SUPPLY CHAIN LOGISTICS: Generating value and return

Feature

posted 9 Jan 2002 in Volume 5 Issue 6

SUPPLY CHAIN LOGISTICS: Generating value and return

Michael Nixon Vice-President Market Strategy at Global Logistics Technologies Inc takes a look at the latest innovations in logistics technology: how to generate top-line value and bottom-line return on investment.

E-commerce and the desire for a competitive advantage are destroying traditional ways of doing business in the transportation segment of today’s supply chain management and logistics is now emerging as an area that can deliver tremendous benefits. Cutting-edge supply chain logistics management solutions from a traditional return on investment (ROI) perspective are vital to a successful business but more importantly the return on value (ROV) from these solutions is the real criterion of significance. Rather than focusing purely on return as a function of cost examining ROV and its impact on revenue customer satisfaction and long-term competitive advantage is a new way of analysing the true bottom line.

Enterprises have traditionally evaluated the acquisition of business application software primarily as a function of return on investment. Certain assumptions were required for this model to provide a meaningful yardstick and chief among those assumptions was the premise that the new system provided a more efficient means of addressing a current set of processes and activities. Moreover and almost without exception these replacement decisions focused exclusively on improving the efficiency of internal enterprise processes.

But the business world has changed and along with it so have the fundamental notions upon which enterprises base their marketplace advantage. Now new business models courtesy of the e-commerce revolution are displacing traditional methods of transacting business. As a result strategies that base competitive advantage solely on current intra-enterprise process excellence are at the very least under threat with a likely fate of being relegated to the proverbial woodshed. Looking beyond traditions one sees the intriguing concept of transforming internal processes functions and cost centres into competitive weapons or even profit centres. As an enterprise looks outward into their value chain – defined as the trading partner ecosystem encompassing suppliers partners and customers – is there an opportunity to leverage internal excellence into inter-enterprise competitive advantage?

Transportation logistics and technology

The traditional model of transportation management is being transformed and redefined by innovative advances in supply chain logistics management. These technologies now encompass all material movements across the value chain from raw materials to finished goods. And now thanks in large part to the advent of the internet as a flexible and robust medium of collaboration and process execution supply chain logistics management strategies may be conceived and executed for immediate and sustainable competitive advantage.

The new complete supply chain logistics management footprint includes:

• Indirect (non-manufacturing) materials procurement

• Direct materials procurement

• Global inbound movements (cross-border)

• Domestic inbound movements

• Intra-enterprise (example: production site to warehouse)

• Finished goods

• Domestic outbound

• Global outbound (cross-border)

Enterprises implementing cutting-edge supply chain logistics management solutions today such as G-Log have recognised the traditional view of transportation management as a cost centre is too limiting and in fact places them in a disadvantageous position vis-à-vis the competition. Second limiting their transportation strategy to domestic outbound (customer centric) finished goods movements is short sighted as well. The real value and hence sustainable competitive advantage will be found in attacking the entire value chain from supplier to customer holistically.

Current issues in global logistics

Three major business forces driving the need to change the way logistics processes operate today include:

E-commerce

E-commerce is a primary factor propelling the forces of increased globalisation and increased customer expectations. The internet and related technologies are dramatically improving the ways in which companies transact all aspects of business with their suppliers and customers.

Globalisation

Corporations continue to internationalise their production supplier and customer bases to exploit opportunities for revenue growth and cost reduction.

Customer expectations

The internet drives everyone’s expectation of a satisfactory customer service experience. Consumer and corporate buyers demand more choices accurate and faster fulfilment and greater value from reliable suppliers.

These market forces are placing new demands on a corporation’s logistics capabilities and those companies without the ability to adapt to this changing environment will be left behind. Corporations with lacklustre and dated logistics processes will not be able to capitalise on the revenue and profit opportunities offered via e-commerce and globalisation. Success requires a cutting-edge supply chain logistics management solution.

The rewards generated from implementing such solutions are many:

Reduce costs

Logistics operations that are segmented – domestic vs. international by mode of transportation or by business division – should be combined into a cutting-edge supply chain logistics management platform whenever possible. A single platform as such eliminates redundant systems and procedures. These solutions reduce transportation costs by pooling purchasing power consolidating freight movements selecting the right rate mode route and service provider and by decreasing partner communication expenses. This type of process and technology change is obviously easier said than done. Success requires a phased implementation that delivers a consolidated innovative transportation logistics management solution at a rate the organisation can absorb.

Take control

Corporations can take control of logistics processes even when they are managed by external service providers. The key to control and more effective decision-making is information visibility.

Information visibility stems from collaboration and streamlined communications with external logistics partners. Control translates into reduced variability and improved customer service reliability. Studies show that the variability in transportation lead times in a supply chain have a tremendous impact on inventory pipeline and safety stock costs – even more so than variability in customer demand.

New business models

Logistics can be a money maker. Effective logistics capabilities – people systems and procedures – are very valuable assets. An increasing number of corporations are transforming their logistics departments from cost centers to profit centers by selling their services to other companies. Another opportunity lies in e-commerce marketplaces. Dominant participants in specific industry supply chains are establishing private marketplaces to improve the operations of the entire supply chain.

These marketplaces can be stand-alone businesses that provide value-added services such as logistics to the marketplace participants.

Increase revenues and profits

E-commerce initiatives and globalisation represent a vast opportunity for revenue growth via marketplace expansion on a domestic and international basis. Most corporations don’t have the logistics processes in place to effectively and efficiently scale to meet this demand. Logistics is a key determinant of overall customer satisfaction and profitability growth – unsatisfactory fulfilment experiences provides motivation for customers to take their business and your profits elsewhere.

The time to act is now. Change will not come easy or overnight. As a result of the business forces of e-commerce globalisation and customer expectations logistics is being transformed from an activity with a pure cost minimisation focus to one where value maximisation wins the day. To reflect the new ground rules systems that are now evaluated with a ROV model that encompass revenue growth and customer satisfaction will displace the traditional approaches that focus only on short-term cost reductions. As businesses look to sustain and grow competitive advantage into the future via inter-enterprise logistics process excellence innovative supply chain logistics management solutions have been propelled to the forefront. Regardless of industry these solutions deliver a significant ROV for an organisation by leveraging existing capabilities and enabling new ones.

Originally published in e-mmerce