Logistics Q&A: Why do CEOs of midsized companies need to be concerned about supply chain management?
A new series focusing on plant operations and logistics.
Q. Why do CEOs of midsized companies need to be concerned about supply chain management?
A. There are many reasons that the responsibility of logistics has gone from an issue in the shipping dock to an issue in the board room in many companies. Transportation is often a significant portion of a company's P&L, but many CEOs (and other executives) don't have a handle on what they are spending on transportation costs or if those costs can be lowered while maintaining or improving efficiencies.
For this reason, many companies choose to outsource their transportation to a third-party logistics (3PL) company so they can focus resources on their core business and leave supply chain management to people who do nothing but that every day. Many also see the tremendous benefit of avoiding the potential for capital expenditures and assets on the company balance sheet.
All indications show that transportation capacity will continue to tighten for the next several years, exacerbated by the lack of qualified drivers and new legislation. A third-party logistics provider likely will be more knowledgeable and have more leverage and options than the transportation department at a midsized company to deal with these challenges and avoid interruptions in service and sky-high rates.
Of course, inventory velocity is often an issue. In order to maximize inventory turns, reduce cost and decrease stock-outs, a sophisticated TMS (transportation management system) can optimize a company's inventory and logistics. The software can be a large expenditure, not to mention the cost of experienced personnel to operate it, so again a 3PL is often a more cost-effective solution.
In an industry full of time-sensitive customers, it is important to manage on-time delivery and compliance factors. Not only do they impact your relationship with customers, but in some cases fines are associated with late deliveries.
A third-party logistics company has the network capacity to create better asset utilization for all customers across its network, which lowers transportation cost and provides efficient solutions for peak periods.
At the end of the day, supply chain management affects critical aspects of your business: capital and customer relationships. Because of its importance it has become a concern of executives in all company sizes.