Are you missing out?

I started being fascinated in the field of logistics some 20 years ago, to me there was total magic in how the products we all need, want or desire are generally made easily available to us. Much of this service we buy from external providers, but how well do we do that?

Now generally the cost of logistics for a manufacturing organisation is in the range of 3% to 12% (dependent on product and complexity and length of distribution channel) so often it can be seen more as a simple conduit to customers that perhaps does not add so much value (until it goes wrong!), however, the growth of online sales and retailers is certainly driving innovation and change.

In a report I read some years ago it estimated the scale of spend on logistics in Europe in the region of €2Trillion whilst I had significant operational experience in the management of "trucks, sheds and manufacturing" it was this simple fact that that really lit a passion within me. When I started, logistics was most often bought by the operational management. In fact in one business I worked for it was encouraged to keep procurement FAR away from decision to source a new provider, tender or negotiate a new contract. But the role of logistics in delivery of customer service excellence to a business is utterly key, and with a strategy of outsourcing it surprised me that:

1. There was little experience on how best to manage a 3PL (third party logistics) relationship, and interestingly

2. Processes to procure multi-million £/€/$ logistics contracts were not optimal and generally the operational organisation would shy away from change (and indeed why would they not it's difficult to do the day job with the existing provider without adding all that hard work of implementation, testing, risk management, managing service through a transition...?)

When I started firstly contract managing multiple 3PL contracts and then procuring complex 3PL solutions some 15 years ago, there were few clear and complete patterns to follow. The challenge was great, innovation needed and it was a thrill a minute period within my career. My search has always been for the ideal process for procuring logistics, and an adding value process of managing a 3PL (now we have a TLA for this...SRM!), I'm even delighted to see that in large organisations it is beginning to be seen as an essential procurement role - but the true "in-depth" practioners of what I call the "dark arts" of logistics procurement are still quite rare. Such arts well applied can reduce warehousing and transport costs consistently . But I am surprised at the lack of uptake given the value improvement I have experienced across multiple organisations.

For many organisations it can be difficult to justify the presence of a full time senior executive focused on buying logistics, why? Well other than "commodity logistics" (for example, (and arguably) intercontinental FTL transport ) the contract duration of complex logistics solutions tend to be in the range of 3-10 years. So the need for intensive support can be infrequent and its hard to justify supporting the cost of a "deep dive" specialist for medium sized organisations..

I started designing sourcing strategies for logistics in 2000, and began to make global first use of e-sourcing platforms for complex logistics solutions to try and do the job consistently better, and guess what? - the results have been consistently good whilst maintaining or improving service and generating cost reductions in the range of 5 to 30%. Due to my extensive experience of managing operations, and having worked for a 3PL I understood how they worked and what buttons to press to get a mutually beneficial working relationship at the right price. Plus the focus on understanding what the internal customer really needed allowed clear communication of what the business I was working for really wanted. (My ongoing surprise is how very poorly many large scale 3PL's deal with the enquiries they receive through e-sourcing channels - Oh how I would love to tell them where they often go wrong....!)

But what are the options for the businesses that cannot justify the cost of employing a Logistics Procurement Guru?

This leads me (somewhat inelegantly) to my observation and question...many smaller organisations will utilize consultancy to support logistics procurement, and my honest experience of this is that I've not seen much that is excellent (in fact mediocre, but that's a unkind word so move on quickly..). I have seen big 4 consultancy approaches here that are wonderfully polished but ultimately fail to engage the key stakeholders within the business they are working for, so we have receive a wonderfully illustrated recommendation that tends to fail in the real world and by the time it is realised the consultancy has cashed the cheque and moved on. I have seen smaller boutique consultancies utterly ignorant of modern practice in e-sourcing and getting their quill pens and vellum out to write "Ye Olde Tender" document, utilising the equivalent of an abacus to determine what the best service/cost compromise can be. I also see some of the Procurement generalist consultancies working in this space and applying "general" e-sourcing tools to procure logistics (a clear case of re-inventing the wheel and charging you for the development time needed).

Now let's be clear, I am not saying that e-sourcing is the all encompassing logistics procurement panacea (after all it is merely a well structured conduit with a few analytical gee gaws tagged on) there is a place still for more traditional methods of engagement. For clarity there is more value in helping an organisation understands what it really needs even before your fingers tippy type the e-sourcing solution tender builder...

But where are my witterings leading? To some simple questions:

How do you buy your logistics?

Do you do it well enough?

Are you missing Opportunities?

Do you get great performance and value from the consultancies you work with? (I genuinely would love to hear of this)

My simple view...with a multi Trillion $ global market in logistics we have to do better.

Comments, questions and statements of challenge and utterly incredulity welcomed!