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In the last article, it was identified and established that Supply Chain is the key enabler for business growth. It is time now to understand what measures within supply chain drives supply chain excellence. As shown in the below figure, five elements contribute towards supply chain excellence. It starts with People, Quality, Velocity, Cost, and finally Agility to react to the dynamic business environment.

SC Excellence 1

In this article let me share my experience about how people can effectively contribute to the success of the business.

People:

Bill Gates once said, “Success is a lousy teacher. It seduces smart people into thinking they can’t lose.” Success is not a permanent partner, success is a visitor in some cases, and hence, people may have to pursue the path of continuous improvement to sustain in this challenging environment. “Success consists of going from failure to failure without loss of enthusiasm”. If one critically examines the only difference between successful people and the rest is nothing but lack of will to succeed.

In order to be successful in business we need a leader who can articulate the vision and goals of the organisation and along with him we need group of people whom we can call them as cohesive team. In order to be a successful team we need few critical attributes and they are:

Engagement – It is a challenge to any organisation to create an environment where employees who are part of the cohesive team understand the organisational goals and commit to the organizational vision created by the leader. Job engagement and organisational engagement leads to employee engagement. Happy employee is a productive employee. Hence, it is a key measure.

Leadership – It is an old school of thought that there is only one leader in the organisation. Yes, there is one leader at the top and he/she needs leadership support from many functional silos. It is essential that these emerging leaders should be trained in the areas of Communication; Motivating teams; Team building; Risk taking; Vision and goal setting. Last but not least is to recognize and reward the team’s performance. Say at least thanks for their contributions.

Think outside the box – Today’s business is dynamic, volatile and challenging, and the ability to improve continuously is very critical to the success of the organisation. The core driver to make your team to think outside the box is to deliver competitive differentiation in the market place. Due to product proliferation, there is no dearth of choices to the consumers, the product has to be unique and deliver total customer experience. This process is not static and it is continuously evolving. Unless one develops ideas and transforms them into reality that meets tomorrow’s customer needs, it would be highly challenging to survive in the market. Thinking is unlimited, there is myth that humans use only around 10% of their ability to think. It is not thinking that matters, Lateral thinking is the need of the hour!

Team Work – Success of any team depends upon the team work and team’s collective strength and wisdom. The best teamwork comes from group of individuals who collectively agree to work independently and together towards one identified organisational goal in unison. Let us not forget ““The strength of the team is each individual member. The strength of each member is the team.” In short WE = Power of Success!

Change Management – “Change is the law of life. And those who look only to the past or present are certain to miss the future” John F. Kennedy. The world is changing in other words, it is evolving and if you live in the past and deliver a product belonging to yesterday for tomorrow’s world, the outcome would be disastrous. Obviously change is driven by a vision, get your vision right, build a team that could deliver your vision, empower the team, celebrate short term successes, and most importantly communicate and deliver the change message periodically. Change ushers exciting opportunity and at the same time could deliver loss, disruption or threat to some organisations. How such change process is managed can be the difference between surviving and thriving in a work or business environment. Change management should be developed as an inherent characteristic of any organisation who would like to survive and thrive in this world.

Perseverance – As mentioned earlier success is a visitor if you fail to pursue it consistently, it will desert you. In my opinion one may face many defeats in our journey in search of excellence, but you should never get defeated. The defeat teaches the critical lessons to how to succeed. Whereas success only makes you complacent. In order to manage sustainable success, it is absolutely necessary to be persuasive. Abraham Lincoln once said, “I am a slow walker, but I never walk back.”

Continuous Improvement – “Excellent firms don’t believe in excellence – only in constant improvement and constant change” Tom Peters. We can write tons of information how we can achieve continuous and sustainable improvement through the leadership vision and team work. Let us examine a case study which delivers invaluable information how continuous improvement in supply chain delivers competitive advantage in the market place.

Supply Chain Excellence2
Note: Please double click the image to see it large.

The human being is yet to invent an automated system that could foster sustainable continuous improvement in any field. It is all driven by the committed teams all around the world. Team of individuals is not a system, it is the group of people with commitment to make tomorrow a bright one and with emotions to win with persistent efforts and with a faith to turn hopeless failure into glorious success.

Any business organisation must have a clearly identified unique core objectives which differentiates the organisation with competitors. The so called differentiation comes through innovation of the people in the form of enhanced technology, improved quality, cost competitiveness, total customer experience. All these factors are articulated by a leader and implemented by the group of people whom we called an integrated and cohesive team.

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Globalisation 4

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):

Globalisation 1

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:

Globalisation 2

If we look globally, it would be interesting to compare the numbers and easy to identify the globalization impact on different countries:

Globalisation 3

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!

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Establish positive attitude and demonstrate your integrity to engage the team; and engagement leads to commitment and commitment results in enhanced productivity and improved productivity produces economic benefits to the Customers (Superior Quality and Cost Effective Products), Shareholders (Improved return on Investment), Employees (Career Growth and Job Certainty) and to the Organisation (Improved Brand Equity and Superior Financial Results).  Supply Chain is a team game and without cohesive and collaborative team you go nowhere.  In order to achieve all this; one should have the right attitude.  Someone appropriately commented that, “a bad attitude is like a flat Tyre, you can’t go anywhere till you change it”.

Positive attitude leads to great leadership and great supply chain results (Source: Gartner Supply Chain Top 25)

Top 25 SC Companies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

last 4 years comparison top supply chain

 

 

 

 

 

 

 

 

 

 

Believe in creating a successful future and not predicting the future!

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Third-Party Logistics Study 2013 on the Logistics Outsourcing Trends was released.  I would be focusing on some of the elements outsourcing-1of the findings to add my perspective to Logistics outsourcing. Outsourcing is a magical word that pretends to address many complex issues of reaching the product to the end user.  The reason I am using the word pretends due to mixed responses received from the end users known as shippers over a period of time.

In spite of financial downturn, the global revenue of 3PL operators is growing and in my opinion the downturn could also be one of the reasons.  In these difficult days, shippers would aim for cost savings and look for a partner to share risk and avoid capital deployment. And this action could trigger outsourcing. However, organisations that have successfully developed and implemented effective supply chain risk mitigation plans often apply new thinking to traditional risk mitigation strategies. About 65% shippers have indicated that they are increasing their use of 3PL services than returning to insourcing (22%) some 3PL services. Nearly three in five (58%) shippers are reducing or consolidating the number of 3PLs they use.

According to Armstrong & Associates 2012 study the global revenues of 3PL operators have risen by 13.7%.  The gains are mostly recorded in Asia Pacific Region (21.2%) and followed by North America (7.2%).  Whereas regions such as Latin America recorded impressive growth of (43.6%) but on a low revenue level and this indicates increasing trends of outsourcing in Latin America and Other Regions.

When we take a critical look at the logistics spend by the shippers.  Predominantly, the logistics spend is heavy on transactional activities such as Transportation and to an extent on warehousing operations.  The outsourced logistics spend is consistent around 30 to 40% except in in NA.  The logistics expenditure as a percentage to sales revenue seems to be reasonably consistent across all the regions around 10 to 15%.

Outsourcing 1

When we look at the return or benefits to the shippers again the focus is on economic factors.  The cost savings was around 15%, Inventory Cost Reduction around 8% and Asset deployment reduction at 26%.  Not to forget a modest productivity improvement in the form of 7% improvements in order fill rate and 5% improvement in order accuracy.  Again the focus is very much on transactional outsourcing.

Supply Chain Innovation

Innovation could be defined as creation of improved product, process, technology or human resources (improved skills) that could eventually deliver gains to the consumer.  Supply Chain is a work in progress in my opinion.  Continuous improvements in the areas of process, technology and people (skills) are delivering the supply chain innovation.  Apart from the three I have mentioned, the new improvement area is outsourcing.  However, it was noticed that innovation is becoming a challenging as the global economy is becoming volatile and 3PLs becoming more conservative and whereas the shippers becoming more aggressive.  The key to the innovation through outsourcing is collaboration.  The relationship between the shipper and the 3PL should be transparent and behave as true stakeholders in the business.  Lack of openness could kill the relationship and thus innovation.

According to 2013 Third Party Logistics Study, “the openness of some shippers to more innovative 3PL-shipper arrangements appears to be declining somewhat; “gain-sharing” between 3PLs and shippers is down and interest in collaborating with other companies, even competitors, to achieve logistics cost and service improvements has also declined slightly since last year”.

What drives innovation in an outsourced environment?  As mentioned earlier, Relationship and Trust plays a big role, People who create innovative ideas and deliver them, Technology which enables innovation, certainly collaboration between the shipper and 3PL, transparency and effective communication and last but not least is the financial incentives.

Outsourcing 2

The above study concluded that, “Shippers and 3PLs can facilitate supply chain innovation by leveraging organizational drivers such as fostering collaboration through structure, relationship governance, and embedding innovation into the organizations as well as technology focused drivers: advanced IT and mobile solutions, data and analytics, and social media.”

What calls for innovation?

Volatile economy, Increasing Competition, Uncertain Demand due to product proliferation and Supply Chain Disruptions are the main reasons organisations looking for continuous improvements in order to survive in the business and excel.  If we review the above mentioned factors some of them are controllable and some are not.  Economy behaviour cannot be influenced; Competition will continue to grow due to increasing globalisation; and Product proliferation is driving the product mix challenges resulting in uncertain demand to some extent.  Whereas, supply chain disruptions could be avoided if we plan well and innovate.  According above mentioned study, Spirit AEROSYSTEMS, Kansas saved millions of dollars inventory and avoided injury to workforce due to F3 tornado hitting their facility (2012) due to proactive thinking and that is nothing but some sort of innovation.

What is driving the Supply Chain Disruptions?

Supply chain complexity and “interconnectedness” to address the globalisation is increasing rapidly at a time when the risk of disruption caused by extremes such as geophysical disasters, increasing terrorism attacks is mounting. The above study reveals that natural disasters the top reason followed by Commodity Volatility, Labour availability, Energy prices and supply of raw material at the required time.  No doubt, Transportation infrastructure plays a vital role in disruption by not making a product available at the right time.  Governing rules in countries like India and China making the supply chain vulnerable. The political system is also causing disruptions and Terrorism and Piracy is low on agenda but high on complexity.

Human Resource could cause multiple problems that could result in supply chain disruptions.  The first one on top of my head is the skills shortage.  According to the world economic forum study on Outlook on the Logistics & Supply Chain Industry 2012, Logistics companies and trade associations around the world are reporting problems in obtaining enough qualified staff. Over the past year, studies done in India, Korea, China and the United Kingdom have confirmed that there is a skill shortage in logistics.  The other side of the coin is the disgruntled human resources could cause phenomenal financial damage to the supply chain and the business. On November 27, 2012, approximately 800 clerical workers at the Los Angeles and Long Beach ports went on strike.  At first glance, it doesn’t seem as though a clerical strike should have a significant impact on port operations, but the 10,000 unionized dockworkers who also work there refused to cross their picket lines.  And thus the largest port operation in the United States, representing approximately 40% of the value of imports brought into the U.S., ground to a halt.  The economic cost of the strike was estimated at $1 Billion per day.

outsourcing 3

Risk Mitigation

We should be able to mitigate every risk if we understand the problem and source that is causing the problem. In order to avoid any supply chain risk it is very essential to have visibility to your supply chain.  According to a report roughly 30% of manufacturers still lack Tier 1 visibility, while over 70% lack Tier 2 or Tier 3 visibility.  According to Aberdeen Group 2011 Supply Chain Visibility Report, best-in-class companies are likely to have online visibility into supply chain disruptions.  Further, the same report revealed some of the actions taken by the supply chain leaders due to visibility includes, Streamlined Processes for Easier Monitoring, Usability & Efficiency (66%); Integrated Supply Chain Transactions & Costs into their Operations (60%); Took Steps to Improve the Timeliness & Accuracy of Supplier Data Exchanges (46%); and Have Increased B2B Connectivity & Visibility into Supply-side Processes (31%).

outsourcing 4

Collaborative partnership such as outsourcing is another step towards supply chain risk mitigation.  It pays to invest on training and development of human resources.  In my opinion it is a worthy investment as long as one could retain the workforce to reap the benefits of the skills upgrading.  In order to address risks arising out of suppliers, supplier scorecard and collaboration goes a long way addressing quality and velocity disruptions to supply chain.  As mentioned earlier, one should understand the end to end supply chain and that is possible through business process mapping and developing standard work to address process related uncertainties.

Summary:

Outsourcing 5

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Today Supply Chain is going through re-engineering phase due to global financial turmoil, raising costs, volatile currency fluctuations, unpredictable demand, lack of qualified supply chain talent and punishing markets.  Collaboration is the top priority of the day.  Supply Chain flourishes though collaboration and collaboration is the key to supply chain success.  Leaders collaborate and the boss dictates.

In order to drive effective operational excellence within supply chain, we need leaders with vision and thought leadership skills.  Jesus Christ once said, “If the blind lead blind, both shall fall in a ditch”.  Isn’t it true from Supply Chain Perspective?  If the boss/manager is faking, the end result is ditch as mentioned by Jesus Christ.  Hence the need for the thought leader is very critical to drive the supply chain excellence.

Generally, people do not want to leave the jobs unless there are some compelling financial reasons or work culture related issues. People quit their jobs due to the heavy-handed work culture and the work culture is created by the boss/manager.  Many think that they are good bosses and sadly what they know is their perception and not the team’s feelings.  The boss generally believes in one-size-fits all theory and never develops an individual strategy to retain and grow the talent.  In today’s complex world there are too many bosses, but very few leaders around.  The leader will do whatever it takes to maximize their team members’ engagement to achieve organization’s success; while bosses just want to enjoy the privileges of their position and more interested in saving their jobs.

Are you a Boss or a Thought Leader?

Just for the benefit of everyone let me clarify what is thought leadership?  Thought leadership is a business jargon for an entity or an individual that is recognized by the team for having innovative ideas.  The term was coined in 1994 by Joel Kurtzman, editor-in-chief of the Booz Allen Hamilton magazine, Strategy & Business.  The Boss is a person who exercises control over other employees in a workplace environment.

Let us find out some differences between a Boss and a Leader/Thought Leader:

  1. The boss drives group members; the leader coaches them.
  2. The boss depends upon authority; the leader on good will.
  3. The boss inspires fear; the leader inspires enthusiasm.
  4. The boss says “I”; the leader says “we.”
  5. The boss assigns the task, the leader sets the pace.
  6. The boss says, “Get there on time“; the leader gets there ahead of time.
  7. The boss fixes the blame for the breakdown; the leader fixes the breakdown.
  8. The boss knows how it is done; the leader shows how.
  9. The boss makes work drudgery; the leader makes it a game.
  10. The boss says, “Go“; the leader says, “Let’s go.”
  11. The boss reacts and the leader works proactively.
  12. The boss command with power, the leader leads with values.
  13. The boss assigns responsibility and not authority, the leaders encourage succession.
  14. The boss creates fear, the leader instils confidence.
  15. The boss knows all, a leader asks questions.
  16. The boss leads by force, a leader by example.
  17. The boss creates followers, a leaders creates more leaders.

Some interesting Quotations:

  • A good boss makes his men realize they have more ability than they think they have so that they consistently do better work than they thought they could. – Charles Erwin Wilson

 

  • Your real boss is the one who walks around under your hat. – Napoleon Hill

 

  • Leaders need to be optimists. Their vision is beyond the present. – Rudy Giuliani

 

  • The person who knows HOW will always have a job. The person who knows WHY will always be his boss. – Diane Ravitch

 

  • The real leader has no need to lead – he is content to point the way. – Henry Miller

 

  • A good manager is a man who isn’t worried about his own career but rather the careers of those who work for him. – H. S. M. Burns
  • One measure of leadership is the calibre of people who choose to follow you. – Dennis A. Peer
  • Leadership is action, not position. – Donald H. McGannon
  • You can’t lead anyone else further than you have gone yourself. – Gene Mauch
  • The leadership instinct you are born with is the backbone. You develop the funny bone and the wishbone that go with it. – Elaine Agather
  • You don’t have to hold a position in order to be a leader. – Anthony J. D’Angelo
  • Leaders are visionaries with a poorly developed sense of fear and no concept of the odds against them. – Robert Jarvik
  • A good leader is a person who takes a little more than his share of the blame and a little less than his share of the credit. – John C. Maxwell
  • A leader is best when people barely know that he exists. – Witter Bynner
  • A man is only a leader when a follower stands beside him. – Mark Brouwer
  • I suppose that leadership at one time meant muscle; but today it means getting along with people. – Indira Gandhi

Global supply chains need thought leaders, if the boss transforms into a LEADER, the world is different for the team members.  More leaders grow in the organization as leadership flourishes under a LEADER and if that leadership is thought leadership, it would be a great benefit to supply chain.  Today’s supply chain needs out of the box solutions due to ever changing and challenging business dynamics.  We need thought leaders to manage supply chains more effectively and provide the critical answers to the business challenges!

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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.

Logistics Spend:

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:

  1. Pressure on Corporates to cut costs;
  2. Low Cost Country Sourcing;
  3. Off-Shoring and outsourced manufacturing arrangements;
  4. Focus on Core Competencies;
  5. Ability to expand rapidly and establish business in local markets;
  6. 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:

  1. Talent Development;
  2. Succession Planning;
  3. Effective Retention Strategy;
  4. Team Environment (Office Politics plays a vital role in people leaving jobs);
  5. Effective talent review process;
  6. 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.

 

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The growth rate of major economies such as US, Europe and Japan were less than 1% during 2009.  Naturally the impact of this financial uncertainty will have impact on the contract logistics as well.  Contract logistics which was growing around 10.0% during 2005 to 2006 period reported early setbacks in 2009 with a 1% growth rate fall and further 4% plummet by 2008 and ultimately 8.2% negative growth by 2009.  This is a disaster and this is one way of understanding the impact of economic recession on contract logistics.

Outsourcing penetration rate:

The outsourcing penetration rate was growing marginally in spite of financial recession. In my opinion the real growth of logistics outsourcing should reflect in the penetration rate.  As long as penetration rate is more or less static, the logistics outsourcing world-wide is not growing.

 

 

When we review by regional performance, Western Europe recorded highest penetration rate of 30% followed by USA 20.7%. China presents the greatest opportunity for contract logistics with a lowest penetration rate of 2.7%.

Market Share:

The global contract logistics market is still fragmented in spite of several years of consolidation.  DHL leads the pack with 8.4% followed by CEVA at 2.3% and the third position was taken by KUEHNE+NAGEL based on top-line revenues.

Interestingly if we evaluate the performance of these companies based on their margins, CEVA stands first at 5.7% followed by KUEHNE+NAGEL at 1.7% and DHL ended with negative (-)1.66% margins.  Other notable performers included, UPS SCS at 3.98%; DSV at 3.39%; and Ryder at 3.13%.

Margins of almost all players showed negative growth whereas KUEHNE+NAGEL shown a 16.4% growth in the margins and Con-way – Menlo logistics has improved from negative margin of 1.56% to 2.13% in spite of financial recession in 2009.  Whereas the market leader DHL improved the margins it’s position by reducing the losses from -6.7% to -1.66%.

Contract Logistics Market by Region:

Three dominant regions contribute 93.3% global share of contract logistics.  Western Europe contributes 37.2%, Asia Pacific 28.3% and closely followed by North America at 27.8%.  One would be surprised to know that Japan contributes 38.8% to the Asia Pacific market and followed by China at 24.2% and South Korea at 9.2%.  This could soon change with phenomenal growth anticipated in China, India and South Korea by 2013.

The negative growth seen in Contract Logistics less felt in Asia Pacific at 6.5% and whereas Western Europe recorded 9.5% and North America was closely behind WE at 9.4% negative growth.

Looking into Future CAGR (2009-2013):

Future for contract logistics seems to be promising with an impressive projected growth of 9.5% globally.  The promising regions/countries include Central & Eastern Europe with an impressive CAGR of 18.7% is followed by Mexico 13.1%  and China is expected to grow by 20.6% and India at 15.2%.

Top 3 Leading Logistics Service Providers by Region:

Asia Pacific list is topped by Hitachi Transport followed by Sankyu Inc. and Mitsubishi Logistics Corporation.

Europe top three services providers based on their top line revenues include, DHL Supply Chain, Wincanton, and CEVA.

North America top three service providers included DHL Supply Chain, Penske Logistics and UPS SCS.

Focus: Asia Pacific

Review of top five economies in Asia reveals that contract logistics market size growth in the next four years will be propelled by China, India, South Korea, Australia and Japan.

The Contract Logistics CAGR (2009-2013) of Asia Pacific Countries:

The future looking promising, contract logistics is here to stay. This means job creation, make economies to expand, and infuse flexibility to business and make them to focus on core competencies. Let me  close with a compelling quotation, “If you deprive yourself of outsourcing and your competitors do not, you’re putting yourself out of business.”

Data Source: Transport Intelligence Ltd.

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