With increasing pressures from consumers on short delivery times, track and trace functionality and a solid returns process, the pressure on logistics and distribution has never been so great. Reports from manufacturing groups indicate that Logistics and Distribution costs typically range between 5 – 15% of the cost of sales. Recent reports around additional costs for e-commerce suggest that this can be more than double for a purely e-commerce operation compared with the traditional models of supply.
Pair that with the current political uncertainty and ever increasing demands to drive down costs, we ask whether the current logistics and distribution arena is at breaking point?
Customer expectations have evolved rapidly in recent years; many calling this ‘The Amazon Effect’. Demand for responsive, high performing logistics solutions is being recognised across all sectors and all sizes of companies.
We believe that a fresh approach to logistics and distribution strategy and management is essential to yield significant improvements in both service and cost reduction.
Over the past couple of decades we’ve seen huge developments in logistics service providers. The majority of companies look to outsource these services where possible, often finding that there are both cost and service advantages to doing this. It’s true to say, that the initial move away in-house logistics and distribution to a seasoned 3rd party provider is often the time that the biggest benefits and cost reductions are achieved for many companies. But what about the years to come?
With pressures to continually reduce costs often noted by industry professionals in logistics and supply chain operations roles, the practicalities of delivering consistent and worthwhile improvements can be extremely challenging.
Part of the problem lies within the heavily structured RFQ and re-tendering process that many companies find themselves trapped within. With a process so rigid, there is almost no room for innovation and re-tendering inevitably becomes a penny pinching exercise. This causes frustration for all involved, and, doesn’t achieve the improvements that are desired by many.
The process of re-tendering is often complex, requiring forecast volumes and movements to be provided based on unreliable information and an upfront commitment to these forming the basis of any future contract. This uncertainty leaves all parties feeling exposed and at risk of incurring substantial losses if forecasted volumes, networks or customer demands change.
At Industry Forum, we take a fresh approach to logistics and distribution. By evaluating your current performance, the performance of any existing contracts, taking time to model your future requirements and understand the service expectations of your customers and the business, we provide you with a solid basis for negotiating significant improvements for your entire logistics and distribution operation.
We talked to Richard Perriman, Vice-President of Supply Chain Development for Horizon International Cargo, to understand how this approach has benefited a number of his clients.
Richard said “As one of the UK’s leading privately owned logistics organisations, we often receive unsolicited invitations to participate in RFQ processes. In many cases, the invitations are received with a broad, top line scope of requirements and an accompanying rate spreadsheet for completion.
This practice only allows a bidder to respond with a “like-for-like” price for providing precisely the same solution as the incumbent provider – and gives little or no opportunity to add value or explore potential advantages for the client. Ultimately, this means that the client may, at best, achieve minimal cost savings, but miss out on realising significant improvements to their supply chain processes – which has the potential to reduce both direct and indirect costs by a considerable margin; far greater than any minimal rate saving.”
But for some clients, a fresh approach to tendering for third party logistics services has allowed them to realised unprecedented benefits.
Richard shared with us the details of one such particular case.
“In a recent case, a prospect, who is now a client, agreed reluctantly to meet with us at the 11th hour of a protracted RFQ process. Within 30 minutes of our first meeting, we were able to identify cost savings in excess of £300,000 year-on-year, simply by applying a slightly tweaked process that the client had been unaware of. Our eggs-for-eggs pricing per FCL container was on a par with our competitors, so had we not engaged in that meeting the client would be paying £300,000 more p.a. than they are now.
Obviously, it is not always possible to achieve such significant savings, however to simply award business to the lowest bidder, without exploring potential areas for improvement certainly reduces the scope for significant “wins”.”
In return for a small investment of time, and openness to a different approach, you could achieve savings you never thought possible.
If you want to make a change, but you’re not sure what to do, contact us today to arrange a confidential chat with one of our consultants. Our services around network remodelling, data and cost benefit analysis could also provide a useful insight as to potential improvement opportunities in your operation.
We can support you through the end to end tender, negotiation and contract process to ensure you get the best deal possible. We can support you through project management of any transfer of goods and services as required.
Make the most of your logistics and distribution operation by innovating with Industry Forum.
Find out more with our courses:
- The Principles of Distribution and Logistics (3 Days)
- APICS Certification in Logistics, Transportation & Distribution (CLTD) (3 Days)