Solving logistics problems by outsourcing

Jacky Mussry, Contributor, Jakarta

Today, fierce competition worldwide is unavoidable. At the national level, the regional autonomy has created competition to a certain extent.

At the regional level, among ASEAN member countries there is the Asean Free Trade Area (AFTA), while globally, various agreements and regulations implemented by the World Trade Organization (WTO) have made competition much tougher.

This extremely competitive atmosphere forces every company and businessperson to be extra-cautious, as even to merely exist is no longer easy.

World's major company Intel's CEO Andy Grove once said that "only the paranoid may survive," by which he obviously meant that only those who can constantly create competitive advantages can survive and continue to exist.

Given the situation, every business manager at every level has to understand his or her business landscape and the company's core competencies to set the related objectives and goals.

To ensure good implementation of the company's goals and objectives, the marketing head or CEO should formulate the right kind of marketing mix that comprises relevant product, pricing, placement or distribution and promotion strategies.

These strategies are commonly called the "4Ps" in marketing jargon. The placement or distribution element -- just as important as the other three Ps -- refers to the company's logistics, including transportation, warehousing and storage, order processing, inventory, raw material stocking and handling, and so on.

Some decades ago, when the demand exceeded supply, consumers did not have a strong bargaining position, as manufacturers simply pushed their products into the market. In many product categories competition did really exist, but at a comparatively lower level. The volume of business then also allowed companies to handle the logistics by themselves. Distribution of products down to the smallest retailers was no headache.

Today, however, with abundant alternative products available in the market, fickle and highly demanding consumers have forced CEOs and managers to listen carefully to customers. This is essential if they intend to survive, and survival is only possible if customer loyalty can be maintained.

Just as marketing experts Louis W. Stern, Adel El-Ansary and Anne Coughlan wrote in their best seller Marketing Channels, companies should listen to their customers' voices and match their requirements. Also, a good strategy -- based on intensive, customer-oriented research -- should again be implemented to serve customers the way they want. Otherwise, the entire plan is rendered useless and eventually the company's existence is at stake.

As today's distribution has to cover a wider area, companies have to be cautious about a variety of costs, like inventory, transportation, order processing, warehousing and so forth, in order to be efficient. In short, the journey of a product from the plant to the outlet needs a special logistics skill so that the product is available at the customer's nearest outlet while the entire range of costs should not inflate the price and create another burden for both parties, producer and buyer.

The marketing manager, along with logistics managers, should at all times abide by the logistics definition as issued by the Council of Logistics Management: "Logistics is an integral part of the supply chain process that plans, implements and controls the efficient, effective flow and storage of goods, services and related information from the point of origin to the point of consumption in order to meet customers' requirements."

It's not as easy as it sounds. For major corporates the solution, in most cases, is outsourcing so that their core competence is not affected. The immediate advantage of outsourcing is reducing their own investment on warehousing, vehicles and related manpower so that huge amounts of money are not locked up unnecessarily.

However, outsourcing means the company should master another skill related to partnership with another party specializing in logistics. Even when the logistics is handled by another company, the manufacturer should still pay great attention to matters connected with its own information technology, enterprise resource planning, supply-chain management and customer relationship management, though at a somewhat reduced level. All this is required for on-time deliveries as well as efficient and effective logistics.

To this day, in Indonesia, not many companies have ideal logistics management. Some of the reasoning behind the current situation, apart from cost, is that good logistics management also requires a new mind-set on the part of the management to create the required added value.

For this type of company, outsourcing may be the ideal solution rather than investing huge amounts of money on the whole logistics setup. Outsourcing is relatively easier and less costly. It only requires a certain chemistry between both companies, the manufacturer and the appointed company. With the right kind of partnership, the manufacturer can leave all the hassle of distribution to its partner and focus more on its own strengths and core competencies. As, for many giant world-class corporations, this has proved successful, local companies should keep it under consideration to become winners in today's all-out global competition. -- The writer is a partner and head of consulting division at MarkPlus&Co