Excerpts from TDG Logistics News Issues 1, 2 & 3
What makes a good logistics sales prospect? |
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What is logistics? |
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Knowledge Workers and the Future of Freight Forwarding |
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Disintermediation and the Middleman |
Logistics has a lot in common with the Internet. Third party logistics five years ago was a lot of smoke, but little fire. It’s the same thing today with the Internet, only on an impossible scale. Every day in the Journal of Commerce or Traffic World you see a press release about a “new” internet web site related to logistics. Most are garbage! It seems insane that these people building these sites would release information on them before they were ready, but they do.
Some logistics companies are providing useful information and services on the Internet. Fedex and UPS are the most notable in their advancing internet capabilities. Both will take pickups, track packages, and download software. Fedex will even let you use the Internet and your laser printer to print your bills and your bar codes! Others such as Skyway Freight Systems allow you to track your shipments by methods few other provide.
Yet most of what’s out there right now is a vast sea of P.R. junk mail that you must wade through to get to the treasure you seek. It’s like looking for sunken treasure — for ever pound of gold the ships throw overboard, they toss in a ton of garbage.
However, there are some excellent tools
that will help you locate logistics information and help you sift through
all of this.
Here is a list of some of them:
Alta Vista - www.altavista.digital.com
One of the fastest search engines that can search through millions of web
pages. Be sure to read the help info on how to limit your search.
“Fedworld” U.S. Federal Government Home Page: www.fedworld.gov
Amazon.com - www.amazon.com
Virtually any book in print today, great source for logistics books you won’t
find in your bookstore
Airlines on the Web: www.itn.net/airlines/
Newspage direct: www.newspage.com
Daily news summary for logistics (and other) items of interest sent to your
mailbox every morning
Mapquest online maps: www.mapquest.com (needs a high speed connection)
www.commerce2000.com/logistics/findex.htm
The most comprehensive logistics information site on the web. One of the best
starting points for searching out logistics resources on the Internet
Council of Logistics Management: www.clm1.org
National Association of Purchasing Mgmt (NAPM): www.napm.org
APICS: www.apics.org
NEW! Usenet news group for air cargo:
misc.transport.air-industry.cargo
“Who-Where” Directory: www.whowhere.com
Look up someone’s EMAIL address on The Net.
Fedex: www.fedex.com UPS: www.ups.com
Send me an EMAIL if you would like a more up to date list. jpowell@ix.netcom.com
| Fastcompany Magazine | The BEST Business Mag about emerging trends... |
| Asia Manufacturing Online | Good jumping off point for Asia Manufacturing |
| Smart Business Supersite | Great Links for Business Resources |
| Media Finder | Source for mailing lists, trade mags and other media |
| FAX SAVE | Send faxes anywhere in the U.S. for $0.15 via EMAIL. |
| Air
Cargo Newsgroup!!!!!!
http://www.logisticstraining.com (click on link at top of page) |
A Usenet newsgroup (discussion forum) specially for air cargo issues. |
| Microsoft Logistics | The Value-Chain Initiative Website. The VCI pages are under construction. |
In the last issue, the definition of “logistics” was discussed, and the differences in a logistics manager's job vs. a traffic manager.
In this issue we will highlight the differences between selling logistics and transportation.
Are there differences? What are they?
Everyone agrees that logistics salespeople must take a more consultative approach to selling than regular A to B transportation salespeople. Yet even this is starting to change. Five years ago, when third party logistics was more of a novelty than it is today, both the customer and provider had to custom-build many solutions. While this is still true today, it is not as prevalent as more and more “turn-key” logistics solutions are becoming available. Also, logistics buyers are able to benchmark more and learn from existing programs either within their own organization, or with your competitor.
Some of the differences we discuss in our Introduction to Logistics Sales seminar are listed below. These are not absolutes as there are always shades of gray, especially in this business!
Air freight sales people who are conditioned to blistering competition on a cents per kilo basis must shift to an understanding that a lower transportation price does not always equal lower organizational costs. Paying a higher transportation rate if it results in lower inventory carrying or administrative costs, can make sense for a customer. The challenge for the sales person is selling this idea to the right individual in the customers organization. A traffic manager may only be focused on transportation costs.
You can sell air freight forwarding services with a minimal understanding of your customer's business. Yet, trying to sell an outsourced logistics solution, especially an integrated solution without a solid understanding of your customer's business can be disastrous.
Logistics sales tend to be a substantially longer selling cycle than air freight sales – everything else being equal. However, the relationships -- once established, tend to last much longer as the provider is much more integrated into the customers operation.
However, logistics programs can be more difficult to sell as they are usually higher risk decisions, than choosing an air freight carrier. Also, in air freight there tends to be single buyers who are in a position to make a decision (usually a functional manager i.e. “traffic”). Whereas in logistics sales you are more likely to run into a committee that you will have to sell, or the decision-maker is likely to be a corporate officer. The decision to outsource a major logistics process can be a profound, and difficult one, with input from many different functional areas.
Equally fair performance metrics can be tougher to set up in logistics than air freight. However, this is one of the most critical elements of the sales process. Many times customers will hold a logistics provider to far higher standards than they were able to achieve themselves, which is fine – that's a major reason to outsource. However, the customer often doesn't turn over the entire process, and the provider can get hamstrung by cumbersome processes on the part of the customer. In other words, the provider is not given the entire authority to do the job the way they want.
Many segments of the air freight industry are becoming commoditised, where good service, and ontime delivery are the basic requirements of the game, and the only differentiator is price. Logistics in general requires more customized value-added solutions.
In air freight forwarding you have a huge number of competitors – in the U.S. alone there are thousands of forwarders. We have between four and six hundred here in our home base of Los Angeles alone.
As for logistics providers, there certainly are many out there, with more jumping into the fray every day. However it is a much more limited competitive environment. One reason is the substantial technology investment that is often required to perform supply chain management services.
Having said all this, it's obvious that it's a lot tougher to sell logistics than air freight. Or is it?
Some forwarders find that in logistics sales, you sometimes have the customer doing the selling to you. The value of outsourcing parts of the logistics process can be so compelling that the customer comes to you looking for solutions.
Your job as a provider is to craft a solution that integrates the best capabilities of your network and services to match the needs of the customer… you don't have to quite “sell” a solution so much as you have to construct one.
Also, one compelling reason many forwarders are considering third party logistics services an essential element of future competitiveness is that the tougher these programs are to sell — the more customized the solutions — the tougher it is for a competitor to take it away.
In each issue of this newsletter, we will take a brief look at some of the programs that are being offered by forwarders under the banner of “third party logistics”. We will also (space permitting) look at many of the features and benefits of these services.
More information is available in our logistics sales training programs. Contact us for details.
The days of “sell them any color they want, as long as it's black” are gone forever. Marketing has gone from “mass marketing'' in the 60's and 70's to “targeted” marketing in the 80's. In the 1990's it is marketing direct to the individual buyer.
One process that is essential in this customized environment is often referred to as the “Postponement of localization”. That is, delaying to the last possible moment, the customization that narrows the marketability of the more generic product.
For example, if HP sells laser printers in Europe, they must deal with the issues of different languages, different electrical / power systems, and differing customer configuration requirements.
All this means that manuals and on-screen commands must be the correct language and power supplies must meet the current, voltage and amperage of that country's power system. Add to this the complexity of different computer configurations, memory, drives, monitors, etc. and you realize that with each customization that happens to a product, it reduces its salability in another market.
Forwarders can offer “localization” services where the manufacturer ships the generic product in bulk to them and it is warehoused awaiting customer orders.
The product is then configured to meet those exact requirements (i.e. adding manuals, power cords, or even installing memory chips, or boards) and inventory is not wasted by bad sales forecasts.
In our business it’s hard to tell who is a competitor and who is a partner. Many of us try and sort this out when we hear about competitors teaming up on logistics bids one day and competing fiercely on similar bids with other clients the next. It’s got to be confusing for the logistics provider who must ponder the old maxim of "the enemy of my enemy is my friend…" so what does it make them this week?
Fedex welcomes new competitor: Microsoft
The latest installment from the "life is stranger than fiction" category finds press releases from Microsoft talking about Fedex as a competitor.
What are they competing for? Fedex and Microsoft going after the same customers? How can this be? Well at about the same time that Microsoft announced its "value chain initiative" Fedex disclosed its new direction in logistics – Electronic Commerce enabling for their customers. Fedex seems to believe that the next battle in logistics will be in logistics information, and not in the bricks and mortar of physical assets. Microsoft seems to believe this as well — Bill Gates and Fred Smith are both seeing dollar signs in Cyberspace. Fedex’s effort centers around setting up Electronic Commerce and EDI systems for their customers to help them better coordinate both sales and supply chain activities with their suppliers and their customers. Fedex’s software will assist companies to put up electronic catalogs online and to conduct EDI transactions with clients and vendors alike around the world.
Microsoft for their part, downplayed Fedex’s activity as being too small, to limited. Microsoft has more grandiose plans. They basically (it seems) want to provide the conduit through which all logistics information flows to coordinate supply chain activities on a global scale. If you want information on a shipment from Shanghai to Sri Lanka, then you can log into Microsoft and find out the status, or make arrangements to get the freight cleared through customs, or delivered. Microsoft is signing up major suppliers of logistics technology, such as CAPS Logistics, Manugistics and many others very rapidly. Stay tuned, this is going to be a very interesting project! Maybe five years from now we will receive "Microsoft Logistics" on CD-ROM?
There are other initiatives out there, with many more scrambling into the fray every day. However, few will survive.
There is just not a lot of utility in having a lot of "standards". And a funny thing about standards? It’s not always the "best" one that wins, but the biggest.
Introduction to Logistics Sales Training now being offered in 2 day Seminar
TDG is now offering a two day introductory logistics sales training seminar designed to teach transportation sales people about selling logistics. This seminar is a public version of the in-house logistics training classes that we have been providing for the last five years. The ideal audience is a national account, or large account salesperson who has 3-5 years of direct transportation sales experience.
However, the class is suitable for a field salesperson who has relevant industry experience in operations, or as a shipper.
This training seminar has these principal objectives:
Provide a salesperson or shipper with a thorough introduction into the outsourced logistics industry Educate the student in the "language" of logistics Teach the student to position, and sell logistics services to the correct buyer in a customers’ organization Provide an introduction into the technology of logistics Highlight emerging trends and dangers Teach the students methods of staying current in the industry and developing their skills in logistics Customized, in-house training is also available. The advantage of this type of program is that it allows you to incorporate other, company specific logistics information into the seminar. One of our customers used the training as an opportunity to have a global strategy meeting and it worked out very well.
Forwarders and the CLM
6,000 logistics prospects and not a sales rep in sight! (Well, almost…)
Where were all the freight forwarders at the recent Council of Logistics Management conference in Orlando? The conference was sold out at nearly six thousand attendees. It was startling for me to have business associates calling up clamoring for tickets like they were missing a sold out concert!
From a quick look at the attendee list it would appear that the demographics of this group are about 90% corporate logistics decision-makers and about 10% logistics providers. Most of the major U.S. forwarders were there. But with over three thousand forwarders and related companies here in the U.S. alone, you have to wonder when less than 50 companies are represented at the worlds largest logistics conference. Hopefully, many of the readers of this newsletter will now be aware of this great opportunity to learn about the industry and to network with potential customers. Here’s a typical cross-section of titles from the directory of attendees…
Vice President / Director of Logistics or Distribution Chief Financial Officer Vice President of Materials or Purchasing Many who attended this educational conference for the first time were surprised to learn several things.
It is not a trade show No direct soliciting or advertising is allowed "Hospitality suites" are prohibited For three days it is non-stop logistics education conferences and networking. The entertainment and accommodations were great. The after-dinner entertainment this year was Bill Cosby. One of the opening speakers was Dennis Waitley, who did a spectacular job.
Amongst the conferences were tours of logistics facilities and many of the conferences were geared towards self, and career development.
Each year the conference grows and grows. Next years meeting in Chicago is expected to be sold out by the end of the summer. Why though, with all this unabashed success, are most of the forwarders and transportation companies missing? One simple view is that forwarders don’t see themselves in the "logistics" business. But that does not seem to hold true – every cargo magazine you pick up these days is screaming "logistics" from every cover. Why would so many cargo executives be missing from a conference where an incredible array of potential clients gather to learn more about their industry?
As mentioned in previous newsletters, the market for outsourced logistics services is projected to hit $50-$60 BILLION dollars here in the U.S. by the year 2000, and this is up from a projected 1996 level of $25 billion. The global market is projected to hit $200 billion. Yet these projections represent only a 10% penetration rate by third parties.
The market has a lot of room for growth, but like the forwarding industry, it will probably shake out to a scenario where the market is divided up between the largest players and the niche providers. Global logistics programs can require huge investments in technology and infrastructure, which only the larger players can provide. At the same time there will always be a role for the smaller, more agile providers who can offer highly customized programs.
The CLM’s 1997 conference will be held in Chicago from October 5 - 8, 1997. It will probably sell out by mid to late summer. I just checked the conference agenda and noticed that Colin Powell is one of the speakers. Every year it becomes more and more a high-powered event. Any readers who would like more information on this organization, please give me a call at (310) 371-5026 or EMAIL jpowell@ix.netcom.com.
Selling Logistics — changing a paradigm
There’s that word again: "paradigm"... a consultants best friend! While many toss the word out as consultant psychobabble, let’s think about it for a minute. The funny thing about a paradigm is that you don’t know you are in one until you’re out of it. A recent case in point for me personally was in some of my training trips overseas — I suddenly found that I could easily pick out the Americans in a crowd, especially in Asia, and it had nothing to do with skin color. You could see and hear how they were different, you could tell them by the way they walked and the way they looked at you. But we don’t tend to notice this at home. The whole concept of getting a customer to recognize their own business "paradigm" has profound importance in logistics sales.
Stephanie Shearer of Customized Logistics Services has a logistics sales presentation entitled "Teaching the Dinosaurs to Dance" that is about getting big companies to accept change. It includes illustrations some great illustrations of other paradigms:
"The phonograph ... is not of any commercial value."
Thomas Edison remarking on his own invention to his assistant, Sam Insull, 1880
"I think there is a world market for about five computers."
Thomas J. Watson, Chairman of IBM, 1943
"There is no reason for any individual to have a computer in their home."
Ken Olsen, President,Digital Equipment Corp.,1977
"Sensible and responsible women do not want to vote."
Grover Cleveland, 1905
Your customers may be stuck in an old way of thinking, where reducing transportation expenses is everything, logistics decisions cannot be safely made by a "third party", rapid change "won’t happen to them", and their job is safe, as long as they are busy. In future issues of this newsletter, we will talk about the forces that are breaking these paradigms and how as a salesperson you can help be an agent of positive change in your customers organization.
If anyone has any other quotes or illustrations such as these, please send them to me via EMAIL at jpowell@ix.netcom.com and I will share them with the readers.
What makes a good logistics sales prospect?
The North American logistics market is estimated about $375 billion dollars. Right now, only about $8-14 billion of that is outsourced. That is expected to increase to $60 billion dollars by the end of the decade. What are the types of companies who will look at outsourcing? The following is an excerpt taken from TDG’s Logistics Sales Training class and provides an overview of the types of logistics prospects and their motivations for considering outsourced logistics activities:
High Value Products
– Significant inventory carrying costs
Each day that is reduced in the "pipeline" means they can spend more money on transportation.
Fast Selling "Hot" item
– The hotter the product, the more important the velocity of the logistics pipeline becomes
It’s no use having the best selling widget if you cannot get it to market. Many successful companies are crippled because they can’t keep up with their distribution needs.
Cyclical sales cycle
The more "peaks and valleys" in their sales, the more value added by a third party who can smooth those out by taking on a temporary distribution center role.
Company in fast "growth" mode
A fast growing company experiences growing pains that a third party can reduce by helping ensure that their distribution channels and supply chain keep pace with production.
Local Production, Global distribution
A company who seeks to compete globally with their product, but does not have the distribution resources needs "third party logistics" solutions.
High Product obsolescence
Any product that constantly loses value in the distribution channel is a good candidate. Laptops, cellular phones, software, all are good examples of products where the cost of expedited transportation and outsourced logistics can be offset by the reduced inventory carrying costs, and lowered risk of product obsolescence.
Mature company
– Seeking market differentiation
– Looking for competitive advantage
– Improved delivery time to customer
– Free up capital to reinvest in other areas (such as R&D)
Struggling Company
– Return to core business
– Eliminate overhead
– Seeking efficiencies
– Reorganizing
Just watch the receivables closely.
"Critical" products
– Medical equipment/supplies, emergency parts.
Who are the decision makers and what are the objections to outsourcing?
We will address those issues in this column in the next issue. On a logistics sales call you may be dealing with the C.E.O. or perhaps the C.F.O. or even the marketing or production managers. Each of them may have different motivations for considering a third party solution. In the next issue we will look at some actual case studies where all of the above mentioned decision makers have been involved. We will look at the features and benefits of the logistics program that sold each one of them.
Logistics is one of those words that you cannot seem to nail down in our business. Everyone seems to use it in their own way. All of a sudden, an air freight company is now into "logistics". What’s the difference between "logistics" and "freight forwarding"?
With all of the companies out there in the transportation industry adding the word "logistics" to their company name, it’s hard to tell if they are just adding words, or if something is really changing in our business.
A good starting point in the search for an answer is one definition of the term Logistics, from the Council of Logistics Management, the industry’s most prestigious group:
Logistics is: "The art and science of obtaining, producing and distributing material and product in the proper place and in proper quantities...."
The activities include, but are not limited to: warehousing, transportation, private fleet, inventory control, purchasing, production scheduling, customer service and long range planning. A survey by the CLM of logistics managers found that their responsibilities broke out this way:
Logistics Function (Percent of Time)
Sales Forecasting (4) Production Planning (4) Order entry (4) Packaging (4) International Distribution (5) Plant/Warehouse location (5) Order processing (6) Procurement (8) Inventory control (10) Traffic Management (16) Warehousing (16) General Management (18) "Traffic management" as we think of it, accounts for less than one quarter of their time. So, if you are a freight forwarder and have decided that you are going to sell "logistics", you must understand much more about your customer’s business. In particular, your staff must understand how transportation (and information) impacts the entire logistics process from the flow of inbound raw materials to the production, warehousing and distribution of finished goods.
How does a freight forwarder or transportation company acquire the skills to deal effectively with a Logistics Manager, who unlike the Traffic Manager is only partially concerned about transportation? Here are some suggestions:
Join the Council of Logistics Management. That’s mandatory. You cannot be taken seriously in this industry unless you are a member and stay up to date on what’s going on. Consider joining other organizations such as WERC (Warehouse Education and Research Council), and the National Industrial Traffic League, among others. Hire salespeople who have a manufacturing, warehousing or distribution background and teach them to sell freight, not the other way around. If you are serious, write logistics development into your business plan for the next three years. The logistics industry worldwide is worth about $600 billion dollars and if in years to come, a mere 10% of that is outsourced, it’s still a $60 billion dollar market. Consider hiring consultants rather than employees to help develop your plan. At TDG we can offer you the advantage of an impartial assessment of your strengths and weaknesses. We can provide you with an assessment of your operations, and systems capabilities and how they compare with the rest of the industry and give you an idea of what types of third party programs would be appropriate for you to offer. There may be some easy opportunities that you are missing. Call us at (800) 949-4834 for details.
Knowledge Workers and the Future of Freight Forwarding
As recently as the 1960’s almost one-half of all workers in the industrialized countries were involved in making (or helping to make) things.
"By the year 2000, however, no developed country will have more than one-sixth or one-eighth of it’s workforce in the traditional roles of making and moving goods."
"Already an estimated two thirds of U.S. employees work in the services sector, and "knowledge" is becoming our most important ‘product’."
"This calls for different organizations, as well as different kinds of workers".
-Peter F. Drucker, Post-Capitalist Society
Transportation is a commodity.
It is the information -- the value added when you provide expert advice and assistance to a customer that distinguishes you in the market.
Some people might say that everything comes down to price sooner or later. This is where many forwarders miss opportunities because they think they cannot compete. There is a different between "price" and "cost".
As a forwarder, your rates and price may be higher than your competition; yet, if the value of your information or your unique service, helps to lower your customers total cost, you can offer a better total package for your customer. Do not underestimate the value of good service. International transportation, especially air freight is a survival tool in a changing world.
How is this world changing?
Let’s say you’re going to a party, so you pull out some pocket change and buy a little greeting card that plays "Happy Birthday" when it’s opened. After the party someone tosses the card into the trash, throwing away more computer power than existed in the entire world before 1950. -John Huey, Fortune Magazine.
Advancing technology is pushing companies headlong into a frenzied competition where speed of delivery to the marketplace is crucial, and running out of product means your customers instantly turn to your competition.
Not having enough product, when and where it’s needed can be the kiss of death.
This danger is seconded only by the peril of having excessive inventories of a suddenly technologically obsolete product. Logistics managers must manage a never ending juggling act between too much and too little inventory.
Air freight can be the great equalizer. It allows small companies to compete internationally against "the big guys" and allow large companies to maintain their global presence without carrying large inventories.
A company who distributes their products throughout the world comes to rely on a freight forwarder as their "consultant" — their expert — when it comes to managing international logistics.
A skilled forwarder who can attract and retain qualified employees can win in the competition against a larger forwarder with less skilled employees. Most of us would choose a professional service such as a doctor, lawyer, accountant, etc. on the basis of their competence first. The forwarder of the future will have a few skilled specialists to perform those consultative tasks that cannot yet be automated. Attracting, training and retaining these "knowledge" workers will be a constant battle in the new millennia.
Dealing with a nomadic workforce
In 1991 nearly 1 out of 3 American workers had been with their employer for less than a year; and almost 2 out of 3 for less than five years.
The United States’ contingent workforce -- consisting of roughly 45,000,000 temporaries, self-employed, part-timers, or consultants has grown by 57% since 1980.
Constant training, retraining, job-hopping, and even career-hopping, will become the norm.
from Global Work, Bridging Distance, Culture and Time
Less than half the workforce in the industrial world will be holding conventional full-time jobs...by the beginning of the 21st century. Those full-timers or insiders will be the new minority.
- Charles Handy, the Age of Unreason
Almost anyone who has been in the forwarding business more than a couple of years will go through the same ritual when meeting someone new from another company. "Hey, you work for Global Integrated Logistical Forwarders? Do you know Joe Smith?"
"Sure, but he’s not there anymore, he’s over at..."
Job-hopping is a way of life in the freight business -- this applies to Regional Vice Presidents as much as it does District Managers or export clerks. The good employees come and go, and so do... sometimes, the bad ones. The forwarding industry is known at times to be a whirlwind of hiring and firing.
What does all this mean to your bottom line?
You are likely to have fewer long term customers. You are likely to have fewer long term employees. The employees you do have will be required to perform more diverse duties than ever before. Skilled generalists will be a valuable asset. As the logistics industry becomes more and more computer intensive, it will become increasingly important for brokers, forwarders and carriers to constantly review their training programs in all areas of the business. As information systems make it possible to handle larger and larger numbers of transactions with fewer people, it forces the remaining employees to be more of a generalist than ever.
Suddenly people who may have spent years in one department, performing one function, now have to field a barrage of questions about a variety of different issues, some of which may be totally new to them.
This is an increasingly common occurrence in the air freight industry, where smaller, previously domestic or niche forwarders are being forced into international, multimodal, mainstream competition by a bewildering array of new competitors.
Customers are expecting more and more from their suppliers and suddenly it is no longer enough to be just a broker or forwarder serving a single need. Shippers are being forced to do more with fewer resources and are less inclined to deal with a large number of narrowly defined transportation providers who cannot provide one-stop shopping.
Sure there will always be the shippers who prefer the "relationship" with the smaller forwarder. There will always be markets for creative, agile logistics suppliers who can cater to one or two specific needs. But the tide is turning away from the mid-sized forwarder who is neither large enough to provide comprehensive logistics services, nor small enough to quickly adapt to customized needs.
Many people feel that the shake-out in the forwarding industry will continue to accelerate over the coming years and will ultimately reach a point where there are only two main types of logistics providers — the really large, full service companies, and the smaller, agile providers who can provide rapidly customized solutions for their customers.
There is also a third opportunity that smaller to medium sized forwarders need to consider: the opportunity to ally themselves, or provide services to the larger logistics providers. This is perhaps the biggest untapped market for the smaller players, and I will write more about that in the next issue of this newsletter.
Disintermediation and the Middleman
Has anyone heard this buzzword yet?
If you haven’t, you will… and soon. Disintermediation is the process of "cutting out the middleman". Technology is ushering in this concept with a flood of new concepts and ideas.
At the forefront is The Internet. A book that I highly recommend is The Digital Economy by Don Tapscott. Here is a quote from him that sums up the concept:
Among the biggest victims of our new digital, networked economy will be those in the middle professions who cannot transform their roles. Agents, brokers, wholesalers, lawyers, retailers, and middle managers could become victims of another "D" word: disintermediation.
Disintermediation has been talked about for some time. When information shifts from physical to digital (charges on particles of silicon and everything connected together), the in-between can disappear. Suppliers and their customers are directly linked via the Internet.
For the many in the middle, disintermediation means buying a new copy of What Color Is Your Parachute…
One interesting example is a Ford Motor Company project where available freight is posted on the Internet, and pre-approved carriers have the opportunity to participate in an electronic auction of freight.
Bidders (i.e. forwarders or carriers) who are interested in transporting this freight, can put it a bid and commit to the service requirements. Bidders with the best price will usually get the business. Talk about reducing freight forwarding to a commodity business! Oh, by the way, don’t fail service because you may not be allowed to participate in future opportunities.
So if we are all being reduced to commodity providers, where do you make money, where is the value added? Well, some would say it’s in the "bundling" of services. Being able to provide a value package that is greater than the sum of its parts.
John Martin, of BAX Global Logistics says "if you go into a fancy French Restaurant and order a soufflé, you don’t ask how much are the eggs, the flour, the butter etc. — you pay based on the final ‘bundled’ product — the value created is in the cooking, not in the sum of the cost of the parts."
Many segments of the air freight industry are becoming commoditised, where good service, and ontime delivery are the basic requirements of the game, and the only differentiator is price. This is the challenge facing forwarders. Electronic commerce systems are making it possible to "disaggregate" the business. As in the Ford case, if you have a logistics company managing the information and the brain-power, then everything else can be segmented into commodity bids where the lowest priced provider wins the business. The logistics company adds the value in the integration; and the forwarders and carriers play a segmented role.
We will discuss this issue at greater length in future issues of TDG Logistics News as this trend accelerates in our industry.
Transportation Development Group
Toll Free at: 800-949-4834Telephone 310-302-0808Fax 310-302-0809E-mail: Info@logisticstraining.com
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