LOGISTICS AND SUPPLY CHAIN TRENDS 2006

What do the top-performing supply chains have in common?
In the today’s competitive market top logistics and supply chains service providers have a common trait:  the ability to respond quickly to shifts in demand with innovative products and services. To do this, they employ a variety of business strategies and models, coupled with leading management practices. And they consistently measure their performance based on a handful of key indicators:

Perfect order attainment
Demand management accuracy
Time to value
Supply chain cost

These indicators of supply chain performance are the gauges used to monitor the efficiency of the business. The 3PL today provides an integrated logistics solution for the supply chain.

This has fueled the fast growing trends of Third Party Logistics (3PL) outsourcing as companies and businesses continue to concentrate on their core business and outsource noncore business to the experts. The 3PL market has seen continued growth in areas of warehousing, transportation, increased flexibility in tariffs and trades, IT infrastructure, deregulation of conventional government controlled markets and a steady influx of global logistics service providers into Malaysia.

1. Competitive logistics: continued reduction in inventory levels
One key metric of logistics efficiency is the inventory/sales ratio, which measures the level of inventory companies require to support their annual revenues.

The key driver has been the reduction in inventory levels. This is achieved by synchronizing the total logistics services and offering centralized storage and distribution thus reducing stocks at branch levels that have a multiplying effect on costs. Another key driver is consolidation of all logistics services under a single provider and hence achieving synergies and improved coordination. The last attributing factor that cannot be left out would be the economies of scale that outsourced logistics service providers can achieve.  These savings can then be passed to the customer. An example would be the consolidation of less than full truck loads or ‘Less Than full Load’ (LTL). Who are the 3PL beneficiaries of this mega-trend? Those companies, such as Tamadam, that help their customers to operate with lower warehousing, inventory, and supply chain systems costs are all emerging as big winners.

2. Advanced technologies
There is no question that technology has been a major driving force in logistics with most service providers employing a warehouse management system (WMS) to manage the efficiency of inventory, maximize utilization of space, tracking of orders, security enhancement, cost efficiency. The major IT based technologies are:

i) Bar coding
ii) RFID
iii) GPS
iv) Order tracking and shipping

Apart from software technologies improvement and investments in warehouse racking technologies, for example VNA (Very Narrow Aisle) racking, construction technologies, improved trucking capabilities have all added value to the supply chain. 3PL companies are able to invest in these technologies as they specialize in this field and pass the efficiency back to their customers.

3. Trade liberalization
Initiatives to enhance trade among countries and competitiveness in the global market has in a way influenced how goods were moved and traded in an unconventional way. The introduction of the Asean Free Trade Area (AFTA) has seen the introduction of regional distribution centers (RDC) and cross border logistics, both enhancing the supply chain in terms of cost and efficiency. As cross-border transit times become more reliable, logistics firms that eliminate excess inventory and provide high-velocity logistics solutions will become increasingly valuable. The conventional method of shipping has been replaced by road and rail freight. Bonded warehouses and transit hubs have been enhanced and ultimately movement of goods redefined as we witness inroads from Singapore, Malaysia into Thailand, Vietnam and perhaps in the near future China. Goods can now, though a 3PL, be moved on a multi modal transport mode with faster transit time and shorter inventory cycle in particular in the manufacturing industry.

4. Deregulation
Ongoing deregulation will continue to facilitate competition. The deregulation of ports in Malaysia was the first initiative to promote logistics as ports begin to strive more competitively. As a gateway the ports’ efficiency greatly enhances the outsourcing trend as a regional hub enabling multi nationals to concentrate on their core business and continue to outsource their logistics to 3PL. Without good port infrastructure, the outsourcing process would be crippled if movement of goods from the gateway becomes inefficient, more costly and prone to delays. Goods port infrastructure have induced companies to outsource their transshipment hub, international procurement centers (IPC) and value adding their goods. The hinterland of the ports have also grown to supply companies with bonded warehouses, free commercial zones and has made it ideal for outsourcing of export based goods. Another up coming initiative would be the change in tariff duties and replaced by Goods and Service Taxes (GST) which would simplify trade and encourage the managing of the supply chain in the hands of a 3PL. As a result, regulatory changes will ultimately fall on the shoulders of 3PLs, who will become security partners as well as supply chain partners for their customers.

5. Specialized services
This is required for midmarket logistics companies to compete successfully against global logistics giants. In creating a niche market, instead of catering to the outsourcing process as a whole, logistics companies have gone on to provide specialist services, examples of these services are:

i)Reverse Logistics: This service involves the management of reverse flows of product throughout the supply chain. Mass merchandisers such as hypermarkets often see this as a problem and favour outsourcing the reverse logisitics process.

ii)Vendor Management Inventory: is a departure from traditional systems in which a manufacturer maintains their distributors’ inventory levels. The manufacturer gains access to the distributors’ inventory data and generates purchase orders on their behalf.

iii)Temperature controlled logistics: required mainly by the food and grocery industry services include cold storage, blast freezing and distribution of products while maintaining temperature of the product at 0 to -18 degree celcius.

iv)Service Parts Logistics: has become an important part of the supply chain for high-technology and telecommunications companies. This service revolves around rapid fulfillment of high-value parts, large number of SKUs, low inventory turns, high distribution costs and extended supply chain visibility.

v)Dangerous Goods Warehouses: handling of DG goods in the supply chain which encompasses storage of liquid chemicals, firearms and ammunitions, oil and gas.

In conclusion, the logistics marketplace will continue to be a source of growth and opportunity for innovative logistics companies who dare to provide niche services which are increasingly demanded by customers facing an ever more competitive and stringent operating environment.

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