A traditional viewpoint of manufacturers reveals many flaws in the efficiencies of standard shipping, transportation, and other logistics processes. Inherently, manufacturing and logistics go hand in hand. Manufacturers must receive raw material inbound and send out product to customers outbound. To take a quick step back, logistics refers to the forward and reverse flow of goods and services to retailers, businesses, and consumers. Yet, this model is growing old and inefficient, and manufacturers are being forced to re-evaluate logistics processes in order to stay competitive.
To add insult to injury, as manufacturers, right now must do all they can to have efficient logistics processes in order to reduce overall costs. According to the most recent January ISM (Institute for Supply Management) Index:
Economic activity in the manufacturing sector contracted in January for the fourth consecutive month, while the overall economy grew for the 80th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.
Fortunately, third-party logistics providers (3PLs) may be the solution. Let’s take a closer look at this trend and how it affects the manufacturing industry.
Thousands of articles have been written on the driver shortage, increasing fuel prices, and growing concerns over government regulations. As explained by Steve Syfan, in most cases, a 3PL should be able to reduce transportation costs by at least 5 percent, and as much as 25 percent, for manufacturers who have been running their own shipping departments in house. Typically, those who work and run a manufacturing company are not an expert at operations and strategies for BOTH manufacturing and logistics. Outsourcing to a logistics provider can allow a manufacturere to focus on their core. In addition to the efficiencies that a 3PL provides, the manufacturer is able to eliminate costs such as payroll, taxes, and workers’ comp insurance. You also are reducing risk for the manufacturer, because the 3PL will even cover the cargo insurance for shipments. Globally, the average revenue for US 3PLs is expected to reach $195.8 billion by 2018, reports Brian Baskin of the Wall Street Journal.
So, what is the driving force behind the growth of the logistics industry? Manufacturers need to get products to consumers in accordance with the Holy Trinity of manufacturing, i.e. the right product, at the right time, at the right price. Unfortunately, a company’s size does not equal cost reductions. Instead, manufacturers will more likely to decrease shipping costs through outsourced shipping services.
Manufacturing and logistics efficiency is used to describe the elimination of cost-inducing processes and operations, which may span across an entire organization. Since the global sales market shows no signs of slowing, especially in e-commerce and omnichannel sales’ channels, the need for more shipments will only grow. If this concern is combined with increasing regulations, costs for transportation providers, the driver shortage, and growing scrutiny in both the forward and reverse logistics processes, it is easy to see how making today’s processes more efficient will help address each of these factors and concerns.
Here are the top reasons from the Inbound Logistics 2014 and the Inbound Logistics 2015 Market Perspective:
As you can see, in just one year, improvement on business processes and improving customer service have gained on the pursuit of the least and lowest cost. Manufacturers are looking long term and more strategically, thus increasing the mindset of using an expert partner in a 3PL and staying efficient. When you can continually improve and increase customer satisfaction, you create a competitive advantage.
Consider a typical, manufacturing and logistics in house shipping process:
The manufacturer incurs the cost of obtaining the raw materials, hiring workers to produce and product, verifying the product meets quality guidelines, love the product into storage bins, picks the product when ordered, verifies the product is accurate with the customer’s order, double-check schedules, reviews weather trims for the given route, identifies what mode of transportation will be best suited for this route, figures out if the consumer will be available to accept delivery of the shipment, and payment for the order, and then replace the entire process in reverse for bringing the driver back to the distribution center.
If that sounds like a lot of things to do, you are starting to see why manufacturers are turning to 3PLs for help. Logistics efficiency does not necessarily mean that a manufacturer has improved the efficiency across that specific organization. Instead, logistics efficiency means that manufacturer has looked at the scope of shipments across the field of competitors and shipping providers and determined what will save the most money, without sacrificing quality, time, or visibility.
Think back to our example. If a manufacturer wants to maximize logistics inefficiency, the manufacturer would have a limited number of options for increasing the effectiveness of the manufacturer’s shipping processes without working with other manufacturers.
Regardless of how it would improve efficiency, Manufacturer A is not going to want to work with Manufacturer B. This goes back to the basic fundamentals of business and competition.
Why would a business want to help another business, creating a manufacturing and logistics alliance, specifically a direct competitor, get more products, at a cheaper rate, at the right time to the end user? Essentially, manufacturers cannot work together without destroying the fundamentals of competitive advantage. However, if you eliminate this two-party relationship, a third-party organization is the only solution. In this case, a 3PL can look at the information from Manufacturer A, Manufacturer B, and major shipping entities without worry about competition. After review, the 3PL will reach out to other organizations as needed and negotiate a cheaper way of shipping everything.
Manufacturers must also assess the current efficiency and effectivity of their current operations. An effective logistics management program should seek to increase revenue, improve the cost structure of shipping processes, reduce costs in transportation management, and increase customer service and satisfaction. The factors are the direct factors in meeting the requirements of the Holy Trinity of manufacturing. If a manufacturer is unable to meet these requirements, the manufacturer needs to consider outsourcing shipping and transportation processes to a 3PL immediately. Every wasted moment is equivalent to losing more money.
As more individuals start businesses, put products up for sale, and become more connected through the Internet, the amount of products will increase. Current constraints on the existing framework of the logistics industry will also increase. Ultimately, a manufacturer will not be able to survive if they try to focus on keeping both manufacturing and logistics processes in-house. Above all else, remember this: Amazon relies on 3PLs nearly exclusively, and the company’s competitive advantage and role in the global market would not be possible without improved efficiency through them.
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