Home' MHD Supply Chain Solutions : MHD Mar-Apl 2016 Contents DAVID GONZALEZ
oday, most companies execute and
manage logistics as a cost centre. Logistics
leaders are challenged with and measured
by their ability to drive greater efficiency and
deliver ever-increasing cost savings. Juxtaposed
to this cost reduction objective, they are
challenged to deliver year-over-year cost savings
without adversely affecting service.
As many logistics leaders are looking to
evolve and differentiate their functions, there
is a general shift towards transforming the
logistics organisation from being a cost centre
burden to delivering value-added services for
their companies and customers. As a result,
Gartner predicts that 20 per cent of companies
will run their logistics organisations as profit
centres by 2018, servicing both internal and
Logistics as a service taking hold
For many, the concept of running logistics
as a profit contributor is either a completely
alien notion or still in its early or exploratory
stages. Despite this, logistics as a service is
starting to take hold beyond the traditional
corporate giants, such as Tesco, Asda, Walmart,
P&G and Amazon, which have adopted the
commercialisation of their logistics assets model
and executed it well for a number of years.
Using their broad and often far-reaching
network of assets, these companies have gone
on to commercially promote their logistics
capabilities to external partners. They have
done so through traditional warehousing
and distribution centre (DC) operations, and
backhaul and co-loading transportation, as
well as via value-added services, such as
customer services and e-commerce order
processing and dispatch.
Advances in supply chain technology have
facilitated the process, placing this concept
well within the reach of companies of any size.
Size of network and complexity of infrastructure
can be both advantages and hindrances. Small
or midsize businesses (SMB) in some ways
are better positioned to make the change as
they are not burdened by a huge, lumbering
logistics operation with many assets and legacy
processes and overheads.
Three steps to achieving success
There are three steps logistics leaders can
take to drive greater value from the logistics
function by changing it from a cost centre
to a profit contributor.
1. Assess readiness for
Transforming logistics from a cost centre
to a profit contributor requiresw different
skill sets, a new business model, and
even a change in culture. Logistics leaders
will need to consider their organisational
design and structure, as well as embrace
the new mindset of balancing customer
service with commercial value.
Traditionally, logistics has been led by cost-
focused individuals. Companies will need
to invest in a new breed of commercially
enlightened, customer-focused logistics
managers who can break out of the traditional
logistics leadership mould.
Making this scale of change and fundamental
shift in direction is often all about leadership.
Having established a sound business case,
a strong head of logistics will often need to
help the CEO, CFO and CSCO understand the
potential profit contribution that logistics can
make to the business.
2. Define the best operating model to match
capabilities and strategic intent
Gartner research has identified two common
operating models for the deployment of logistics
as a profit contributor: logistics as a service and
logistics as a commodity.
(a) Logistics as a service focuses on the
intellectual property (IP) held by the logistics
function and commercialises logistics knowledge.
It may incorporate some physical transactions
such as transport, warehousing and international
freight forwarding. Companies deploying this
operating model will sell the capability of planning,
forecasting, contracting and processing logistics
for and on behalf of their suppliers and customers.
Typically, these services are independent of any
other commercial arrangement between the
company and the customer.
This operating model provides companies with
a vertically integrated global function, as well as
strong supply chain integration and ownership.
There are variable cost-to-serve models depending
on the service provided, which means service-driv-
en differentiation is key — one size does not fit all.
“Transforming logistics from a cost centre to a
profit contributor requires different skill sets, a new
business model, and even a change in culture.”
THREE STEPS TO GOLD
TRANSFORMING LOGISTICS INTO A PROFIT CONTRIBUTOR
With space to spare, more and
more companies are looking to
earn extra revenue from their
MHD SUPPLY CHAIN SOLUTIONS — MARCH / APRIL 2016
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