CHALLENGES AND WINNING MODELS IN LOGISTICS Corporate managers traditionally have viewed logistics as a mandatory cost bucket. But top-performing companies now recognize that mastering supply chain and logistics can be more than that. It can be the source of competitive advantage. This strategic shift opens up significant growth opportunities for logistics providers, with winners using different paths and business models to foster growth. The major challenges for providers are aligning corporate strategy with the right organizational model and matching that strategy to targeted customer segments—by size, footprint, vertical category and market. Leading logistics providers excel at understanding key customers’ needs and purchasing behaviours— and they know that understanding is a key ingredient to building a solid strategy and defining the most efficient commercial approach and offerings. This article examines both the market and winning models used by providers. Many companies now outsource all or part of their supply chain to logistics specialists when it’s not a core business. For logistics providers, the value proposition rests on three key pillars: optimizing logistics costs for customers, shortening the length of the order completion cycle and reducing the number of fixed assets. Outsourced logistics activities commonly fall into three types of services: contract logistics, freight forwarding and transportation. These businesses are deeply interconnected, with some overlap (see Figure 1). For example, freight forwarding operations frequently involve activities associated with contract logistics services that are performed when goods are collected and received, such as crossdocking and warehousing. Similarly, contract logistics providers often are responsible for local distribution and derived truck transportation. The three services are built on different business models. Moving beyond warehousing. Along with warehousing services (picking up, packing and labeling), contract logistics suppliers have extended their traditional core into extra value added services, such as postponed manufacturing (light assembly, kitting, manufacturing and quality control), and even payment and customer management (see Figure 2). Cost position is triggering market competition. Despite the development of value-added services, the contract logistics market offers suppliers few opportunities to differentiate themselves. Customers often view contract logistics as a commodity, with a provider’s cost position serving as the main purchasing criteria. This viewpoint has encouraged providers to develop cost-effective solutions, such as shared warehousing. They also replicate winning formulas that make the most of a solid infrastructure, which may include warehouse configuration, IT systems and skilled teams. What pace of development can investors expect from logistics providers? A provider’s organizational model can determine its development and growth opportunities. The standalone organization model is attractive to companies in search of faster growth through acquisitions. The simplified structure and locally managed, autonomous business units make it easier to integrate new business operations, with limited disruptions of day-to-day operations. To create a winning and repeatable growth formula, leading providers enhance their capabilities. They develop a simple, clearly defined integration process as well as the necessary tools, such as training and IT, to quickly expand their footprint. From an investor perspective, building a geographically based management organization requires a much longer time line. For example, based on the experience of providers such as Kuehne & Nagel, it can take several decades to develop a mature, global network with sustained growth. Conclusion In the evolving logistics marketplace, winners understand that there is no single path to success. They overtake competitors by selecting an organizational model that best supports their corporate strategy. They also ensure that the strategy matches their targeted customer segments. To increase their competitive edge, leaders develop insights into customers’ needs and purchasing behaviours. The result is a highly focused organization with a well-defined business strategy, designed to deliver sustained growth and profitability. Extracted from: François Rousseau (7 November 2012) QUESTION 1 (40) 1.1 “Top-performing companies now recognize that mastering supply chain and logistics can be considered more than just a cost bucket but rather it can be the source of competitive advantage”. Comment on this statement by conducting primary research and providing evidence on the role of supply chain and logistics in creating value for any automotive manufacturer of your choice. (20) 1.2 “Cutting the total costs of logistics by applying innovative, pragmatic thinking holds the key to the contribution of logistics to improved global competitiveness for South Africa as a country”. Reflect on this statement by submitting a report to the Department of Transport. Your report should clarify your position and incorporate relevant illustrations and examples. (20) QUESTION 2 (60) You have recently been appointed as the regional manager at a leading FMCG organisation with operations across Africa, Europe and Asia. One of your major responsibilities is to provide strategic guidance to the executive management on logistics and supply chain issues in a bid to remain competitive. In achieving this you are mainly inclined to outsourcing the logistics and supply chain activities among other practices as you deem these as the only solution in retaining a competitive advantage and containing costs. You have been working hard together with your team in compiling evidence in the form of reports on some of your proposals that you need endorsed during the upcoming executive management quarterly meeting. 2.1 What are some of the factors that you will highlight in your presentation in supporting your premise of outsourcing logistics activities for the FMCG organisation? Your response should provide a detailed analysis of issues to be raised. (20) 2.2 One of the reports to be tabled during the session is to highlight on the measures to be adopted by the organisation in optimizing and containing logistics and supply chain costs. What are the main issues to be highlighted in the report? (20) 2.3 Critically discuss the various innovations and cost-effective solutions that you would consider adopting in managing warehouses for the FMCG organisation.