From the Economist:

Logistics might sound a simple enough business of moving things around, but it is growing more complex as customers demand more finely tuned services, and as new technology and greater use of the Internet open up new ways of passing around information. Now that companies have delayered, re-engineered and scrubbed the waste from their assembly lines, logistics seems worthy of rather closer attention.

To simplify what goes into the factory and make it more of a snap-together assembly line, [companies] outsource more, and buy in sub-assemblies rather than individual parts. They are also trying to build only to orders from customers (known as BTO), rather than guessing what will be in demand and supplying it from accumulated stocks. Cutting inventories and introducing BTO calls for a comprehensive, flexible freight operation. This is such a challenging task that companies are reluctant to do it all themselves. So more of them are, in effect, outsourcing logistics to third parties.

This movement is forcing the freight-transport industry to reshape, as customers seek service suppliers with global reach. Manufacturers want custom-designed delivery systems, using all types of transportland, sea and air. Distinctions between postal, express and logistics services are blurring. And the fastest-growing part of the business is catering to the demand for outsourcing by providing companies with third-party logistics.

Companies realise that organising the supply of incoming parts and outgoing goods can account for 10% of their costs. Yet they know little about how best to do it, according to Mr Bakker of TPG, the world’s second-largest logistics specialist (under its TNT Logistics brand). He says the biggest omission is not counting the cost of holding more inventory than is needed. Even car makers, for all their lean factories, produce cars that sit idle for up to 100 days.

Nowadays, with global supply-chains connecting cheap workers on one side of the world with rich consumers on the other, good logistics can make all the difference to a company’s ability to serve its customers. It is not just what you make or how you make it. It is how quickly you get the parts together, or shift finished products from Asian factories to western markets. The success of retailers such as Wal-Mart in America or Marks & Spencer in Britain depends largely on getting the right goods to the right place on time.

Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.