Industry Spotlight: Taking centre stage – the increasing strategic importance of distribution, logistics and supply chain to business success - ON THE MARK Industry Spotlight: Taking centre stage – the increasing strategic importance of distribution, logistics and supply chain to business success - ON THE MARK
24th September 2015 Admin

Industry Spotlight: Taking centre stage – the increasing strategic importance of distribution, logistics and supply chain to business success

By David Howlett

Who would have predicted five years ago that there would be such interest from brand owners and business leaders in the “backroom” process of distribution and order fulfilment?  The talk then was all about exploiting brand potential and using creative marketing techniques as the main source for inspiration.  But what’s happened is that this creative marketing approach – so cleverly aided by digital platforms – has almost been cancelled out as a source of advantage.  Nowadays, clever and engaging brand communication is available to everyone – a start-up and a global multinational both have almost equal access.  Every website is professional.  Every digital campaign looks fantastic.  The public have wised up to this and have learnt that the reality of the customer experience might not be quite what is promised by an alluring brand.  There are, on the other hand, so many things that can create a negative experience that detracts greatly from the product or service being purchased.  Delays, out-of-stock, wrong product, faulty product, a complex return process (reliant on so-called “reverse logistics”), poor communication and availability of customer service support etc.  And when we add to this complexity the increasing trend towards Omnichannel with its expected commonality of experience across all channels we can start to understand why this area is getting so much attention.

Let’s look first at the market for distribution providers.  This industry has typically been one that is governed by scale.  If you own your own fleet, your own depots, and you’ve invested appropriately in process and a communications system that ties it all together, then your global scale is likely to be the source of your competitive advantage – a fit-for-purpose globally consistent service at an acceptable price.   This trend is witnessed by the ongoing attempts of the giant US Federal Express (FedEx) to purchase the Dutch-based TNT.   If this gets through the EU regulatory scrutiny, a leading player would be created in early 2016.  But, how big is big enough?

The irony is that the more important threats to scale-based business are coming from unexpected sources and in unlikely ways.  Here’s Hussein Haschem, Chief Executive of Aramex, based in Dubai: “The idea is to have Aramex as a technology enterprise selling solutions without really owning any assets, but facilitating supply and demand and managing the process.”  It’s surprising enough that large brand owners have chosen to outsource much of their logistics services (and leave behind the previously desirable target of vertical integration in the supply chain), but for the logistics specialist itself to broker its business in this way is truly game-changing.   Aramex targets this “asset light” strategy and is planning to use a crowd-sourced solution for the so-called “last mile”.  This very last step in the process, right at the end of a lean, efficient, well-engineered process has often been let down by the random nature of events that can turn it into a nightmare.  Aramex, alongside others is keen to solve this last frontier in innovative ways.  Then we have the drones that have been so much in the news.  It currently seems hard to believe they will become as ubiquitous as the van fleets that now dominate our cities and towns, but so much investment is being attracted into this area that you have to wonder that there might indeed soon be a people-free solution available.

Amazon continues to forge ahead on its supply chain activities.  It is a force to be reckoned with; far beyond what has traditionally been associated with a retailer. It offers both small start-ups and the world’s largest multinationals the very compelling opportunity to focus on the job of product development, manufacturing and the creation of a marketing pull. Amazon use its scale, its technology and its creativity to sort out the whole e-commerce area, the fulfilment, the customer service and even a large part of the complex business of cross-selling and upselling.  The brand owners need to take care that they don’t let the tail start wagging the dog!  Amazon could end up with more of the customer relationship and be more important to the brand experience than initially expected.  When you couple this trend with the point above about less competitive advantage being attributable to the product or service itself, then we can really see the reason for the massive upsurge in interest in all things supply chain-related.

So – what’s the impact on those involved in the business of distribution, logistics and supply chain?  Your time has come.  You are finally in the spotlight.  Enjoy your coming of age.  Be disruptive.  Try new things.  Take risks.  This position brings with it many new challenges for businesses that have typically been driven by lean thinking and the pursuit of low cost efficiency.

And, what if you are the executive in a company that makes use of distribution, logistics and supply chain either as a function within your company or as a procured service? Then you need to pay a significant amount of attention to these developments and realise this is no longer a backroom “hygiene factor” but a source of your competitive advantage.  It’s part of your brand, and you must treat it as such.

According to Mark LaScola, OTM Managing Principal, “Ideally, these changes should drive a clear mandate for affected businesses to conduct a critical review of their current organization design and operating model to answer the all-important question, Are we still fit for purpose?  Unfortunately, most executives tinker around the edges and conduct small fixes here and there without joining up the dots.  This approach typically leads to fragmentation and building in over-complications into a business making the employee work experience a nightmare.”

And, that’s why OTM is here to help!

Quoted sources:

Aramex http://www.ft.com/intl/cms/s/0/2c4d4a10-09e6-11e5-a6a8-00144feabdc0.html?desktop=true#axzz3lzva70k1

General sources:

All information has been sourced through desk research and by a series of interviews with OTM clients in the FMCG and logistics industry together with retail and Omnichannel experts.  Please contact David Howlett to discuss any aspect of this article.

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