How Great Logistics Beats the Great Depression

Richard_Howells · ‎2011 Sep 01

“The recovery from the Great Recession has proven to be more elusive and prolonged than any in our history.”

This statement by Rosalyn Wilson, the author of the 22^nd Annual State of Logistics Report says it all: The global economy remains fragile and we have a long journey ahead of us on our path to recovery. Other alarming statistics from the report include:

Business logistics costs rose by 10.4 % last year, totaling $1.21 trillion, which is about what American businesses paid for freight transport in 2010.
Logistics costs as a percentage of Gross Domestic Product (GDP) climbed to 8.3 %, up from 7.8 percent in 2009 but still below the 9.9 percent registered in 2007 and 9.4 percent in 2008.
Transportation costs rose 10.3% from 2009 levels.
(Note: CSCMP members can download the report for all of the details)

Add to this the drop in stock markets in the last few weeks, the need for emerging economies to slow down as they are overheating , and the rise and danger of further rises in oil prices and you are left asking….so what’s a company to do?

Here is a suggestion: if you have not yet excelled at logistics, then you need to.

There are riches to be acquired by lowering your logistics cost and adding that to your bottom line.

According to the 2010 GMA Logistics Benchmark Report –prepared by IBM, the difference in financial performance between market players that are just mediocre at logistics and those that are excellent is abysmal. The median company in the survey spent 6.8% of its revenues in logistics costs versus 4.9% on average for the companies in the top quintile. This means top performers manage to transfer an extra 2% of revenues to the bottom line. With the average net profit margin for the companies in the S&P 500 oscillating between 5% and 10% in the last decade, this “logistics windfall” could mean increasing profits by up to 20-40%.

But how do I become excellent at logistics? Recently, in SupplyChain Digest, Dan Gilmore offered some excellent advice on how to improve logistic effectiveness given rising fuel prices. One recommendation he made is particularly timely: “Invest in a TMS, if you haven’t already done so, or change/upgrade if it is old”.

To delve deeper into this topic, I reached out to Andres Botero, an SAP expert on Transportation Management, to get his perspective. Andres commented “I totally agree. A Transportation Management System (TMS) can help your company reduce the overall transportation spend while achieving higher customer satisfaction levels.”

Botero offers these additional ways in which a TMS can help:

Creating efficient transportation plans that take into consideration real-world constraints, costs, and penalties
Optimizing mode(s) and carrier selection
Finding and taking advantage of opportunities for consolidation of inbound, outbound or bi-directional freight
Orchestrating, executing, and monitoring all your international and domestic transportation activities, allowing you to manage by exception –focusing on resolving issues- and continuously improve performance
Optimizing utilization of your fleet
Streamlining communication and collaboration with your carrier network and your freight forwarder partners
Ensuring compliance with international trade and hazardous material handling regulations
Providing full traceability and visibility of orders, shipments, items, events, and business process status
Accurately settling all transportation-related transactions: determining and accounting for freight-related billing to customers, expenses for accruals, and payments to logistic service providers

“The right TMS system provides these benefits and the ability to plan, source, procure, store, transport, and deliver products – all on a single, unified platform that offers flexibility, efficiency, agility and low TCO,” said Botero.

SAP just announced the availability of its latest release in the TMS space. For more information on how SAP is helping companies effectively plan, execute, track, procure and settle transportation activities, visit the SAP Transportation Management page on sap.com.

As Rosalyn Wilson said, “The slow growth presented another year of challenges for the logistics industry”. Doesn’t it make sense to have the best tools in place for the bumpy ride ahead?