Feb. 10, 2013, marks the beginning of the Chinese Year of the Snake. The sixth sign of the Chinese zodiac, the snake is associated with swift—and unpredictable—changes in direction. If 2013 proves to be anything like its namesake, it will be a year of unexpected developments that require a quick response.
So what does this have to do with the supply chain? In my mind, it reinforces the belief that 2013 will call for a great deal of flexibility on the supply chain manager's part. Obviously, you cannot manage your operation based on Chinese astrology, but that notion was further reinforced by a recent Stifel Nicolaus report, 12 Transportation and Logistics Game Changers for 2013 and Beyond. The report listed "continuous supply chain optimization adopted by winning shippers" as one of the trends that will shape the future of logistics and supply chin management. I believe it goes without saying one cannot have continuous optimization without also having a great deal of flexibility.
That need for flexibility suggests that 2013 will be a good year for logistics service providers (LSPs), as I noted in last month's column on developments that bear watching in 2013. Flexibility has always been one of the key reasons why companies outsource. As new markets and new products have developed, it has been almost impossible to predict future supply chain needs accurately. New customer service requirements, ordering techniques, and competitive offerings have impacted supply chain design, but making a significant change in a private network has been somewhat like trying to steer the Titanic around the iceberg. Companies have tended to stick with existing networks and practices for as long as they could. As the Stifel Nicolaus report put it, their supply chains are often defined by legacy infrastructure, legacy systems, and long-term relationships with carriers.
In today's environment, however, that's a luxury few supply chain managers can afford. The list of factors that can impact supply chain design and operations has gotten longer and the stakes have gotten higher. Such things as fuel costs, capacity constraints, customer preferences, and mode shifts mandate constant attention to the supply chain, particularly as the more sophisticated managers strive for continuous improvement. This is where logistics service providers can prove invaluable.
The use of an LSP, while not affording the ability to make overnight changes, enables most companies to modify their operations within a much shorter time frame than if they were invested in bricks, mortar, and equipment. A recent Eye for Transport survey suggested that outsourcers take advantage of this, in that 84 percent of their initial outsourcing contracts have been for three years or less. While a two- or three-year agreement might sound like a pretty narrow window for change, shippers have found they can get faster results working with an LSP than they can by themselves. Most LSPs seem to be able to react more quickly and can more readily make necessary changes in their operations and processes as their clients work toward continuous improvement of their supply chains.
I think all this bodes well for the provider industry. While no company would want its logistics service providers to exhibit all the attributes of a snake, the ability to change direction on short notice can make LSPs valuable contributors to dynamic supply chain operations.