by Prof. Dr.-Ing. Andreas R. Voegele
“Forecasts are difficult, especially when they’re about the future” – is a popular one-liner, originally attributed to Mark Twain. Nevertheless: knowledge of future trends and challenges in logistics decisively contributes to companies being able optimally to prepare. This does not involve exact predictions of future developments. Instead, the emphasis is on basing the necessary assessments for all decisions methodically, weighing up risks, recognising opportunities innovatively and deriving a strategic vision for best practice supply network management, which is understood to be a further development of supply chain management.
But what trends can we expect in supply network management over the next few years? In addition to the well known trends, such as global logistics, customer integration, collaboration management (including value creation partnerships), agile/flexible processes and visibility, companies have to adjust to upcoming strategic development trends. These include value based logistics, infrastructure management and financing concepts, network maturity (performance/training, product ramp-up, total cost of ownership), IT integration (logistics IT and telematics solutions) as well as knowledge management and eBusiness.
The challenges that can be derived from all this are extremely complex. In addition to the global networking of companies and customers, primarily customer-specific products and logistics systems, reducing the in-house real net output ratio, shortening innovation cycles and integrated information technologies make high demands on supply network management. Furthermore, logistics is facing additional great challenges through increasing environmental and resources protection as well as rising safety requirements. Alongside procurement and volumes risks, the stability of supply and disposal networks will be tested by environmental disasters, strikes, terrorist attacks and the insolvency of value creation partners. Process changes will also result from expected technological innovations. With reference to end customers’ requirements, the focus of logistics managers will be on improving service quality, reliability, responsiveness and flexibility in particular, which often compete with cost reduction targets. Furthermore, in many cases there still is no cost transparency in logistic systems.
Continually tougher market conditions, such as more intensive innovation and costs competition, changed consumer behaviour, falling customer loyalty and increasing internationalisation, will force companies to realise even more efficient logistics strategies in future. Here outsourcing and service provider integration will be considered as an approach to lower costs, raise reliability and improve competitiveness in almost all industrial and retail sectors. The strategic question of whether logistics or contract logistics services should actually be given to external service providers or if it would be better to keep these services in-house, is thus an issue under continual discussion at many companies. The decision-making criteria can be divided into three areas: firstly, purely logistics criteria such as the availability of logistics information (transparency) and capacity flexibility (seasonal and economic cycle fluctuations) are of significance. Company financial criteria very often come to the fore. These include, for example, costs attributable to logistics or also the required capital needs, and consequently sustainable effects on the assets, financial and earnings situation. The classic “buy” advantages in this connection are if fixed costs can be made flexible and economies of scale for the service provider. Just as decisive, however, are also strategic criteria, such as service quality and the question of whether logistics should be seen as a core competence of the company or if the service provider’s specific know-how brings advantages.
The market offers opportunities for both service providers and for outsourcing companies to the same extent. However, sustainable business models and a holistic management approach are indispensable to use existing opportunities. On the basis of a win-win relationship long term, trusting partnerships that increase value on both sides can come into existence. The top priority is efficiently serving the customer file with a reliable and responsive logistics system (transport network and distribution centres) as the nucleus of an innovative logistics strategy of the logistics service provider. Because the customer’s requirements in terms of convenience, simplicity, speed and flexibility make logistics a decisive success factor in customer retention.
With its wide-ranging expertise the logistics service provider can also contribute to making the first step in the leap from function to process optimisation in the company and subsequently to a customer oriented network. Thus the service provider slips into the role of a network coordinator and increasingly takes over development, planning, management and control tasks. Integrated planning and successful fulfilment, differentiating cost and service targets, optimising the in-house degree of vertical integration and dealing professionally with external company cultures and their integration into existing company structures are additional advantages that a logistics service provider can contribute to the supply network.
Additional opportunities arise from high quality and individualised logistics services (value added services). Here service providers can contribute decisively to improving operational logistics key performance indicators by taking on additional responsibility, thus creating significant added value for their partner companies.
Prof. Dr.-Ing. Andreas R. Voegele is a managing shareholder of ConMoto Consulting Group GmbH and the Chief Executive Officer of the Austrian subsidiary.