In my opinion Logistics industry can be described as wheels of Globalization and key to the market expansion and competitive product availability to the growing global consumers. Dynamic business conditions and confronting economic conditions are driving globalization. Globalization is resulting due to expanding markets, exploding retail market, product proliferation, ever changing needs of customers, economic downturn, cost pressures, technology, cultural integration and government policies around the world. It would be wrong to assume that globalization influences economy and trade only; we are seeing integration in the areas of culture, media, education, research and development, tourism and even climate change. On political front, we see collaboration and collective approach in addressing daunting challenges we face today. Globalization will make our societies more creative and prosperous, but also more vulnerable and in transforms economies more competitive.
Let us review some vital statistics (Source: Armstrong & Associates Inc.). First let us review the region wise Logistics spend vs. 3PL revenue (2012):
Obviously Asia Pacific Region heads the chart in all categories if we exclude remaining other countries which were consolidated under other countries. It would be worth looking into Asia Pacific region by country in order to identify the growth countries. Top five are highlighted here under:
If we look globally, it would be interesting to compare the numbers and easy to identify the globalization impact on different countries:
It would be very interesting to analyse 2013 numbers as the world trade is not promising. World trade is expected to grow by 2.5 percent this year and 4.5 percent in 2014 (source: The World Trade Organisation). More and more companies are developing agile supply chains and compressing product supply lead time and at the same time reduce the cost of production. In order to achieve all these goals, outsourcing supply chains is one of the solutions. According to CAPGEMINI Consulting 2014 report 72% of the shippers are planning to increase use of outsourced logistics services and whereas the 3PL companies believe that 78% increase in business. Let us hope economy responds well in 2014!
Dwindling global economy is a big cause of concern for 3PL industry. I remember a saying, “When the going gets tough, tough get going.” How relevant it is for today’s situation? Well, what I am trying to say is that we need effective human resources to tackle complex issues resulting due to melting global economy. Unfortunately, Supply Chaintalent shortage is almost threatening the existence of Logistics Industry. We did hear about Inventory shortages, it is strange to learn about Supply Chain talent shortage. My objective of this article is to review 3PL business trends, impact of global economy and how Supply Chain Talent shortage will have impact on Industry.
The global markets for 3PL (Third Party Logistics) services registered a growth rate of 6.8% in 2010 compared to 2009, according to Armstrong Associates. Asia Pacific region is only second to Europe in the areas of supply chain outsourcing 3PL revenues. The below pie graph indicates that Asia Pacific region contributes 29% of the global revenue. Asia Pacific registered a growth rate of 15% compared to 2009.
On an average the logistics spend as percentage to sales revenue is estimated to be 12%. Whereas US, Europe and Asia Pacific are at 11%, Latin America stands at 14%. This only indicates that Asia Pacific market is mature in offering 3PL services to their clients while Latin America is still emerging as a 3PL market. The general perception is that only Transportation activities are outsourced. To certain extent that is true. In Asia Pacific Region, 61% of the total logistics spend is directed towards transportation and 42% is incurred on Warehouse and other value added services. The global average stands at 56% on transportation and 39% towards warehousing and other activities.
It would be interesting to note that only 42% of the logistics spend is outsourced globally and in Asia Pacific it stands at 47% which is highest compared to US and Europe. This indicates that Asia Pacific can be considered as matured 3PL market.
Factors Fuelling the Growth:
Pressure on Corporates to cut costs;
Low Cost Country Sourcing;
Off-Shoring and outsourced manufacturing arrangements;
Focus on Core Competencies;
Ability to expand rapidly and establish business in local markets;
Complex global supply chains.
Global Volatile Economic Trend impacting SC Outsourcing:
According to one report global growth is likely to slow down and is expected to be approximately 3% per year on an average. Interestingly this slowdown is attributed to emerging markets slowdown and any recovery in advanced economies will be offset by the emerging markets sluggish growth. The projected negative growth of emerging markets in 2012 could be mainly due to slowing global trade. This is not going to be a good sign for Asia Pacific markets and in particular for 3PL industry. It is anticipated that the emerging economies will grow around 3.3% during 2017-2025 which is greater than 50% reduction compared to 2011 growth recorded by these economies.
What are the activities outsourced today?
According to CAPGEMINI 2012 Survey, the below are the variety of services outsourced to 3PL Service providers globally.
Domestic Transportation 83%; Warehousing 81%; International Transportation 70%; Inventory Management 66%; Order Management and Fulfilment 65%; Customer Service 64%; Transportation Planning and Management 63%; Cross-Docking 62%; Product Labelling, Packaging, Assembly, Kitting 62%; Freight Forwarding 58%; Customs Brokerage 50%; Reverse Logistics (Defective, Repair, Return) 56%; Information Technology (IT) Services 51%; Supply Chain Consultancy Services Provided by 3PLs 51%; LLP (Lead Logistics Provider)/4PL Services 42%; Service Parts Logistics 38%; Freight Bill Auditing and Payment 34%; Sustainability/Green Supply Chain-Related Services 31%; Fleet Management 26%.
What is disheartening to note is that 24% of the respondents to the survey floated by CAPGEMINI indicated that they would be insourcing the logistics activity. Some of the reasons given for insourcing include cost reductions not realized, some believe that logistics is a very important function and their core competency and not willing to outsource. Diminishing service levels also could encourage the outsourcing community to think towards insourcing.
What is bothering Logistics Industry?
Logistics industry includes the Corporations (known as shippers) and also 3PL Service Providers. Generally, we hear about product shortages in the market place due to improper planning, gaps in business process, due to long lead times and raw material shortages. We are experiencing the TALENT shortage recently.
“ARE YOU PREPARED FOR THE SUPPLY CHAIN TALENT CRISIS?” This is not the title for my next blog article, this is the white paper published by Massachusetts Institute of Technology, US. This article identifies the key skills that are missing in Supply Chain talent today.
It is believed that Supply Chain practitioners need a combination of “hard” and “soft” skills to effectively manage in an unpredictable commercial environment. The above article reveals that “Supply chain analytical skills are necessary and important but not sufficient; sufficiency comes with these other skills.” The “other” skills he refers to fall into the “soft” category, which includes thinking creatively and appreciating the big picture. “Not getting bogged down in the numbers,” is how another supply chain leader describes the blend of skills he looks for. Managers must be able to use not only the analytical tools at their disposal, but also the qualitative output, he explains. This is an important observation in a profession that relies heavily on quantitative analysis.
I strongly believe that in today’s challenging supply chain world, the talent should also focus on managing situations and shortages. Inventory Shortages in today’s world is a certainty and every Corporation in the world goes through the phase of material shortages at some point of time. Supply Chain Managers are expected to manage the situations and fulfil empty promise, and that could be reason 64% of the Garner research survey respondents indicated that problem solving skill as the most important. This applies to 3PL as well. The shippers (outsourcing companies) expect the 3PLs to solve their problems and problems are resolved by humans and that talent seems to be in short supply.
CAPGEMINI 2012 survey indicated that organization success largely depends upon, “ability to Execute and Drive Operational Efficiency and Improvements” as the third most important driver for organizational success. This was agreed by both Shippers and 3PL operators equally. Factors that could affect retaining the talented staff include:
Team Environment (Office Politics plays a vital role in people leaving jobs);
Effective talent review process;
Performance linked rewards.
The above survey reveals that the right people and leadership in place is the number one driver of their companies’ success in the next five years. But the supply chain industry is experiencing supply chain talent shortages.
Even though many shippers and 3PLs share the same concern of talent management and retention is their biggest worry, nothing is being done to save the precious asset of the organization. According to Australian Human resources institute only 37% of Organizations have plans to attack the employee retention problems whereas the rest have no plan in place and press panic buttons when key employees gives the notice. Organizations may have to embrace the activities of the talent cycle (source: CAPGEMINI 2012 Survey) have the ability to ensure a continuous supply of experienced, well-rounded logistics talent.
Source: CAPGEMINI 2012 3PL Study.
3PL industry needs talented people to manage today’s crisis world and deliver seamless solutions to the complex supply chain problems. The outsourcing activity will see tremendous growth when out of the box solutions are offered to the Corporations who are looking for help and solutions in managing their supply chains.