Back to ba­sics: Lo­gis­tics as it should be

New Straits Times - - Business - The writer is founder and CEO of LBB In­ter­na­tional, the lo­gis­tics con­sult­ing and re­search firm that spe­cialises in agri-food sup­ply chains, in­dus­trial lo­gis­tics and third-party lo­gis­tics. LBB pro­vides lo­gis­tics di­ag­nos­tics, sup­ply chain de­sign and so­lu­tio

LO­GIS­TICS is the back­bone of any suc­cess­ful com­pany, and, ac­cord­ing to Michael Porter, a prom­i­nent aca­demic best known for his the­o­ries on eco­nom­ics and busi­ness strat­egy, part of the pri­mary ac­tiv­i­ties of a com­pany’s value chain is man­ag­ing its in­bound and out­bound lo­gis­tics.

Lo­gis­tics, next to trans­porta­tion and stor­age, adds value to a com­pany’s sup­ply chain by pro­tect­ing prod­uct in­tegrity, avail­abil­ity, short cus­tomer or­der lead-time, af­ter-sales ser­vice level, sus­tain­abil­ity, and sup­ply chain costs.

How­ever, con­tin­u­ous cost cut­ting in lo­gis­tics and squeez­ing the last ring­git out of trans­porter and ware­house en­gage­ment has led to com­pa­nies be­ing left with poor sup­ply chain per­for­mance.

Con­tin­u­ous cost pres­sure also re­sults in lo­cal lo­gis­tics ser­vice providers un­der-in­vest­ing in trans­porta­tion and ware­hous­ing equip­ment, in­for­ma­tion tech­nol­ogy (IT), and re­search and de­vel­op­ment (R&D).

How to break this neg­a­tive spi­ral?

The suc­cess of e-com­merce in Asia, where the cus­tomer of­ten pays sig­nif­i­cant de­liv­ery charges, shows that the av­er­age con­sumer sees the value of lo­gis­tics, and is will­ing to pay for the ser­vice it pro­vides.

In or­der to es­cape poor mar­gins, lo­gis­tics ser­vice providers have moved in great num­bers into e-com­merce lo­gis­tics, as a flock of sheep into a fresh green pas­ture.

The e-com­merce boom prom­ises higher mar­gins and prof­its for lo­gis­tics ser­vice providers.

The fu­ture will tell if e-com­merce lo­gis­tics will be this game changer that will bring prof­its back to lo­gis­tics ser­vice providers, or later known in his­tory as the e-com­merce lo­gis­tics mania, or bub­ble.

Nev­er­the­less, I would like to ad­vo­cate the need to change the in­dus­try par­a­digm that lo­gis­tics should not cost any money.

Re­search shows that com­pa­nies that or­gan­ise their lo­gis­tics bet­ter than oth­ers have lower to­tal sup­ply chain costs and are more prof­itable.

Pure cost-cut­ting in trans­porta­tion and ware­hous­ing leads to lower prof­its in the long run.

High-per­for­mance lo­gis­tics helps com­pa­nies or­gan­is­ing sup­ply chains more ef­fec­tive and ef­fi­cient, min­imis­ing in­ven­tory im­bal­ances, avoid an es­ca­la­tion of costs and en­sure high cus­tomer ser­vice lev­els.

Then, how would com­pa­nies do it dif­fer­ently?

High-per­for­mance lo­gis­tics re­quires a strate­gic fit be­tween cor­po­rate strat­egy and lo­gis­tics de­sign, a full align­ment with market re­quire­ments and an ef­fec­tive plan­ning and con­trol of goods flows in the sup­ply chain.

Lo­gis­tics ex­cel­lence re­quires ef­fec­tive col­lab­o­ra­tion with sup­ply chain part­ners, as well as com­pet­ing sup­ply chains, in or­der to achieve syn­ergy ad­van­tages.

Man­u­fac­tur­ers and brand own­ers need to work to­gether with their lo­gis­tics ser­vice provider as equal part­ners, seek­ing to in­source lo­gis­tics ex­per­tise, rather than out­source non-core ac­tiv­i­ties.

As ar­gued by Porter, lo­gis­tics is a core el­e­ment in the value chain, and should be­long to the core busi­ness of a com­pany.

Hence, lo­gis­tics and sup­ply chain man­age­ment de­serve to be a top pri­or­ity area for busi­nesses and a re­cur­rent topic in board­rooms.

Man­age­ment needs to be bet­ter ed­u­cated on lo­gis­tics con­cepts, which should be re­flected in mas­ters in busi­ness and ex­ec­u­tive pro­grammes.

Sur­pris­ingly, lo­gis­tics and sup­ply chain man­age­ment are of­ten not manda­tory sub­jects in th­ese pro­grammes.

Round ta­bles and con­fer­ences could fur­ther con­trib­ute in shar­ing the lat­est knowl­edge and in­no­va­tions.

In the mean­time, fur­ther con­sol­i­da­tion of lo­cal lo­gis­tics com­pa­nies is ex­pected in Malaysia, with the pur­pose to ob­tain­ing economies of scale for lo­cal lo­gis­tics ser­vice providers.

This al­lows lo­gis­tics ser­vice providers to make the long over­due in­vest­ments in equip­ment, IT and R&D.

Due to the at­trac­tive value of the ring­git com­pared with other ma­jor cur­ren­cies, lo­cal lo­gis­tics com­pa­nies will be at­trac­tive takeover prey for Sin­ga­porean, Chi­nese and Japanese lo­gis­tics ser­vice providers.

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