Supply Chain Logistics: Drive Greater Business Impact

Inflationary pressure, the high cost of fuel, and escalating wages drive persistently high logistics spend. With logistics costs accounting for a significant portion of the overall supply chain management expenditure (nearly 80% at some companies, according to Gartner research), it’s not surprising that global chief supply chain officers are asked to identify and implement ways to optimize supply chain operations. But external cost optimization opportunities are hard to find in a business environment characterized by transport capacity constraints and stubbornly high rates. Faced with budgetary increases year over year, a looming recession and increasing expectations from supply chain leaders, logistics managers must get smarter at supply chain cost optimization.

This starts with differentiating cost reduction and cost optimization opportunities. Cost reduction in logistics management involves eliminating spend and saving money. Examples of cost reduction activities in the logistics organization include: negotiating lower transport rates and better third-party logistics contracts; deferring technology upgrades/automation; and identifying cost leakage such as incorrect invoicing, excessive waiting times and demurrage.

On the other hand, cost optimization activities, such as eliminating wasteful and redundant processes and creating self-service tools, are designed to drive efficiency, productivity and innovation from logistics management.

Mature logistics organizations combine both cost reduction and cost optimization initiatives to achieve the best outcomes. Segment and prioritize cost optimization opportunities using varying time horizons, such as short-, medium- and long-term, and expected deliverables (e.g., rework upstream order policies; establish a control tower operation; produce cost-to-serve analysis). Bear in mind that cost optimization initiatives may require an initial increase in expenditure through added investment.

Operational efficiency and managing costs have always been the primary focus areas for logistics leaders. But the rise in e-commerce and the corresponding rise in customer expectations have transformed supply chain strategy, and now logistics finds itself in the unique position of becoming a more important differentiator in the customer experience.

Gartner research shows that, although product continues to dominate when it comes to recommending and repurchasing decisions, logistics also has a sizable impact on these decision metrics. In fact, customers are 21% more likely to repurchase if they’re satisfied with just the last-mile logistics. Logistics-driven service differentiation can be a valuable addition to the already-existing focus on product.

In response, logistics leaders are prioritizing improvements to technology systems and data quality in order to drive greater visibility, tracking, route planning and a more sophisticated interface with customers.

To enable greater customer focus in supply chain management, logistics leaders need to secure the following:

• Leadership buy-in. Logistics leaders find that their function is often viewed with a narrow lens. Changing leadership’s view on what logistics can offer and securing buy-in from leaders in pivoting to a customer-first focus are critical.

Today’s operations manager struggles to manage a complicated product portfolio, challenging routes to market, rapidly changing customer requirements and growing network complexity. To optimize supply chain logistics for efficiency, measure the effectiveness of critical logistics capabilities and their impact on supply chain management and the overall logistics network. Without a well-defined and aligned supply chain analytics strategy, customer service failures will inevitably arise from supply chain logistics management.

Streamline supply chain logistics operations by deploying a comprehensive and actionable logistics performance dashboard. First, appoint an executive champion who will define logistics metrics, targets and thresholds. Few companies are lacking in metrics. On the contrary, there are so many of them that it causes confusion around which metrics will drive improvement on corporate objectives and which ones are being reported just for the sake of reporting. Limit the dashboard to those logistics management metrics that will help you evaluate structural costs (both fixed and variable costs related to design choices) and operating inefficiencies (e.g., operational waste, cost of nonconformance, opportunity losses) that may result in supply chain risk.

Global economic conditions challenge companies to find new ways to drive supply chain process improvements, cost savings, higher efficiencies and better business outcomes.

Meanwhile, logistics organizations have long focused on execution excellence and have trailed other parts of supply chain management in adopting more robust decision support capabilities. Logistics organizations must improve their responsiveness and flexibility while addressing core business and financial realities.

Many invest in supply chain technologies and digital transformation not only to automate manual and labor-intensive processes, but also to digitize the processes and capabilities that enable connectivity and collaboration across the supply chain ecosystem. Innovation is accelerating in areas like warehouse resource planning and optimization, freight forwarding, transportation forecasting, and global trade governance.

According to Gartner research, by 2027:

• Eighty percent of global supply chains will have adopted logistics control towers as the operating model of choice to improve shipment visibility and performance analytics.

• More than three-quarters of last-mile deliveries to end customers in North America and Europe will have near-real-time visibility with delivery windows and ETAs.

• More than 60% of large organizations will have implemented fourth-party logistics providers (4PLs) as their preferred outsourcing model to accelerate their supply chain transformation.

Almost every industry is experiencing a talent shortage, and in logistics, that talent shortage is even more acute. The pandemic accelerated retirement for many baby boomers in operations management positions, and with the current demand, there aren’t enough young people to backfill the pipeline. What’s more, logistics is plagued by limited, linear and obsolete career paths, and few companies have identified motivational factors beyond salary increments for attracting and retaining logistics employees.

To build a high-performing logistics workforce, Gartner recommends adopting these supply chain organization design and talent best practices:

• Highlight cutting-edge logistics technology. The logistics field is becoming more technology-based through big data, the Internet of Things (IoT), artificial intelligence (AI) and virtual reality, meaning tech-savvy young people will be at the forefront of operating and leading more efficient businesses. To demonstrate the value of a career in logistics to Gen Z and millennial talent, promote the digitalization of various logistics tasks and the use of smartphones and tablets in day-to-day supply chain management workflows.
  

• Offer choices around work location and hours. Gen Z and millennial employees value a flexible work-life balance above all else. But how do you offer workplace flexibility for hands-on warehousing and other logistics frontline positions? One good option is to allow employees to schedule and trade their own shifts. With each decision that employees have flexibility over — such as location, schedule and how much they work — the percentage of high-performing employees increases.
  

• Invest in skills development. Having the opportunity to grow is important to Gen Z and millennial employees. Emphasize continual professional development and modify the logistics culture to cultivate mobility, exploration and ambition.