Finished Content Outline
For the Logistics Service Corp. Speech
This is the finished content outline that was faxed to the client
for his approval. Anecdotes and transitions that will be in the
completed script have been added.
October 8, 1995 page 1
REDEFINING THE CORPORATION OF THE FUTURE
How Logistics Providers Add Value to the Supply Chain
I. INTRODUCTION:
A. When we talk about logistics in the supply chain,
what is the first picture that comes into your mind?
Trucks rolling down the highway? Containers being
loaded onto train cars? Forklifts moving pallets of
goods? Warehouses strategically dotting the map?
B. Maybe your imagination is more vivid, and you see
electronic data rippling up the supply chain --
barcode, inventory, purchase orders -- all sparking
their way up the stream, triggering the flow of goods
being pulled back down.
C. If you pictured any of these, you have missed the
fundamental premise of logistics -- which is to serve
the customer. If you close your eyes again and
picture the customer pacing nervously on the dock,
looking at his watch, stubbing out his cigarette with
his foot, and reaching toward the phone, you would
have a more accurate image of what drives the supply
chain.
II. REENGINEERING THE CORPORATION
A. STREAMLINING THE CORPORATION
1. Corporations today are looking for ways to
streamline for profitability. And at the same
time they are looking for ways to grow
without losing their competitive edge.
2. What they have discovered is that the
competitive edge is customer service.
Consequently, outsourcing has become a
powerful new tool for achieving these goals.
3. As companies adopt outsourcing, the choice
of which facets of the organization to
outsource and what types of outside
realtionships will best suit its purpose has
become critical to the ultimate goal --
bringing the greatest value to the customer
and the greatest productivity to the
corporation itself.
B. REALIZATION OF CORE COMPETENCIES
1. Outsourcing demands that corporations
rethink their core competencies. Long term
outside relationships are at the heart of
this redefinition.
October 8, 1995 page 2
REDEFINING THE CORPORATION OF THE FUTURE
How Logistics Providers Add Value to the Supply Chain
2. Core competencies are what gives an
organization its clear leadership position in
the eyes of its customers. They are the
capabilities of the organization that
distinguish it from its competitors. The
success of the company depends on these
capabilties.
3. The key is to understand what business you
are in, what your customers percieve as the
core competencies, and how to focus those
competencies into value for the customer.
4. Outsourcing enables executives to focus more
on the "what" and less on the "how."
5. "How" type issues tend to siphon off huge
amounts of management's attention and
resources, while "what" issues allow the
company to focus its vision on the
marketplace.
III. THE LOGISTICS MARKET
A. SIZE & GROWTH OF THE THIRD-PARTY LOGISTICS MARKET
1. Every can that sits on the shelf, every
drill bit, or article of clothing has a bar
code, a SKU number, and probably has a
logistical data history.
2. One definition of logistics is "either
inventory in motion or inventory at rest."
All that moving and resting inventory
generated $675 billion last year. That's the
amount U.S. manufacturers and distributors
paid for logistics services.
3. This includes trucking, air cargo, express
cargo, warehousing, and freight forwarding.
4. Only a small percentage of this amount is
outsourced to third-party logistics providers
-- but this is starting to change.
5. About $10 billion of logistics services were
outsourced last year. The number is expected
to increase to $50 billion in 1996. By the
year 2000 it will reach $70 billion -- or
about 10 percent of the entire amount that
the industry spends on moving and storing
goods.
October 8, 1995 page 3
REDEFINING THE CORPORATION OF THE FUTURE
How Logistics Providers Add Value to the Supply Chain
B. WHO USES LOGISTICS SERVICES?
1. Third-party logistics is becoming
increasingly attractive to businesses in the
face of budget cuts and corporate downsizing.
2. One survey of over 300 companies found that
66 percent outsourced their import/export
services. 63 percent employed freight
brokers. 48 percent outsourced warehousing.
3. There is no clear formula, though, for who
will benefit the most from third-party
logistics. One major manufacturer with 70,000
truck-loads a year contracts out nearly all
of its logistics operations while a
competitor in the same industry does not
contract any logistics services.
4. Or, a company may outsource a single
component for delivery to an assembly line
manufacturer that requires JIT inventory
delivery.
5. The decision is often on a plant-by-plant
basis. For one new plant a manufacturer
decided to go third-party rather than build
up the logistics infrastructure.
6. At the outsourcing extreme, Topsy Tail, a
start-up hair care manufacturer, has sales of
$80 million with only 3 full-time employees.
It has a network of 20 outsourced vnedors who
handle everything from the manufacturing of
their products to the servicing of their
retail accounts.
IV. REASONS FOR OUTSOURCING
A. OPERATING EFFICIENCIES
1. Third-party logistics can bring a variety of
operating efficiencies.
2. First, there can be an improved return on
assets. By reducing investments in warehouse
facilities and materials handling and
transportation equipment, the return on
assets can be improved significantly. Cash is
preserved to invest in the core business.
3. Outsourcing offers a more effective
utilization of personnel. Emphasis on the
October 8, 1995 page 4
REDEFINING THE CORPORATION OF THE FUTURE
How Logistics Providers Add Value to the Supply Chain
core business brings greater productivity.
4. Streamlining and downsizing are becoming
increasingly necessary in a competitive
market. Contract logistics offers a cost-
effective means to downsize.
5. As the marketplace changes, logistics needs
change as well. When logistics are contracted
out, there is a reduced risk of being stuck
with misplaced, outdated facilities and
equipment.
6. Contract providers can offer more
sophisticated systems and equipment. Third-
party providers are staffed with logistics
professionals who are better qualified to
perform product distribution.
B. LOGISTICS AS STRATEGIC MARKETING TOOL
1. Suppose the screen on your new mail-order
computer starts to glitch one afternoon. You
describe the problem to tech support, and at
10:00 am the next morning, a new vide card is
delivered to your door. This quick response
is more than a nice gesture, it's a strategic
marketing tool.
2. Competitive marketing demands are requiring
more and more quick filling of orders and
inventory management. And, as companies are
being forced to track these costs, third-
party specialists can lower that cost.
3. In just the last five years, the percent of
product shipped JIT/Quick Response has jumped
from 18 percent to 28 percent.
4. As freight gets down to a "zero days early
and a zero days late" criteria, transporation
is becoming a strategic tool. Transporation
is becoming one of the key marketing tools
for retailers seeking market share.
5. When shippers can't get their products
delivered on time, they lose shelf space and
market share. Retailers won't order a product
again if they open floor space or shelf space
for a product and it doesn't arrive on time.
V. ADDING VALUE IN THE SUPPLY CHAIN
October 8, 1995 page 5
REDEFINING THE CORPORATION OF THE FUTURE
How Logistics Providers Add Value to the Supply Chain
A. HOW MUCH VALUE DO THIRD-PARTY PROVIDERS OFFER?
1. One of the most debated questions in the
industry is how much value do logistics
companies really bring to the table. It is a
question with as many answers as there are
shippers.
2. I hope I don't shoot myself in the foot
using this example in Memphis, but suppose
you have a two-pound package that has to be
in Chicago in two days. The FedEx driver will
come to your door and see that the package
gets to its destination for about $14.00. The
U.S. Postal Service will do the same for
$3.00. Looking at those numbers, Federal
Express should be out of business by
tomorrow, but obviously they are not. So,
there must be value added for the extra
$11.00.
3. FedEx lets you schedule the pick-up, the
shipment is tracked every step of the way,
and you can absolutely guarantee that it will
get there when promised. Is it worth the
extra $11.00? Sometimes yes, sometimes no.
4. The value that third-party logistics
providers bring has to be looked at on a case-
by-case basis.
B. JUST IN TIME EFFICIENCY IN THE AUTO INDUSTRY
1. The automotive industry was one of the first
to realize tremendous production efficiencies
by outsourcing their logistics -- called Just
In Time.
2. One logistics firm serving the automotive
industry has the ability to pull parts from
360 vendors into one warehouse, process the
orders, and deliver the parts to destination
plants within two-hour time windows.
3. The parts are never warehoused or
inventoried at the plants. Chrysler's JIT
delivery system schedules their parts arrival
15 to 30 minutes prior to when they are
needed for manufacturing.
4. It is estimated that by the year 2000, 39
percent of all domestic shipments will be in
a JIT or Quick Response mode.
October 8, 1995 page 6
REDEFINING THE CORPORATION OF THE FUTURE
How Logistics Providers Add Value to the Supply Chain
C. CONSOLIDATING GROCERY SHIPMENTS FOR EFFICIENCY
1. Rather than handle the smaller shipments
from their own plants, grocery manufacturers
are turning to contract logistics companies.
Third-party providers can combine the smaller
shipments into truckloads, reducing freight
and handling costs.
2. Today, the leading logistics firms have
systems to consolidate orders into truck or
container loads sorted by customer and
requested arrival date. They route the
shipments and electronically direct them to
the appropriate carriers.
3. Consolidation programs can reduce
transporation costs by 30 to 50 percent.
D. WAREHOUSE LOGISTICS
1. The greatest value-added potential in the
logistics chain exists in warehousing.
2. Third-party providers are no longer just
managing inventories, they are adding value
to what gets shipped out.
3. As manufacturers and distributors look to
reengineer their production process and
outsource more peripheral assembly, logistics
providers are becoming part of that process.
4. A GE plant that produces electrical products
for overseas markets has the power supply for
each country's specific voltage installed by
a warehouse service.
5. Or, suppose Wal Mart wants three tubes of
toothpaste shrink-wrapped together, K-Mart
wants two tubes and Target wants a toothbrush
thrown in. The manufacturer is only tooled up
to put 1 or 2 dozen packages in a case, put
it on a pallet, and off to storage or
shipping.
6. At a third-party distribution center, the
original cases are opened and repackaged
according to the customer's demands, then
shipped out.
7. In clothing, logistics providers may sew in
garment labels.
October 8, 1995 page 7
REDEFINING THE CORPORATION OF THE FUTURE
How Logistics Providers Add Value to the Supply Chain
8. In the copier industry, many leading
manufacturers use third-party providers for
the entire logistics cycle. They warehouse
the copiers, make the delivery, install and
set-up the machine at the customer site,
train the user, and remove the old machine
for salvage or re-sell.
9. Even more, through In-Transit Merge, the
warehouse facility may receive various
components of that copier -- the sorter, the
color module, etc. and do a final sub-
assembly to fill the specific order.
10. In-Transit Merge is not limited to
manufactured products. Suppose a Red Lobster
or Marriott is constructing a new facility.
By receiving all the furniture, fixtures, and
equipment at a third-party staging warehouse,
delivery to the site for final installation
can occur with precise timing.
11. Outsourced warehousing offers flexibility.
Companies want to retain flexibility without
committing large capital expenditures outside
of their core areas of interest.
E. INTERNATIONAL LOGISTICS
1. Political changes also affect the logistics
market. Recent trade agreements like GATT and
NAFTA are spurring growth in both import and
export markets. These economic alliances have
also expanded the need for logistics
efficiency.
2. With a growing middle class in places like
Asia and South America, the imports market is
growing beyond the international logistics
abilities of many businesses.
3. International logistics services and freight
forwarding can reduce these costs. One
consumer products manufacturer who uses third-
party logistics only for international
shipments was able to cut costs by 17
percent.
F. TECHNOLOGY AND LOGISTICS
1. Information systems are one of the biggest
issues shippers consider when outsourcing.
For many it forms the basis for their
October 8, 1995 page 8
REDEFINING THE CORPORATION OF THE FUTURE
How Logistics Providers Add Value to the Supply Chain
decisions to purchase logistics services.
2. Some companies have spent millions
developing their own EDI systems, while
others have decided to outsource some or all
of their systems.
3. Systems are moving from transaction based
systems to more interactive, planning-based
systems.
VI. THIRD-PARTY LOGISTICS AS THE AGENT OF CHANGE
REDEFINING THE CORPORATION OF THE FUTURE
A. Outsourcing has become a vital part of doing
business. It offers an unprecedented opportunity to
form partnerships in providing faciltities, managing
inventories, adding value to the products and moving
them to the consumer.
B. Today, growth no longer means adding internal
resources as it has in the past. Companies now grow
through partnerships. The goal of outsourcing is
forming successful partnerships that deliver value."
C. Companies now realize that expertise and excellence
come from specialization in one's core competancy.
D. We can all remember the time when organizations
would ask, "Why shouldn't we do that ourselves?
Today, they now ask, "Why should we do that
ourselves?"
VII. COMEPETANCY FOR PROVIDERS
A. As companies streamline their operations, and
outsource their logistics so they can focus on their
core competancies -- they need to ask a very
important question:
What about the third-party you are entering into a
relationship with? Is it focused on its core
competancy as well?
B. Within the industry there are large numbers of
companies hanging out their logistics shingle and
jumping into the ring. A lot of them are asset-based
providers with fleets or warehouses pretending to be
all things to all people.
C. As an example, several LTL carriers have gone into
logistics -- where the actual aim is to get more
freight onto their trucks. Yes, they can offer price,
October 8, 1995 page 9
REDEFINING THE CORPORATION OF THE FUTURE
How Logistics Providers Add Value to the Supply Chain
but do they add value?
D. In other words, the third-party providers need to
examine their core competancies as well. Do they have
market-focused competancy? Do they have customer-
focused competancy. If they don't, all they can offer
is cost-cutting of indvidual components of service
which is missing the real point of value.
E. This is a new industry. Customers must examine the
capability of the logistics providers to think beyond
wheels and sheds and consider the entire supply
chain.
F. Otherwise, there is a clear danger of a mismatch
between the customer's expectations and what is
delivered. Especially if these new players in the
logistics arena are learning onthe backs of their
customers.
VIII. CLOSING
A. In his book, Post Capitalist Society, Peter Drucker
explains that in the future, "big business...will not
be the one that empolys a great many people. It will
be the one that has substantial revenues and
substantial results -- achieved in large part because
it itself does only work that is focused on its
mission; work that is directly related to its
results; work that it recognizes, values, and rewards
appropriately. And the rest," he adds, "it contracts
out."
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