Logistics Value Is In Service

Miebach Consulting's “Global Logistics Trends Study 2009—Go Local for Performance” indicates 20% of companies globally don't know their logistics costs. In the automotive sector, that number rises to 28%. The good news, says Klaus-Peter Jung, Miebach Consulting, is that 80% do know their costs.

Another interesting conclusion of the consultants is that logistics costs have less impact on corporate bottom lines than production and procurement. They quickly add that a greater significance may rest in the role logistics has as a key driver on service and, therefore, for customer satisfaction. Logistics can influence earnings much more by performance than by cost. In other words: Logistics is no longer only a cost factor but a performance driver for the companies.

The Miebach study drew responses from 350 participants from around the world. It focused on achieving results on logistics costs, outsourcing, network design, technology and automation, supply chain security, green logistics and infrastructure.

Delving into logistics costs, the study showed most of the logistics cost is transportation—seven of the eight industries covered and 11 of the 12 regions rank transportation as a key cost driver. It's also the main area of outsourcing.

The Global Logistics Trends Study confirms both existing studies and the general impression regarding outsourced services, citing transportation as an especially ripe market. But it also shows interesting future potentials in specific services, regions and industries.

The pharmaceutical industry is becoming an increasingly relevant market for third party logistics (3PL). Also, established outsourcing industries will focus on a wider service range in the future. Eastern Europe and the Middle East will lead the future outsourcing market while the Caribbean as well as Middle and South America will remain on a lower outsourcing level with a growing gap between those regions and the outsourcing leader.

In contrast to what companies and logistics professionals might say in official statements, the key driver for outsourcing has been and still is cost reduction. This is true regardless of region and is valid for nearly all industries.

Logistics networks are not only driven by logistics costs. Purchasing, production technology and customer proximity also influence the degree of centralization. For instance, the high tech industry will strengthen its centralized setup where pharma as the current “centralization leader” trends towards a more de-centralized structure.

High tech might be influenced by an evenly growing global standardization in assortment combined with reduced product life cycles, where pharma may be reacting to growing service requirements and regional legal regulations.

The analysis also shows company size has an impact on future centralization trends. The smaller the company, the higher the tendency to future centralization.

Key security problems occur with road transport (73% of the participants), followed by sea transport (30%) and warehousing (24%)—without regard for industry or region. Security problems are most often related to theft, whereas the problems of piracy and terrorism play a subordinated role. Eastern Europe and South America are looked upon as the most insecure areas worldwide.

Surprisingly enough, except for northwest Europe, all of the participants view their own region as much less secure than rest of world does. This is an additional indicator for our general conclusion that global supply chain management needs strong local know-how, says Miebach.

The quality of regional infrastructure differs in the extreme. As key economic regions, Northwest and Eastern Europe as well as North America show significant gaps compared to the Far East in all infrastructure items. In the eyes of the logistics managers who responded, the Far East is ranked at the top in all aspects.

At the other end of the spectrum, South America has been evaluated as the worst region in all items except for telecommunications. Only Southern Europe shows a worse telecommunications infrastructure than South America.

On an international basis, logistics costs are 5% of the cost of goods sold. By region, logistics costs are 5.7% in southern Europe and Middle America. They are 4.2% in both the Middle East and India. By industry, costs are 7.3% in consumer goods, 7.2% in wholesale, 3.4% in electronics and 1.9% in high tech.

Coming back to the 20% (and in the Automotive Industry 28%) of participants who stated they do not know their logistics costs, this is a most striking figure. For us, said Miebach, this indicates a quite surprising deficit and probably a low awareness of the impact of logistics in a noteworthy number of companies. And it shows the huge potential for activity based costing to make an impact.

Among the key cost drivers identified by respondents, increasing transportation (including energy) and personnel rank high. Eastern Europe and the Middle East will lead the future outsourcing market—the Caribbean and Middle and South America will remain on a lower outsourcing level. Miebach states its assumption that the prime reason for the latter is the absence of major 3PL companies in these regions. Therefore, says Miebach, we see market potentials for the outsourcing industry on a long-term basis right there.

Data suggest a correlation between the tendency to a lower degree of centralization and higher EBT (earnings before taxes). It seems that the closer companies are to their clients the more they profit. In short: “Go local for performance” is the success promising strategy and logistics and supply chain management is much more than a cost factor—they are key for customer satisfaction and, therefore, for the overall company success. If this is true—and no logistics professional should be in doubt about that—previous strategies dealing only with cost reduction must be reviewed regarding their impact on sales and customer satisfaction.

To read more articles from the current issue of Logistics Today digital edition, click here.

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