Shrinking product lifecycles, challenging economic times, efforts to control inventory levels: it all comes down to "an absolute laser focus on reducing cost in the supply chain today like I haven't seen before," says Bill L. Spiker, vice president of business development with APL Logistics. In years past, he says, pricing and cost often were the last element to be discussed by logistics service providers and their customers, after functional requirements and quality assurance were met. "In today's world, cost-competitive solutions are an absolute prerequisite."
The challenge is to meet that requirement without sacrificing the quality of service. Spiker sees a new level of diligence on the part of providers, as they seek out those service options that provide customers with the greatest value. At the same time, providers need to be compensated fairly for their efforts. "Companies really recognize today, more so than in the past, that investment absolutely requires a significant return," he says. When a business ventures into contract logistics, it's doing more than just providing a certain amount of real estate and warehouse space. It's investing in racking equipment, rolling stock and information systems. The total cost can run into the millions.
The high cost of providing quality logistics services is causing many manufacturers, distributors and retailers to outsource anything that they don't consider to be a core competency. The burden then falls on logistics service providers to take over the handling and distribution of freight in an efficient manner. Not long ago, says Spiker, approximately 35 percent of Fortune 500 companies were outsourcing the logistics function. Today, the number is closer to 80 percent. "That hasn't happened by accident," he says. "The keenest financial minds ratcheted those numbers."
The precise way to approach an outsourcing relationship varies with each company. At the same time, there are some "commonalities" that characterize all such deals. One is the need to ensure a good cultural fit between partners, based on trust, financial strength and commitment to a long-term relationship. Whether a single logistics provider can meet all the needs of a global operation depends on the parties involved. "But as you look at companies embracing global strategies, there is absolutely clear value in looking at solution providers that can participate in more than one region," Spiker says.
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