism will continue to drive improvements in materials flow, recycling, ‘coopetition’/shared-user operations, plus the take-up of offsite/urban consolidation centres, reusable transit equipment, consolidation, backhauling, and the adoption of environmentally friendly warehousing and transport systems and equipment.

With new environmental legislation (including WEEE) biting across much of the EU this year, reverse logistics – in particular the recovery and recycling/reuse of packaging materials and end-of-life products – will finally start to take off, along with the number of tactical partnerships among contractors in this area.

Integration and collaboration. Inventory optimisation strategies will lead to continued growth in demand for highly integrated and collaborative end-to-end supply chain management services. This approach will favour the larger, full service, players and ties-in with customers’ moves to rationalise the number of their third-party suppliers.

Global consistency. Companies will also increasingly seek a combination of global best practice and local market knowledge in every arena in which they operate. This will encourage service providers to make further strides in the development of their global networks, as well as in the translation of international best practice and the modularisation of key solution components.

Global customer management. Leading players will also further strengthen their global customer management systems – investing in identifying best practice, sharing information and leveraging knowledge. Such developments will allow customers to benefit from a single point of contact/accountability, easier administration, consistent services across geographies, and a central platform for supply chain visibility.

People issues. Designing solutions is one thing, but ours is a service business and we all depend fundamentally on the quality of our people. Managing supply chains around the clock and around the world creates unique demands on personnel in terms of legislation (eg WTD), innovation, flexibility (eg anti-social hours working), skills, mobility, cultural sensitivity and the ability to communicate the employer’s core values. We must do more to attract, recruit, train, motivate and retain the best people.

Customer focus. Which brings me to my final theme. It is vital that we keep our eyes firmly fixed on the most important consideration of all – our customers. Sometimes customers will require global solutions; sometimes regional or local ones. As an industry we have to better understand our customers and their sectors. We need to adopt a rigorous approach to issue resolution and the pursuit of operational excellence. We must encourage creative, innovative ideas, and become obsessive about continuous improvement. No one is suggesting these things are easy, but we overlook any of them at our peril.

One thing is certain. In logistics, change really is the only constant.

John Pattullo is COO for Europe, Middle East & Africa at DHL Exel Supply Chain: john.pattullo@exel.com