Radical change in distribution system

Robert Sanjaya, Contributor, Jakarta

With the emergence of a global marketplace, businessmen everywhere are seeing a radical change in distribution systems, increasing the need for timely information management and higher consumer expectations.

Meanwhile, unprecedented levels of competition are shortening the time-to-market and heralding an age of product and service customization. And finally, globalization of productions and markets has led to growing complexity in Supply Chain Management (SCM).

Logistics is that part of the supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customers' requirements.

Part art and part science, logistics is a natural extension to the transportation industry, whether by sea, land or air. As a result, manufacturers look to air express companies and third- party logistics (3PL) providers for time-critical deliveries and fulfillment through innovative solutions that will optimize their supply chains.

Not surprisingly, companies traditionally involved in transportation have evolved into full service organizations that complement their core transportation business with logistics. Major courier companies such as DHL, TNT, UPS and FedEx have been actively involved in providing integrated logistics solution services.

Most of the companies have transformed themselves from being air express companies delivering documents into integrated logistics solutions providers that can handle anything from a letter through to a shipment of containers and providing all the necessary services in between.

Early in March, I met with Dr. John Gattorna, the world's undisputed thought leader in the science of supply chain management who is also a professorial fellow in supply chain management, and co-director of the Supply Chain Research Center at the University of Wollongong in Australia.

He gave me a very an interesting insight into the supply chain management trend. According to him, enterprises can no longer grow and prosper just by continually cutting costs. Instead, they have to grow by investing in supply chains that can enhance their performances.

"Every organization -- product manufacturer, service provider, private or public -- has supply chains of some type or the other running through the enterprises. The challenge for enterprises is how to build these supply chains in a way that responds to their customers' needs with the appropriate value propositions and strategies," he said.

I'm not an expert in supply chain management, yet all those comments sounds reasonable to me.

Compared to the Philippines, China, Thailand, Malaysia and Taiwan, the SCM concept in Indonesia, and several other countries like Laos, Cambodia, Vietnam and India, is still relatively new.

However, as an archipelagic country with abundant natural resources and a large population, SCM practices could flourish in Indonesia.

A company implements SCM because it has a significant impact on both short-term and long-term goals such as profit, market share and customer satisfaction.

Companies have different approaches in adopting the SCM concept. But most experts advise that the first thing to do before applying SCM effectively is that a company must know the actual expectation of customers. Knowing the customers' real expectation is, therefore, a key factor that must be considered before introducing supply chain practices in a company.

The second step that must be considered is to realize that no one supply chain management approach is better than the others. Companies which produce similar products might have different approaches in their supply chain practices, depending on their respective business strategy and business norms.

The most important thing is how each company assesses the effectivity of their respective approaches in fulfilling their customers' expectations.

Once the decision to implement has been made, a company should lay the necessary groundwork so that supply chain management can operate properly. The concept should also be taught to all the tiers of the management so that all the related workers understand their respective tasks, including if the company decides to outsource the supply management chain to third party.

Outsourcing to a 3PL

Nowadays, many manufacturers rely on a 3PL company to manage their supply chain and logistics solutions. By outsourcing their logistics needs to specialized companies who can provide strategic inventory management, distribution, inventory management, production support, spare parts/repair exchange service and goods samples service, businesses will be able to increase their competitive edge in their own market place

In many cases, these express logistics distribution solutions are carried out at express logistics centers and logistics companies typically have an international network of such facilities to cater to their international customer base.

But, why else should a company outsource its warehousing and distribution if they have their own warehouse?

These days, companies don't see warehouses as just a place to store goods, but as a component of the integrated flow processes within their internal supply chains. Indeed, there are very few large companies who want to build, own, and operate their own network of warehouses since this is no longer cost-effective. Instead, they prefer to move their products through a distribution system belonging to a 3PL firm.

One example on this is Ford Motor Indonesia. The company recently appointed a 3PL company to manage the auto manufacturer's nationwide warehousing and distribution of automotive spare parts and accessories.

Will Angove, President Director of Ford Motors Indonesia stated that in their business, being able to provide the best level of after-sales customer service is as important as having the best products. Every day, thousands of their customers who use Ford vehicles rely on them to ensure that replacement parts are there for them no matter where they are in Indonesia. And since Ford has four extremely popular models like the Ranger, Lynx, Escape and Everest, the challenge of maintaining and delivering the thousands of spare parts needed becomes very complex.

"The benefits of having DHL manage our entire warehousing, transportation and distribution operations were far too attractive to pass up. By outsourcing the supply chain component of our business to the expert, our management resources can be freed up and deployed in our areas of core competency, which is in automotive marketing," he said.

In addition, according to Montgomery Research Inc, companies who subscribe to professionally outsourced logistics services can expect to see an overall reduction in their supply chain costs of between 10 percent and 20 percent.

These savings come from operations, transportation and materials management. At the same time, inventory levels can be reduced by between 20 percent and 40 percent in many cases, while maintaining or improving customer service.

And, because the service is outsourced, companies are able to benefit from lower fixed assets, improved asset turnover, and ultimately, greater cash flow.

So hopefully in the future, more and more enterprises in Indonesia will understand the benefits of SCM and implementing SCM effectively in their company. -- The writer is a public relations consultant of an international courier company.