Issues and Challenges

Logistics has evolved from a transportation function for the organization to a strategic function.

Logistics Issues

Logistics is a process which interfaces and interacts with the entire company and with external companies, vendors, customers, carriers and more. Logistics is responsible for the movement of products from your vendors right through to the delivery at your customer’s door, including moves through manufacturing facilities, warehouses, third-parties, such as re-packagers or distributors. It is not shipping and receiving, nor is it traffic or warehousing. It is more.

Logistics must make work effectively. This is required by your customers and, in turn, by your company and issues faced are

Movement of product – This is often the way that logistics is viewed in many companies. Rushship an order. Expedite in a component. But there is more. Products moves should complement the corporate strategy. If the emphasis is on cost reduction, lower inventories, customer service or whatever, then products must move in a way that is consistent with the emphasis. Product must also flow, not just move, from, to, between and among vendors, manufacturing sites, warehouses and customers. If it does not flow, then there is not a supply pipeline. Instead there are imbalances in inventories with components and finished goods not being where they should be.

The movement may be extremely broad in geographical scope. Raw materials and completed units can move between and among all regions of the world. While other departments in the company may focus on select geographical regions for sourcing, manufacturing or sales, logistics must deal with all of these. Everything must move.

The movement plan must be flexible. Forecasting may be the weak link in all corporate planning and execution. So the movement must be able to adjust and deal with the swings in business activity. This may require a multi-mode, and/or a multi-carrier and/or multi-level service program to keep the global supply chain moving smoothly. For example, it may require a mix of ocean and air modes to keep a smooth pipeline, especially if there are significant swings in volumes and requirements. Or a mix of fast-boat and slow-boat transit time ocean carriers, trading off transit time and freight costs for sea freight service. Or, if the destination is on the East Coast, a mix of MLB service and all-water, similar to the multi-carrier approach but staying, perhaps, with the same steamship line.

Movement of information – It is not enough to move product and materials. You must know where they are. You must know what inventories are where and if critical action is required. You must know what orders are coming in and when they must be delivered. Information–timely and accurate– is vital for sound decision-making.

The information must flow between the company and its suppliers, carriers, forwarders, warehouses and customers. It must also move internally among purchasing, customer service, logistics, manufacturing, sales, marketing and accounting. And doing this goes beyond Email, faxes and phone calls. Investment in information technology is not an alternative anymore; it is a requirement for logistics and corporate effectiveness.

Systems should exist at the macro or corporate level and view. Since logistics is a process which interacts with many other groups in the company, it is fundamental that a corporate system be in place. It has to be dynamic for handling customer orders, production planning, material requirements planning, distribution requirements planning, finance and sales forecasting. It must be able to receive orders via EDI, transmit Advance Ship Notices, accommodate multiple warehouse and plant locations in both a single site and aggregated views, track inventories at various levels and more.

There must also be systems at the micro, or logistics level and view. Programs are needed for warehouse management, cross-docking, shipment tracking for example. Each in turn takes technology, with bar-coding and scanning. These satisfy the operations/reactive and the planning/anticipatory needs.

Time/service – The ability to respond to the dynamics of the global marketplace–changing forecasts, customer requirements, new product introductions, new sourcing, and how to manage all these changes–must be done quickly. Raw materials and components must be ordered and arrive completely, accurately and quickly. Orders must be filled completely, accurately and quickly. It is no longer months or weeks for lead times. It may not even be days. Hours may decide customer service, competitiveness and value-added. Back orders are not tolerated. If your company cannot properly respond, your customers will look for those who can.

Service is more than having to expedite a shipment. Time/service is a factor of competition, customer requirements, your company’s position in the industry, your corporate culture, how well everyone in the global supply chain works together, and how well everyone works together in your company. Logistics is the link among all this. And the more diverse the geographical scope of vendors, manufacturing, warehouses and customers, the more critical is time. Distance means time. Yet time delays are not acceptable. Movement of product and movement of information show their impact here.

Cost – Cost is the key measure by which logistics effectiveness is often measured. Freight, warehouse labor, public warehouse charges and other items on the P&L. Or inventory, a balance sheet item. Cost control, containment, and management is important for corporate profitability. Fiscal stewardship is a duty of all managers. The highest price does not mean the best service, and it may not be the service you need. Nor does the lowest price necessarily meet your needs.

There is no doubt about how important costs are. But the company must be careful. Minimizing the cost of the various logistics elements, such as freight and warehousing, can sub-optimize the effectiveness of the logistics group and of the company in satisfying its customers.

Cost has a relation to service. They go hand in hand. As you define your service against your costs or costs against service, the give and take develops into your operating costs and budgets. Then you have to make sure that the cost can be managed. Otherwise costs can go out of control, or seem to.

However, there is no ready mechanism which really makes proper recognition in costs for time/service or for adjustments in any part of the company plan. There is no item in the P&L or balance sheet for Time/Service, which is the driver of a company’s logistics efforts. Logistics cost measurement is a shortcoming in the present accounting systems. There were designed when the Model A was being built and are not adequate in today’s competitive business world. They make discreet cost buckets in a weak attempt to measure a dynamic, global logistics process.

In addition there may be other issues such as currency conversion and fluctuations. Air freight is quoted in the currency of the origin country. Ocean terminal and other accessorial origin charges are also in origin country currency. Warehouses in other countries will invoice in origin currencies. Currency conversion and dynamics can create unfavorable or favorable cost variances which have nothing to do with logistics performance.

Integration – -within your company, between you and your customers and between you and your vendors. Integration–bringing it all together–within your company is vital. Logistics is a process. Effectiveness requires that each relevant element of the organization do its part. However there is a problem with doing this. The traditional organization with its boxes and defined responsibilities is a collection of functional silos. Each silo segments and collects different parts of the vendor purchase/manufacturing/sales activity and stores it. Hence there is no process. There is a compartmentalization, a fragmenting of the process. This creates an anti-process effect.

In addition to internal integration, you must bring together and work with the external players. Your vendors, including your carriers and warehouses, must understand what you are doing and why. You must share your logistics vision and plan with them. This sharing and understanding will better enable them to cooperate with and assist you. They may be able to offer ideas and gain sharing to further improve the logistics effectiveness and the key issues with it.

Integration with customers is important. You and everyone in your company must be working and satisfy your customers. You should review written customer requirements with everyone in the logistics department and with everyone in the company. It is not enough to a company to tear apart the written requirements and hand them to various departments. That is not integration. That is functional silos.

Ever Changing Customer Needs – The era of one fits all type of service providing has ended. Nowadays, logistics solutions must be tailored to each customer. Full transparency of orders, visibility from raw material stage to final goods sale, and reverse logistics have almost become standard for some commodity groups. With too many variables in global logistics and many different parties getting involved, keeping above level of service might be challenging at times.

On Time Delivery – The situation in the ports over the past has been nightmare for all parties involved, due to the work slowdowns. Vessels that usually take about two weeks to arrive wouldn’t discharge for almost a month. At some point, the average container pick up time from the terminal was 15 days. This is just one small example of how it becomes more and more challenging to keep on time delivery rates high. A strike in India, war risk in Middle east, piracy in Somalia and even Chinese New Year Holiday are all contributing factors to this problem one way or another. As we become more and more interconnected, we will see these problems will increase in the future

Infrastructure – In the age of mega alliances, one major problem stands out: the infrastructure. With thousands of vessels already serving the major trade lanes around the globe, the problem of lack of infrastructure has become clearer recently. Most of the terminals are still trying to complete their set up to accept such large vessels and service them. This is causing congestion problems at some terminals. Also Panama Canal expansion is still underway and although it’s expected to be completed by next year, we will still see some issues in the beginning. Although cost effective, less carbon emission and makes more economical sense for the steam shiplines. Without the infrastructure to accommodate these vessels, we will see the congestion issues to continue.

Infrastructure problems, especially in developing countries, pose a serious problem in general.

Capacity – Overcapacity in ocean shipping and tightening capacity are both affecting the logistics world in a different way. Various studies found that freight rates are on continuous pressure due to large vessel deliveries. Lack of demand and oversupply was one of the biggest problems in the past few years.

Security – Security is growing concern in logistics industry due to goods are being passed from provider to provider. Shippers book the cargo with local truckers in origin, who deliveries the cargo to local warehouse for handling. The warehouses then load the cargo to trucks which deliver the containers to ports. When the shipment arrives to its final destination, it has passed through seven or eight different sets of hands. Unless everyone involved in this process does their due diligence, security becomes a problem. When any party (from shippers to local warehouses to truckers that handle the deliveries) breaks the procedures, it is only a matter of time before something seriously negative will happen. It is important to work with service providers that have secure supply chain processes, that have security places in place and that participate in government security programs.

Logistics Challenges

Increasing challenges constitute a substantial part of a logistics manager’s daily routine. We can never quite emphasise enough how much multitasking is involved in a logistics manager’s role and just how many problems they are expected to deal with daily.

Logistics managers have to deal with a wide range of responsibilities, ranging from the health and safety of employees and other road users to managing fuel costs, creating shortest routes, maximizing fleet capacity load —the list could go on and on… Fleets can be big or small, but they all share similar issues and points of concern; some of which are quite typical for all Logistics Managers.

Having to deal with huge amounts of information – Depending on the size of their fleets Logistics managers, have to manage a lot of data, and control a lot of activities: safety, fleet loading, route mapping, fuel bills etc…… This is not an easy task to be done manually.

Optimizing assets usage – The bigger the company, the bigger their fleet could be. This means more assets could be at a logistics manager’s disposal. This can be a good thing, but also can be negative as it requires more management. You need to be on top of things to avoid losing track of vehicles, making sure they are all utilized as much as possible, considering the on-going cost of each vehicle.

Managing a team located in different geographic areas – If you have a big fleet, chances are that some of your drivers are located in remote areas making communication a problem if you have depots in different regions but manage them centrally.

Customers are not satisfied – When customers are unhappy, it is probably just the tip of the iceberg: usually, this indicates the presence of other problems in your business or in your fleet, such as late deliveries, bad service etc….

Unknown supply-chain risks and volatility – The longer the supply chain, the more exposure to risk and potential disruption. For example, global manufacturers Toyota and Sony encountered supply disruptions due to multiple earthquakes in Japan. When disasters such as this occur, it’s important to develop a supply chain plan that helps mitigate as much of the risk as possible.

To best manage global supply-chain risk, companies must identify and assess the potential issues, work through various what-if scenarios, and gain transparency into their own suppliers’ operations by assessing the financial stability and wherewithal of their Tier 1, 2, and 3 vendors. These steps will help prepare companies to face unknown supply-chain risks as they arise.

Greater supply-chain variability – Variability – the difference between what we expect from something and what actually happens – becomes a key issue when doing business overseas. Within the supply chain, deviation from planned production, supply, and transit times can increase variability. Rather than invest in large buffer inventories to cover those gaps, companies should closely examine their supply-chain capabilities and then determine how well those competencies translate into the global environment.

If, for example, the infrastructure is inadequate, then a multipurpose distribution network that incorporates new physical warehouses and transportation options can guarantee responsiveness and flexibility in high-variability environments.

Less supply-chain visibility – Maintaining good supply-chain visibility – tracking shipments as they move around the world – becomes difficult when multiple carriers, third-party logistics providers, and modes are used to transport goods overseas. Poor visibility can lead to shipment delays, supply-chain disruptions, and revenue losses that can severely affect a global business.

To reduce the business and supply-chain risk associated with visibility, organizations are using collaborative processes like data sharing and demand planning across departments and business partners. They are also turning to cloud-based software platforms for data collection and information sharing and are working with global logistics experts to effectively identify and address any visibility gaps before they become problems.

Cutting Transportation Cost –Logistics companies should be able to leverage its size, strength and experience to secure highly discounted rates for ground, air, ocean, and rail transportation services. Cutting costs directly increases profitability.

Business Process Improvement – With 4PL or managed transportation solutions, companies can identify the weakest links in supply chain, and repair them. From planning and strategy to services and options – all should be streamlined across the supply chain so as to focus on serving the customer.

Regulations, Security, Other Compliance – Complying with local compliance can quickly identify contain costs, and minimize risk. Compliance with existing government regulations also helps to stay ahead of changing customs compliance laws to reduce risk, eliminate errors, and lower costs.

Technology Strategy and Implementation – Transportation and cargo management platforms should have greater technological component which are easy-to-use and can be fully integrated with back office systems. EDI, API, or web services – should be used, as applicable so as to better serve customer’s need.

Challenges in India

The Indian logistics sector incorporates the entire inbound and outbound segments of manufacturing supply chains. This sector, however, is fragmented and run by a multitude of individual players in the absence of a formal regulatory structure governing it.

The Economic liberalization and the relaxed FDI norms have been a tremendous help in the growth of the sector. Other factors that have helped are augmentation of retail, agriculture, pharmaceutical, automobile and FMCG sector. The introduction of Value Added Tax (VAT) and the proposed introduction of a singular Goods and Services Tax (GST) are expected to significantly reduce the number of warehouses manufacturers are required to maintain in different states, thereby resulting in a substantial increase in demand for integrated logistics solutions.

Infrastructure is one of the biggest challenges faced by the Indian logistics sector and has been a major deterrent to its growth. Infrastructural problems like bad road conditions, poor connectivity, inadequate air and sea port capacities and lack of development of modes of transports like railways and alternates like inland water transport and domestic aviation have been constant irritants. Due to the infrastructural bottlenecks costs per transaction in Indian logistics sector is very much high compared to those in the developed markets. Less economy of scale due to high fragmentation of industry, lack of skilled labor and manpower are also one of the major challenges for the logistic sector.

Indian subcontinent faces different challenges vis-a-vis developed nations. In foreign countries the problem is demand; in India, demand management has been a great challenge. India still has a long way to go in terms of best practices. Maturity level of most of the companies on demand driven value network is low. DDVN is essentially about being customer centric.

Apart from the above-mentioned points, the key challenge is the lack of human resources followed by infrastructure in terms of logistics, power, and water.

The other challenge which exists in a vast country like India is that the customer base is diverse and widely distributed. The point I am making is that the real growth which will occur in India is from rural areas and remote locations. For companies to win over the Indian market which is huge, they need to have right end-to-end supply chain strategies in place, covering network strategy, proper human resources, and infrastructure. The other key challenge is volatile demand, needs and preferences consumers, and customers are changing rapidly, hence creating uncertainty in the demand patterns.

The problems engulfing the sector are manifold and can be summed up as

• Inadequate Infrastructure – Although massive developmental work has been undertaken on the main routes of transportation, such as the Golden Quadrilateral, doorstep delivery becomes a big problem due to deteriorating conditions of roads in the interiors of the country. This enhances the cost of wear and tear of the vehicle which in turn increases the operating costs for logistics players.
• Conventional Ways Of Operations – One of the most important bottlenecks troubling the Indian logistics scenario is the obsolete way in which things are run. For instance, if there existed a nation-wide broadband logistics IT network then a trucker initiating his journey in Kerala could find all the papers there, get all inspections done, and move on without any interruptions to his destination.
• Economies Of Scale – The Indian transport industry is a $385 Bn industry, yet it suffers from business trade-off loss due to its distance from technology. For instance, there is an immense scope in equipping vehicles with GPS trackers as lack of a transparent network between vehicle owners and those in need of transportation services often leads to transporters making empty journeys. The existence of a route tracker will help customers to engage transporters plying on the same route for delivery.
• Constant Costs And Government Barriers – Even during lean business seasons, the costs associated with travel, for instance, inter-state permits, check posts, licensing etc. remain constant. Furthermore, the logistics industry is fraught with cartel-government nexus, which enhances the costs in terms of bribes. Bringing in transparency and regulations in this industry will help the cause of streamlining the logistics industry.