LOGISTICS STUDY: DESPITE TECHNOLOGY, RELATIONSHIPS STILL KEY
While electronic commerce has brought visibility to supply chains, relationships between shippers and logistics providers still has the strongest impact on logistics, an annual review of the industry reports.
“We expect to see even stronger and deeper relationships as suppliers, transportation carriers and logistics service providers become Web-enabled,” said Robert V. Delaney, vice president of Cass Information Systems, a subsidiary of Cass Commercial Corp. Delaney spoke at the National Press Club Monday on the 11th annual “State of Logistics Report,” sponsored by Cass and ProLogis, the Aurora, Colo.-based owner and operator of more than 1,600 distribution facilities throughout North America and Europe.
“Speed, quality, information and reliability will be emphasized,” Delaney said. “But we do not expect to see major changes in shipping patterns. Indeed, we believe that companies will continue to try to work with fewer suppliers and service providers, not more.”
Nonetheless, the Internet has had a significant impact on logistics and trends in electronic commerce, such as the business-to-business movement.
These trends “are improving the visibility of inventory in motion. Add globalization of supply to fast-cycle procurement and you reach a conclusion that we can take the performance of our business logistics system to a whole new level,” the study said.
During 1999 the cost of the U.S. business logistics system increased to $921 billion or the equivalent of 9.9 percent of the Gross Domestic Product, Cass and ProLogis said.
“Inventory management will be the key to maintaining U.S. business logistics costs at 10 percent of nominal GDP or lower,” the study said.
Total revenues for U.S.-based third-party logistics providers was $45.3 billion in 1999 and is expected to top $50 billion in 2000, Delaney said.
“If this segment grows by 15 percent during 2000, 3PLs will be managing gross revenues of $53 billion and net revenues in the $28 to $29 billion range,” he said.
Transportation costs continues at 6 percent of nominal GDP for the seventh consecutive year, the study said.
The supply of warehouse space increased from 5.4 to 6.1 billion square feet from 1990 to 1999. Inventories grew 4.6 percent in 1999 but sales grew by 9.2 percent or twice as fast.
Delaney said “We did not appear to be taking inventory out of the system. We appeared to be merely shifting where inventory was held within the supply chain.
The annual study forecasts that “every industry will have an auction, exchange or electronic marketplace before long. the benefits are clear. Companies who have over produced or have extra raw materials on hand can access a B2B host and convert that excess to cash.”
However, exchanges will be “employed opportunistically, not strategically.”
“New technology will accelerate the pace of decision making, but it will not repeal the process that brings buyers and sellers together, especially in strategic material supply chains,” Delaney said. “It seems to us that those exchanges that add value and improve the carrier-customer relationship without intrusion will endure. Exchanges that intrude and try to control the carrier-customer relationship will fail and that is especially true of the exchanges that seek to control price.