IN THE SEVERAL DECADES I HAVE BEEN IN THE SUPPLY
chain industry, I’ve seen changes in almost every aspect of the business. However, in my opinion, there are three developments that
have made more of an impact than everything else combined—
globalization, technology, and Wal-Mart. All three have forced supply chain managers to adopt new mindsets and develop new skills
and processes. Wal-Mart, in particular, has raised the level of warehouse and trucking operations to an art form, and with more than
40 regional import distribution centers, 140 domestic facilities,
7,000 tractors, 5,000 trailers, and 4,600 stores, it could aptly be
called a state-of-the-art supply chain that sells stuff.
But what is Amazon.com up to? Since 2010, it
has spent almost $14 billion on new distribution
centers. It now has 89 facilities, and more are
planned. Never mind that it doesn’t have stores.
Its goal is to be in a position to deliver most of its
orders on the day they’re received. Wal-Mart, of
course, with its vast network, is not far behind,
with similar programs already under way.
This level of customer service, if widely adopted, could keep supply chain managers (
particularly those working for retailers and consumer
goods manufacturers) up at night. While the
trend has so far been largely confined to the busi-ness-to-consumer sector, it will no doubt spill over into the busi-ness-to-business marketplace. Supply chain managers will be faced
with some difficult questions, such as:
1. How good does our service have to be? Do we really need to
offer same-day or early-next-morning delivery to compete effectively? On which products?
2. Depending on the answer to Question 1, how many distribution centers will we need to achieve our service targets? What items
will we need to stock?
3. Where should the DCs be located? To achieve next-day delivery,
they probably should be situated in or relatively close to the major,
more expensive markets.
4. And finally, how will we deliver the products? Will we need a
private fleet, contract carriers, or a combination of the two?
Apparently, no idea is too bizarre. In March of this year, Reuters
reported that Wal-Mart was exploring the feasibility of asking store
shoppers to drop orders off to online customers on their way home.
The legal obstacles to such a program are significant, but stranger
things have happened in this business.
BY CLIFFORD F. LYNCH fastlane
For LSPs, opportunity is knocking
So, what will the answers to these questions be? I believe the best response to all can
be summarized in one acronym: “ LSEDI.”
Let Somebody Else Do It. In other words,
outsource it.
For years, one of the major advantages to
outsourcing distribution operations has
been the flexibility it afforded the outsourcing company. As market and product characteristics change, logistics processes must
change as well, and the use of a logistics service provider (LSP) greatly
reduces the shipper’s risk
of being saddled with an
outmoded distribution
network. The DC building
boom generated by the
Internet hysteria is a classic example. Several privately owned and operated 500,000-plus-square-
foot fully automated facilities were left empty after
only a few months of
operation because the expected volume didn’t materialize.
Even more effective can be an arrangement
with an LSP that has a sophisticated consolidation program. Participation in these programs can greatly reduce the cost of delivering what will no doubt be small shipments.
While this is not the Amazon approach, I
believe this could be the best opportunity
for LSPs that has come along in years. All
they need to do now is get out there and
market it! ;
Clifford F. Lynch is principal of C.F. Lynch & Associates, a provider
of logistics management advisory services, and author of Logistics
Outsourcing – A Management Guide and co-author of The Role
of Transportation in the Supply Chain. He can be reached at
cliff@cflynch.com.
