This week, The Council of Supply Chain Management Professionals (CSCMP) with the collaboration of A.T. Kearney, published its 27th Annual State of Logistics Report©. As has been our annual custom, Supply Chain Matters provides our initial impressions of this year’s report.
Before we begin, let’s take a step back.
For the past several years, we have raised a number of concerns and added perspectives regarding the state and overall costs of logistics across the United States. Our chosen editorial commentaries reflecting on the 2012 thru 2014 reports expressed concerns towards a continued trend for increased logistics, transportation and inventory costs and in 2014, we again cited our growing concerns regarding cost and service trends. Regarding the 2015 report, our headline takeaway moved toward action, indicating that industry supply chain teams required to take attentiveness to the implications of what was occurring in various logistics and transportation channels.
We quote one of our Supply Chain Matters key takeaways from last year’s report:
“With the latest (2015) report, we believe that industry supply chain teams to move beyond industry media spin. Pay close attention to the concerning industry trends and their implications, and act proactively to continuing logistics challenges that could prove costly.”
Similarly in our annual predictions for industry supply chains published prior to the beginning of every New Year, we have continually raised awareness to increasing forms of ongoing disruption occurring in various logistics and transportation sectors.
This year’s report was compiled by a different research partner, AT Kearney. Thankfully, the current report authors are finally acknowledging that change is occurring, with the main theme being- Logistics is in Transition. Other sub-headlines and takeaways in this year’s report include:
- The logistics industry is entering a new era of disruptive forces that involve technology investments and operational constraints that will fundamentally change the rules of the game.
- Growth in the parcel and express segment continues to be fueled by the ongoing explosion in online B2C E-commence and Omni-channel retail growth.
- Overcapacity and buyer’s market state conditions continuing in the ocean container, air freight and now the U.S. rail segments.
- Technology continuing to play a key role in the future transformation of the 3PL industry.
Regarding that latter headline, the CSCMP sponsored report indicates:
“The pace and breakthrough nature of technological innovation- and the rate of which it is adopted- will heavily impact supply chain assets, processes and people.”
A further perspective we urge are multi-industry supply chain readers to dwell upon is that according to this latest report, while business inventory growth flattened in 2015, it was countered by a 42 basis point increase in the weighted cost of capital resulting in a 5.1 percent overall increase in inventory carrying costs in 2015. Part of the explanation can be found in the Appendix section of the current report. The new authors elected to modify the calculation of inventory carrying costs because prior reports multiplied the total value of business inventories by a fixed percentage- 19 percent in prior years. The new authors elected to calculate the value by utilizing other matrices more reflecting actual values of weighted cost of capital.
The implication going forward is that pressures to add additional inventory to mitigate risk or respond to customer needs for same-day delivery will come with a stiffer financial cost beyond zero interest rate conditions.
Thus, if you chose not to consider what we have been pointing out in the last 18 months, you now have a renewed industry perspective. Therefore, we need not dwell in broader or different perspectives,, rather we urge our readers and followers to just read and absorb the report for yourself.
The latest report is available for download on the CSCMP web site. Existing CSCMP members can download the report at no-cost, while non-members must pay a publication fee.
A few added comments related to the changes in this year’s report. We applaud CSCMP and AT Kearney for the changed methodology and added internal logistics industry and external multi-industry perspectives and insights brought forward in the new format. We encourage both organizations to continue that effort in future annual reports. Previous reports featured more added color and current data points in the current year and we trust the authors will take that into effect in future reports as well.
We re-iterate our ongoing key Supply Chain Matters takeaways:
The “new normal” of logistics and transportation is reflected in strategies directed at assuring consistency of service, deeper levels of business process collaboration delivered at a competitive cost. The renewed message in the light of continuing data is to insure that the cost, service and inventory benefits derived by contracting or outsourcing logistics and transportation services outweighs the continuing pattern of increasing services costs. As supply chain processes and risk profiles continue to become more complex, especially in light of the demands of online and Omni-channel fulfillment, 3PL’s and total logistics providers will have to invest more in technology and services, adding more motivation to increase fees or institute risk sharing methodologies.
If you require another proof-point- reflect on the actions that Amazon has been taking to take more control of its logistics and transportation capabilities for premium fulfillment services. If your organization spent billions on transportation and logistics, you would probably be just as motivated.
A final note:
At this year’s annual CSCMP conference being held in late September, this author will be collaborating with The Washington Post in moderating a specific panel discussion related to ongoing logistics and transportation industry trends and how specific industry supply chain organizations are responding to these changes. Stay tuned for further details.
© 2016 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.