The internet has become a mature channel for selling consumer goods, but that doesn't mean that merchandisers have learned how to blend online sales with more traditional retail outlets. The same goes for the logistics end of the supply chain, said Tu. Complicating matters is the recession, which has led to a steep drop in demand. "All of the supply chain has to restructure," he says.
The focus is on reducing costs, in order to adjust to a shortfall of revenues. At the same time, producers must become more responsive than ever before. Information must be immediately at hand, and channels streamlined so that "each echelon doesn't have to communicate [with] each other sequentially." To the greatest extent possible, manufacturers need to shift to a build-on-demand model, while minimizing their reliance on standing inventory. As supply chains get leaner, the margin of error continues to shrink.
Whether logistics service providers can handle these new complexities depends on the company in question. Tu says LSPs must be able to support the retailer in all of its methods for getting product to the consumer. At the same time, they should be careful not to over-invest in systems and physical capabilities, in areas that aren't part of their core competency.
Tu doesn't believe that one provider can do it all. The demands of various industries, channels and customers are too diverse to be satisfied by a single organization. A "boutique" LSP might find it necessary to partner with a larger organization to handle multiple distribution channels on a global basis.
When shopping for an LSP, companies should examine its IT capabilities, particularly in the direct-to-consumer channel, says Tu. Success in that area demands on a producer's ability to react quickly to actual demand. Few, if any, can create an optimal organization strictly on the basis of good planning and forecasting. Most of all, says Tu, an outside provider has to understand its customers' products intimately.
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