Executive Briefings

Transportation & Distribution: From Local and Tactical to Global and Strategic

Analyst Insight: As the economic recovery proceeds, companies should be changing their sights from mere tactical cost-cutting measures to more strategic improvement initiatives. Productivity increases and cost containment are now considered a given at the leading companies. The bigger benefits are coming from companies that are integrating logistics and distribution more broadly into innovative supply chain improvement strategies.

AMR Research spent a year watching most companies pinch pennies by renegotiating freight rates, cutting staff in distribution, and refining micro-processes for quick cost-cutting returns as would be expected during the economic downturn.  At the same time, we watched the leading companies taking strides towards step-wise change in fiscal and operational performance by analyzing how logistics and distribution played a broader role in overall supply chain transformations. 

Four of the most prominent initiatives and assessments are as follows:

-          Network design and optimization-basic assumptions that were in place 10 years ago when current supply chain network locations were designated are no longer in place.   Cost and ability to serve can be dramatically improved by optimizing network designs in light of current conditions.

-          Sourcing location rationalization-companies are evaluating supply chain volatility and demand fluctuations, lead-times, total cost-to-serve, and inventory levels with respect to offshore/nearshore decisions.

-          Economies of scale-Global scope and cross-divisional processes and systems-with dramatic fuel volatility just a year behind us, companies are still trying to create economies of scale by creating a centralized logistics department to minimize freight costs and to standardize processes and systems across the organization to provide more consistent quality delivery service.

-          Sustainability improvements-with general transportation optimization and cost efficiency in fuel usage being a near 1:1 proxy for minimizing greenhouse-gas emissions most companies are still leveraging basic improvements with transportation management systems.  Although recent research shows still only a 39-percent utilization of such systems, so there is still plenty of room for improvement.

The Outlook

In 2010, we will look to see transportation and distribution processes get more integrated into the demand-driven supply chain transformations going on in most companies to lower network inventory levels and better serve demand at lower total cost to serve.  To support this, we expect companies to continue to gain control over global supply chain networks by using dedicated information system portals to produce transparency across the variety of third parties acting on their behalf worldwide.

AMR Research spent a year watching most companies pinch pennies by renegotiating freight rates, cutting staff in distribution, and refining micro-processes for quick cost-cutting returns as would be expected during the economic downturn.  At the same time, we watched the leading companies taking strides towards step-wise change in fiscal and operational performance by analyzing how logistics and distribution played a broader role in overall supply chain transformations. 

Four of the most prominent initiatives and assessments are as follows:

-          Network design and optimization-basic assumptions that were in place 10 years ago when current supply chain network locations were designated are no longer in place.   Cost and ability to serve can be dramatically improved by optimizing network designs in light of current conditions.

-          Sourcing location rationalization-companies are evaluating supply chain volatility and demand fluctuations, lead-times, total cost-to-serve, and inventory levels with respect to offshore/nearshore decisions.

-          Economies of scale-Global scope and cross-divisional processes and systems-with dramatic fuel volatility just a year behind us, companies are still trying to create economies of scale by creating a centralized logistics department to minimize freight costs and to standardize processes and systems across the organization to provide more consistent quality delivery service.

-          Sustainability improvements-with general transportation optimization and cost efficiency in fuel usage being a near 1:1 proxy for minimizing greenhouse-gas emissions most companies are still leveraging basic improvements with transportation management systems.  Although recent research shows still only a 39-percent utilization of such systems, so there is still plenty of room for improvement.

The Outlook

In 2010, we will look to see transportation and distribution processes get more integrated into the demand-driven supply chain transformations going on in most companies to lower network inventory levels and better serve demand at lower total cost to serve.  To support this, we expect companies to continue to gain control over global supply chain networks by using dedicated information system portals to produce transparency across the variety of third parties acting on their behalf worldwide.