Excellence in Logistics 2004 Differentiation for Performance

The European Logistics Association – ELA – and A T Kearney have just completed their fifth quinquennial logistics study “Excellence in Logistics”. The results indicate that the days of falling logistics and transport costs may be drawing to a close as complexity increases…

The study indicates that increasing product complexity, shorter product life cycles, a global network of suppliers and customers and continuously rising quality requirements are placing heavy demands on supply chain managers. Despite this increasingly challenging situation, they have constantly demonstrated the value of focusing upon supply chain efficiency: logistic costs – as a percentage of sales, and whether expressed in terms of the cost of transportation, warehousing, inventory or administration. – have been cut almost in half since 1987. This has not been achieved at the cost of reduced quality – the number of incomplete deliveries has been reduced from 11% to 6% and the number of delayed deliveries was halved over the period. Moreover, this has been achieved against a background of customer expectations that have risen dramatically.  But, the evidence of this report indicates that the this trend of reducing costs may be leveling out – or even reversing

Figure 1: The trend of constantly falling costs has been finally reversed
This ELA and AT Kearney has now been conducted five times over the last 20 years and is based on sound methodology and wide research – for example, this time “Excellence in Logistics 2003/4” engaged over 100 companies in 14 countries in Europe. It provides a unique insight into what distinguishes those with leading supply chain performance.

A principal finding is clearly that those who focus on their customers’ requirements find that this pays off. Logistic costs are 22% lower overall when there is a relationship with the customer setting the standards. Delivery reliability is significantly better as well. But only 13% of those responding to the survey were in such a relationship. In terms of customer focus, there is clearly scope for much improvement. Nevertheless, since the dotcom boom of the early 90s, there is evidence of an increasing belief in the value of collaboration as the key to future success. Since the last survey, this has proven to be a steady trend, and the amount of information shared between suppliers and customers has increased accordingly. Tools like Vendor Managed Inventory (VMI), Collaborative Planning Forecasting and Replenishment (CPFR), and collaborative capacity planning are used widely. But, there is still a gap between the volume of information exchanged and the actual use that is made of that data: only two thirds of the information handled is actively integrated into business processes.

However, leading companies need to be careful to avoid the complacency. Their goal should be to take collaboration even further as a means of managing the total value chain. Value chain management entails optimizing the entire supply chain, from product design to sales, to increase profitability, and to manage the consequences of increasing complexity. One of the key aspects of value chain management is to gain maximum value from outsourcing to supply chain partners, especially third-party logistics providers and contract manufacturers. Outsourcing is growing continuously as companies come to rely on external providers for expertise in non-core areas. It is more common in operational areas at present, but is likely to gain importance in administrative areas like order handling, invoicing and IT. In parallel, the relationships between companies and their outsourcing partners have matured, with greater demands placed upon suppliers in terms of capabilities, risk sharing and the assumption of full management responsibility for some tasks.

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