22 July 2004
Procurement professionals buying in logistics have been warned they must be ready to change their own internal processes if they want their supply chains to remain competitive.
Bill Caplan, the new managing director of UPS UK and Ireland, said annual cost reductions in logistics were getting harder to accommodate as low-cost countries became more expensive and their economies picked up.
Caplan urged purchasers to focus less on cost per unit delivered if they wanted value for money from logistics partners.
"There is only so much meat on the bone," he said. "We've seen an increasing number of purchasers working in their companies' logistics outsourcing teams, and purchasers can lead by taking a more holistic approach to outsourcing."
Caplan, who was previously with UPS's logistics division, UPS Supply Chain Solutions, said warehousing and distribution was only 10 per cent of the cost of the goods. Around 60 per cent of cost was in inventory levels, raw materials and processing, he argued.
Purchasers' knowledge in these areas could make for better relationships and cost cutting if the processes of a client and their third-party logistics provider were better integrated, he added.
Caplan said a purchaser might consider not holding inventory in every European country in which it operates if the logistics provider could offer greater visibility, predictability and reliability.
Tom Mills, logistics analyst at research firm Datamonitor, agreed. "Third-party logistics firms can offer many functions for their customers, and they market themselves as complete providers of supply chain solutions in a holistic sense," he said.
"As a result, there is a growing tendency for larger manufacturers and retailers to use fewer logistics providers than before."
But this type of relationship needed time to develop, as well as commitment from all parties, he said. "As the relationship develops, the integration can stabilise and cost-cutting targets become an ongoing process."
Viewpoint: Capacity for change