Radical change in distribution system

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.