Logistics Money Providers

Getting logistics service providers and shipping companies to work well together continues to be an issue. Last year, Lenny Visser wrote her thesis on this very topic whilst finishing her studies at Tilburg University. “The potential advantages to working side by side to provide logistics services are often lost due to the individual’s inability to accept change and act rationally,” concludes Visser in her thesis. She bases these conclusions on a literary study of seven cases and research amongst 47 supply chain managers and procurement officers at 17 chemical companies. In order to improve logistics partnerships, Visser suggests companies should be more aware of soft factors in, for example, the tendering process.

Personally, I think this advice is tame. In my opinion, the main cause of the difficulties between logistics service providers and shipping companies is something quite different, namely finance. This was a revelation that I fell upon last year when reading through a number of industry reports from ABN Amro. Looking at the working capital in various sectors, I noticed something quite remarkable: in all of the sectors, the DSO was lower than the APT ratio; meaning that businesses are receiving money from their customers before paying their suppliers. Yet the only sector in which this is structurally and consistently different, is in logistics. Strangely enough, this is not a phenomenon I’ve heard anything about in any of the discussions I have had with companies engaged in such logistics partnerships.

I put this interesting discovery to two good acquaintances of mine in the global logistics branch, who will remain nameless for reasons of competitiveness, and both said that their companies were trying to refuse finance in advance when negotiating with customers.

When I discussed this issue with a supply chain director from a Dutch multinational in the hi-tech industry, he was really quite moderate in his response. His company is more then happy to discuss better conditions of payment with its logistics providers, on one condition: that the logistics provider takes on a dedicated supply chain engineer to look into and implement process innovation. This is what I call useful advice; something both parties will find helpful.

Martijn Lofvers, Publishing Director & Chief Editor, Supply Chain Magazine