Logistics has progressed with technological advances
As with many essential business principles we take for granted today, the term logistics has its origins in the military. During World War I, it was used to describe the process of getting essential supplies including food, weapons and ammunition to soldiers in the trenches. Right from its beginning therefore, logistics has borne a huge responsibility, yet it’s been the unsung hero of success. And over more than one hundred years, the function has evolved considerably.
Logistics has progressed with technological advances, become more efficient with lean manufacturing and altered with globalisation[i]. For savvy companies, the result has been reduced costs, better quality, shorter time to market and increased business agility.[ii] Now we have reached an era where the demands on logistics and supply chain management are at their peak. With more potential points of failure, supply chains are more vulnerable and, on the horizon, lie countless risks of disruption.
An important distinction
Transportation is the movement of goods from shipper to receiver. While indisputably important, this function cannot exist in isolation, and is instead part of a much larger whole.
Logistics, on the other hand, is the planning and response to optimise the efficiency and effectiveness of the entire system, including transportation, storage, cataloguing, handling and packaging of goods. It is based on data, real-time insights and rapid decision making. Logistics sits within the supply chain management operational framework, which links together multiple processes to boost efficiency and achieve competitive advantage[iii].
Rather than consider how they are going to ship a parcel from Point A to Point B, companies today must consider more than just their transportation needs; they must fully harness their logistics and supply chain management function to simply remain relevant in this new era, let alone get ahead of the competition.
A low bar to overcome
The success of a logistics function is measured primarily by the key metric DIFOT: Delivered In Full, On Time. It measures how often the customer receives their order in the expected timeframe. In Australia, the industry average is less than 90%, meaning that 90 out of every 100 deliveries are accomplished on time and in full. The rest are disrupted or delayed for various reasons including bad weather, carrier failures, receiver issues and incorrect estimated transit times. (Incidentally, at efm for the majority of our customers our DIFOT KPI is 96%. We bridge the gap between carrier and customer through a highly trained team that constantly scans the shipment data for emerging issues and springs into action immediately to steer a shipment back on course.)
Most logistics and supply chain management providers simply accept that 10% of the time, a parcel’s journey will be interrupted. For a customer shipping 1,000 parcels per day, that’s three thousand parcels lost, damaged or delayed per month. The result is an inordinate amount of customer complaints requiring response from personnel, let alone the hard costs of damaged merchandise and freight fees.
On top of this already-squeezed logistics function are two forces placing further pressure on companies: complexity and uncertainty. For companies with sub-optimal logistics solutions, they stand particularly vulnerable in the face of these rising challenges. Those however that can adapt will create value for their end customers at the same time as reducing costs. That is, they will carve out competitive advantage.
An increasingly complex world
“Any customer can have a car painted any colour that he wants, as long as it is black.” That was the famous edict made by Henry Ford more than one hundred years ago. His revolutionary Model T motorcar was offered only in one colour to achieve the desired levels of efficiency, quality and cost. How the world has changed. Today, consumers have unprecedented choice, which is wonderful for them but every-increasingly challenging for companies managing near-unwieldy quantities of stock-keeping units and burgeoning supply chain costs.
With the rise of e-commerce giants like Amazon, consumer expectations are changing. No longer is 2-3 day delivery adequate; customers expect to receive their parcels next-day (and we are on the path to same-day delivery), for free. Not only are customers expecting more choice and faster turnaround times, but also tight delivery windows, delivery into regional and remote locations and tailored experiences. This is a trend equally relevant for B2B companies as it is B2C, as consumers’ expectations trickle down to the retailers and service providers they frequent.
Looking ahead, companies will increasingly be faced with structural (i.e. product proliferation), socio-political (i.e. lack of alignment and flexibility) and emergent (i.e. disruptions) supply chain complexities[iv]. The only way to survive, let alone thrive, is to adapt to the complexity. For that, astute business leaders are collaborating with partners, improving inventory management and gaining and leveraging deeper visibility into their supply chains.
The rise of uncertainty
This new-normal comprises not just complexity but unpredictability as well. Traditionally, risks are evaluated based on their likelihood to occur and the magnitude of their impact. For common supply-chain disruptions – poor supplier performance, forecast errors, transportation breakdowns, and so on – those methods work very well[v]. However, we are entering a time of ‘black swan’ events – those that are unpredictable and have potentially severe consequences. COVID-19 isn’t the first black swan event to shake supply chain management globally - 9/11, SARS, Hurricane Katrina, and the Fukushima earthquake all came before – but it may be the one that finally forces companies to fundamentally rethink their risks and potential points of failure.
The global pandemic caused shortages of products like toilet paper and non-perishables. Consumers with more money in their pockets and nowhere to go due to border lockdowns are spending more money at home. As consumers’ behaviour changes, companies must update their supply chains to be more agile and responsive.
Supply chain agility is the extent to which an organisation can profitably manufacture and deliver high-quality products in short lead times and varying volumes in response to volatility in supply and demand. Yet according to McKinsey and Company too many businesses are not reaping or passing on the benefits of an agile supply chain[vi].
The tools to carve out competitive advantage
Balancing supply and demand is an art that requires real-time information and supply chain visibility. The right technology is needed to collect data from potentially thousands of points along a supply chain, and the appropriate level of expertise is required to extract value from the data. With the right technology and a highly-trained team, it is possible to optimise volumes to minimise waste and maximise customer satisfaction.
Very few companies are resourced appropriately to manage their logistics and supply chain end-to-end. Those that are, tend to be over-resourced, employing more FTE than would be required by partnering with a 4PL because it has deep specialisation, size and scale. Those that partner with a 3PL for all their needs experience enormous inefficiencies. It would be akin to driving a 4.0L 4WD through the city five days a week because you might need to take it off-road once or twice a month.
A trusted, expert partner
Too often businesses fail to consider their logistics function and total supply chain as integral to their business strategy. Although this mistake may not be excused, it can be explained. For all of these entities, whether they need to move essential supplies to combatants or widgets to a manufacturer, or finished products to a customer, transportation and logistics is not their core competency. Their focus is on the soldiers prevailing on the front line or maintaining supply, or meeting demand. Logistics is a means to an end. Because it is seen so operationally, its strategic power goes unnoticed. By all but a few.
The Amazons of the world, the Walmart and McDonalds have made their billions based on a business model that appreciates the value of end-to-end supply chain management. But it is no longer the domain of just a few. With the rise of supply chain complexity and with increasing global uncertainty, it is incumbent on every business with any business model to grasp the threat of ignoring this important function and to see the commercial value that lies in harnessing its full potential. This isn’t to say that their core competency must change. Instead, they need a trusted partner whose core competency is logistics and supply chain management to steer them through these complex and uncertain times.
To speak with us about how we can add value to your logistics function and supply chain, contact us.
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