Logistics suppliers

Martijn150x150In today’s economy, due to companies outsourcing many activities, a lot of innovations come from suppliers. The Dutch company ASML, global market leader in machines for the semiconductor industry, is a good example. It relies heavily on the innovative strength of suppliers, many of whom are situated in the direct vicinity of the company’s headquarters in Veldhoven. High-tech companies such as Apple and Cisco have also completely outsourced their manufacturing and logistics activities.

Notably, although suppliers are responsible for much of the innovation related to manufacturing and product development, that has not yet become commonplace for logistics due to the relentless price competition. It would seem that logistics service providers are often still hands-on subcontractors rather than being strategic logistics suppliers.

According to the 2015 Third-Party Logistics Study, 53 percent of outsourcing companies are aiming to consolidate the number of logistics service providers they work with. The ultimate step is to outsource the logistics activities to an external logistics control tower. Philips explored this option but concluded that a 4PL partner would not perform significantly better than the manufacturer itself in terms of costs.

In reality, outsourcing everything to a single logistics service provider appears cheaper  at first, but ultimately it is suboptimal. A single supply chain is not sufficient to serve all the various product categories. Therefore, outsourcing companies will have to continue to work with a network of different logistics service providers, each with their own specialisation.

The recently developed, free online tool called the Supply Chain Satellite provides practical insight into which logistics activities should be outsourced and to which type of logistics service provider. Every logistics service provider can always impress (prospective) clients by providing a detailed insight into the ‘cost to serve’ per logistics activity for a stock keeping unit (SKU). The 2015 Third-Party Logistics Study reveals that the cost reductions in logistics and inventory have actually declined by a few percentage points in recent years; in other words, the effect of logistics outsourcing is weakening. However, if a logistics service provider offers ‘cost to serve’ information per SKU and per customer, the client can make better decisions – and that is another way of adding value.

Martijn Lofvers
Publishing Director & Chief Editor
martijn.lofvers@supplychainmedia.nl