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 In the 28
years since transportation deregulation allowed logistics managers
and their service providers the freedom to bargain and innovate,
much has been accomplished in the industry. The initial stage was
simple. Shippers picked carriers based on the lowest rate. Supply,
demand and competition drove prices down. Carriers began to pay
more attention to their costs as their profit margins shrunk. Then,
as businesses began to focus on leaner inventories, adopting
just-in-time and similar strategies, service reliability took over
center stage. New value added services were developed. Expansion
of global sourcing and sales created more opportunities for smart
logistics providers. Much of the focus in the past two decades has
been on logistics efficiency. From 1980 to 1993, logistics costs as
a percentage of gross domestic product dropped from 16.5% to 10.2%.
Unfortunately, from 1993 to the present these gains have stalled.
There is
still a strong movement to force down transportation costs because
they typically make up almost half of a companies logistic expenses
while providing only a small part of the revenue. Now the focus is
on the financial side and balance sheet management. More and more
financial officers are looking to reduce working capital, taking
assets off the balance sheet and turning them into cash.
Many companies’
processes have evolved over the course of doing business. They are
now turning to third party logistics providers (3PL) to assist them
in making the changes required. A paradigm shift within an existing
organization could take years to accomplish. For many, the time
spent attempting the change from within would be devastating. They
realize that market share comes from not cutting price, but by doing
such a superb job that you can attract profitable market share. In
others words, you not only need the right product but also the right
processes.
Activity Based
Compensation gives us the opportunity to identify specific
activities. Then they can be tracked and analyzed. After some
history has been developed, specific decisions can be made to change
a method or process. It's effects can then be monitored for its
cost effectiveness and value.
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