Solving logistics problems by outsourcing

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