For LSPs, opportunity is knocking

In the several decades I have been in the supply chain industry, I've seen changes in almost every aspect of the business. However, in my opinion, there are three developments that have made more of an impact than everything else combined—globalization, technology, and Wal-Mart. All three have forced supply chain managers to adopt new mindsets and develop new skills and processes. Wal-Mart, in particular, has raised the level of warehouse and trucking operations to an art form; and with more than 40 regional import distribution centers, 140 domestic facilities, 7,000 tractors, 5,000 trailers, and 4,600 stores, it could aptly be called a state-of-the-art supply chain that sells stuff.

But what is Amazon.com up to? Since 2010, it has spent almost $14 billion on new distribution centers. It now has 89 facilities, and more are planned. Never mind that it doesn't have stores. Its goal is to be in a position to deliver most of its orders on the day they're received. Wal-Mart, of course, with its vast network, is not far behind, with similar programs already under way.

This level of customer service, if widely adopted, could keep supply chain managers (particularly those working for retailers and consumer goods manufacturers) up at night. While the trend has so far been largely confined to the business-to-consumer sector, it will no doubt spill over into the business-to-business marketplace. Supply chain managers will be faced with some difficult questions, such as:

1. How good does our service have to be? Do we really need to offer same-day or early-next-morning delivery to compete effectively? On which products?
2. Depending on the answer to Question 1, how many distribution centers will we need to achieve our service targets? What items will we need to stock?
3. Where should the DCs be located? To achieve next-day delivery, they probably should be situated in or relatively close to the major, more expensive markets.
4. And finally, how will we deliver the products? Will we need a private fleet, contract carriers, or a combination of the two? Apparently, no idea is too bizarre. In March of this year, Reuters reported that Wal-Mart was exploring the feasibility of asking store shoppers to drop orders off to online customers on their way home. The legal obstacles to such a program are significant, but stranger things have happened in this business.

So, what will the answers to these questions be? I believe the best response to all can be summarized in one acronym: " LSEDI." Let Somebody Else Do It. In other words, outsource it.

For years, one of the major advantages to outsourcing distribution operations has been the flexibility it afforded the outsourcing company. As market and product characteristics change, logistics processes must change as well; and the use of a logistics service provider (LSP) greatly reduces the shipper's risk of being saddled with an outmoded distribution network. The DC building boom generated by the Internet hysteria is a classic example. Several privately owned and operated 500,000-plus-square-foot fully automated facilities were left empty after only a few months of operation because the expected volume didn't materialize.

Even more effective can be an arrangement with a LSP that has a sophisticated consolidation program. Participation in these programs can greatly reduce the cost of delivering what will no doubt be small shipments.

While this is not the Amazon approach, I believe this could be the best opportunity for LSPs that has come along in years. All they need to do now is get out there and market it!