Logistics has always been a critical component of a company’s supply chain, but it’s historically been an overlooked and underinvested cost burden in many organisations. This is now changing, as companies such as Amazon and Alibaba disrupt the logistics industry by developing the function to a point where it’s now a differentiator that drives growth and delivers customer value.
This is great news for the industry. Over the past five years, about $8 billion has been invested in the logistics sector globally by venture capitalists. In addition, the introduction of new technologies such as artificial intelligence, robotics and big data analytics has accelerated digitisation of the sector.
Logistics isn’t without its challenges. Some companies readily point to growing capacity constraints, labour and talent shortages, increasing costs and fuel price fluctuations. However, some iteration of those challenges has been prevalent in logistics for as long as the function has existed.
“Logistics is no longer just about dealing with issues such as reducing logistics costs, managing capacity constraints and closing service gaps. Today, it’s increasingly enabling positive outcomes.”
As company attitudes evolve, logistics is no longer just about dealing with issues such as reducing logistics costs, managing capacity constraints and closing service gaps. Today, it’s increasingly enabling positive outcomes. To unlock greater and more sustainable benefits, organisations need to shift focus to enabling opportunities, such as investing in third-party logistics (3PL) partnerships, evolving their logistics strategy and maturity; and investing in logistics capabilities.
Logistics leaders are working hard to change the perception of their logistics functions and to shift the conversation away from cost and toward value. There are a number of ways they are achieving this
- Supporting overall business objective delivery
It may be wishful thinking on the part of chief supply chain officers to believe that every function within their organisation is perfectly integrated, aligned and in support of the overall business objectives. When it comes to logistics, many companies rollout what has become the industry mantra of “the highest level of service for the lowest possible cost”. A leading approach to logistics, however, must be more imaginative than that.
Leaders are increasingly aligning their logistics strategies with the overall business goals, designing and deploying capabilities, processes and metrics that capture and demonstrate the logistics contribution to overall success. For example, linking how on-time and in-full deliveries contribute to growth in market share through customer experience, or how speed to market can influence long-term customer buying decisions and loyalty.
One of the world’s leading fast-fashion retailers, for example, uses air freight to transport up to 70 per cent of inventory across its global network. The logistics function understands that given the average shelf life of the company’s products is a few weeks, they cannot afford to lose six weeks moving the product by ocean freight.
By being more strategic in their thinking about air freight, this company is able to leverage the lower transit times to drive a range of benefits in other areas across other supply chain functions. The cost of air freight is more than offset by making new products available more often to customers who are willing to buy them now.
Logistics strategies are becoming more integrated as companies respond and adjust to the overall business climate. Assuming one course of action or direction is no longer good enough to support today’s changing logistics landscape.
- Going beyond responding to demands
Given the level of competition in every industry sector, companies are seeking to differentiate their offers and stand out from competitors. Companies like McDonald’s and ASOS are best-practice examples of how to leverage logistics and use it as a competitive advantage.
Expectations on the logistics organisation are so high that companies require their logisticians to think creatively about new solutions rather than simply seeking to process tasks.
A great example is an industrial manufacturing company that successfully deployed a change to the way it engaged with suppliers, which significantly improved its transportation networks and broader distribution operations, including the efficiency of its warehouses. By simply negotiating to collect orders rather than having them delivered, shifted control of the inbound logistics process. It used transport as the differentiator.
Thinking beyond what’s the traditional approach or accepted practice is critical to succeeding in logistics solution design and execution.
- Engaging logistics from the beginning
Being at the end of the supply chain process stream means that logistics is sometimes considered somewhat of an afterthought. Consequently, it’s often left with an almost impossible task to deliver on its goals of consistent and reliable service at the optimal cost.
“Empowering and engaging logistics at the start of the process saves time, effort and expense and uses logistics as the source of subject matter expertise.”
Companies that use logistics as a competitive lever start with what the customer wants, and therefore, they design into the process what needs to be made logistically possible to deliver it. They then work back along the supply chain to understand how upstream supply chain decisions can enable different logistics solutions and ultimately deliver the customer requirement.
Some organisations are fixated on designing the perfect product with the latest materials and in the best manufacturing location. However, they often neglect to consider how that finished perfect product will get to the consumer in a timely, safe and cost-effective way.
Empowering and engaging logistics at the start of the process saves time, effort and expense and uses logistics as the source of subject matter expertise that is best able to standardise or customise logistics capabilities across the organisation.
One of the world’s leading healthcare and beauty companies, for example, views logistics as a key enabler, not only of its supply chain organisation, but also of its overall business. Logistics doesn’t inhibit or constrain what the company is able to offer in terms of product portfolio or distribution services. But what it does do is set out the different possibilities and evaluates the risks associated with each one at the start of the supply chain decision-making process.
David Gonzalez is a research director at Gartner, focused on supply chain. David has more than 20 years’ experience working with international supply chains and global logistics networks within the service, manufacturing and retail sectors. For more information visit www.gartner.com/supplychain.