Forward Thinking: Forecasting Logistics for the Year Ahead
The ever-present logistical challenges of matching supply to demand, meeting customer service levels, and combating pricing pressures continue to plague logistics service providers as they plan their business strategy for 2004.
Add a troubled economy and the complexity of an increasingly global marketplace, and it is easy to see why the past year has presented challenges for both logistics providers and their customers.
To help serve both users and providers, Inbound Logistics asked 11 industry experts to comment on the state of the economy and give their perspective on how logistics professionals can continue to prepare for the challenges that face them in the coming year.
From your perspective and your customers’ perspective, how is the economy?
I think the economy is picking up. The consumer product companies, such as PepsiCo, Hormel Foods, and Jergens Soap, are continuing to see growth through the recession. The consumables are continuing to grow. Some of our manufacturing clients are adjusting to the trend of globalization and finding ways to source their product in other places, which has impacted the North American supply chain. Some of those reorganizations are coming from the distribution points. Industrial durables and apparel, among other items, have shifted and manufacturing is now being impacted.
— Kristian D. Bjorson, Director, Logistics Practice Group, Staubach
As someone on the front end—a consultant and integrator—I can say that we have been busier in the last four to six months than we have ever been in the past three years. I hope that we are a leading indicator. I was talking to some users recently, and one said, ‘I think it is going to bust open in 2004.’ My take, having gone through all the cycles in the early 1970s in this industry, is one of optimism. Our business has been very good and our customers are beginning to spend money with real suppliers.
— John Hill, Principal, Esync
Clearly we are not growing anywhere nearly as fast as we thought we would be back in 2000. But we are now finishing our 14th consecutive quarter of record revenue and we will see revenue grow from about $20 million last year to about $30 million this year. It’s tough out there, and it is a lot tougher in software than it has ever been—and I have been in the business for 20 years—but it does seem to be improving.
Interestingly, we have seen a number of sales cycles that have gone on from December of last year where companies actually went out with a well-defined procurement plan and implemented in three to six months, as opposed to other sales negotiations that have been dragging on for years, and the companies keep throwing up new obstacles.
The most profound thing is that companies have realized we have hit bottom. They are saying, ‘I haven’t been investing for the last couple of years, and I know I haven’t been pumping enough into my infrastructure. So it is now safe to go out and start doing something about it.’ You can argue about how fast the recovery is going but there is a general feeling that the economy has certainly hit bottom. Many companies are free now to at least plan for technology investments and to implement on that plan.
— Ken Johnson, Vice President of Marketing, G-Log
We are seeing signs of life. We are seeing a higher level of activity and more requests for proposals. But clearly our customers tend to be very cautious and focused. They see huge competitive pressures in their respective markets but there is sign of life out there.
— Bill Villalon, President for the Americas, APL Logistics
The economy is fluctuating. You get a good start—a good quarter or two—and then it dies out. The chaos of the economy scares customers and makes them less prepared to make capital investments. The economy is sputtering, going up and down, and because of that our customers are waiting and waiting to make logistics and technology investments.
— Brian Hancock, Vice President and General Manager of Operating Services, Schneider Logistics
The economy is beginning to recover.The storm is over and this is just the beginning of the sunshine. Everyone is a little bit beaten down, so companies are being very careful and cautious as to how they act. But I am noticing that people are starting to make decisions now, as opposed to the second quarter of last year through the first quarter of this year, when they knew they had problems but were really struggling with taking action because of the risk that it might not work. People are taking a more careful approach now rather than a ‘just get it done’ attitude. Those days are gone.
— Robert Auray, President and CEO, USCO Logistics
From Chainalytics’ perspective, we’ve seen a significant increase in activity over the last quarter. When I say activity, I mean inquiries and requests for information—processes that will lead to business over the next six months. The amount of potential new business has increased substantially.
We are also seeing an upturn in corporate spending, partly because people are looking at the fact that corporate spending lags in turnaround by a few quarters. It partly depends on when the turnaround occurs because the majority of corporate budget cycles are on the calendar year. So, from our perspective, we feel like we are seeing a lot of increased activity.
From our clients’ perspective, there are very mixed views. Some of them are seeing a continued erosion of their markets and their pricing power, but there is a large question as to whether or not that is a result of the state of the economy or of the continued acceleration of certain trends such as pricing pressures coming from Asia and other overseas destinations, especially when working with a lot of manufacturers. The downturn in the economy has accelerated the growth in private label products. All of a sudden the branded manufacturers lose all their power and the product starts shifting to low-cost providers overseas.
I believe the retailers are taking a larger share of the economic pie and the manufacturers are losing ground. People now are less brand conscious on certain products, so the branded manufacturers are losing a lot of pricing power.
— Mike Kilgore, CEO and President, Chainalytics
The mixed reaction I get is cautious optimism, which hasn’t translated into any kind of revenue yet. The companies haven’t figured out how to be profitable in this economy and we are not seeing big economic growth at all. With this cautious optimism I don’t think anyone believes business will improve much in the first half of 2004.
— John Pulling, Vice President and COO, Provia Software
We’re not seeing much in terms of recovery, or in terms of building inventory. But part of the reason for that may be that the industry itself is changing. A lot of production is moving offshore so the manufacturing segments that Cendian serves are still down. I would say there are encouraging signs but I wouldn’t say there is a recovery going on yet—I just don’t see it.
— Steve Guthrie, Vice President, Sales and Marketing, Cendian
What is the biggest challenge facing your customers in the coming year and how do you plan to help them meet that challenge?
Pricing power continues to be a perennial problem in the transportation and logistics world. We see the margin squeeze continuing to play out for our 3PL customers. Their response to that is trying to figure out how to offer more differentiated services and come up with a more customized offering for their clients thereby lending them a higher margin on their services. The pricing pressures don’t ever seem to go away. The consulting firms, even some software vendors, have done a wonderful job giving clients capabilities to source effectively. Any way they can get around that through differentiation seems to be a perennial priority.
What we hear a lot in the software community is, ‘How do I offer a customized solution to my client without killing me operationally?’ In other words, ‘How do I not have to go through a lot of manual processes in my dispatch center, my call center, my carrier pickup processes, my delivery processes? And how do I replicate the customized service I offer for a customer?’
With that customization challenge, companies look to software vendors to come up with workload capabilities so that software can be replicated. Software vendors are trying to automate those non-transportation activities associated with an order as a way to differentiate themselves from competitors.
— Brent Hudspeth, Vice President of Marketing and Business Development, NextJet Technologies
Customers often ask us, ‘How do I lean out my supply chain?’ Most customers can no longer afford inventories that are unmanageable so we focus on their balance sheets. In the past they would come in with the income statement and say, ‘Help me with management.’ Now they say, ‘Help me with my inventories, help me with the way I purchase product.’
Globalization has created an environment where it is very difficult for the logistics providers because they want to still go to lean supply chains. The biggest challenge is figuring out how to continue to lean the supply chain through globalization from a purchasing perspective and making sure you can meet the requirements from a capital perspective.
— Brian Hancock, Vice President and General Manager of
Operating Services, Schneider Logistics
I break our customers into two halves: the logistics service provider (LSP) customers and our direct customers who are also the customers of the LSPs. So from the LSP’s perspective, their margins are obviously squeezed, they’ve really been sliced and diced terribly. On the other hand, strategically, they are trying to continue moving toward services that have higher margins. Some companies obviously have their own software but there is a slow trend moving away from that—not many people are embracing the idea of having their own software. Our LSP clients are assembling many different applications and creating a suite. Most of them are moving in that direction.
On the other side, there is now willingness to spend money if the ROI is there in black and white and if we can prove that it is going to work. More and more companies are looking at logistics centrally, through the lens of an LSP, and saying, ‘This is an area of confidence for us, we need to be really good at this to differentiate ourselves from our competition to drive better business processes and drive change.’ And you can’t do it if you don’t have your logistics division under better management.
— Mark S. Johnson, Vice President of Marketing, G-Log
The biggest challenge facing companies today is managing cost pressures and market globalization. A lot of our clients have sourced production in other parts of the world. Now they are trying to manage those deliverables, keep costs low, reorganize the supply chain in North America, and get product to the customer when the customer wants it. That is what we’ve seen with companies with real estate issues outside North America that are reorganizing their supply chains. The issue is, once you drive that cost, how do you keep it down? And how do you manage expectations?
We are helping customers meet that challenge by offering hands-on knowledge. We have more than 6,500 people working across the world, and act as the legs for many companies to help them make factual, educated decisions in less time. The ability to capture that meaningful, proven knowledge is what companies expect from us and from the many other service providers they work with. They want us to help them make quicker decisions and implement those decisions. We are able to help companies understand all the variables in global markets, and help them implement decisions quicker based on these variables when they want to make a strategy change.
— Kristian D. Bjorson, Director, Logistics Practice Group, Staubach
Our customers have got to do business differently than they have in the past. It has always been somewhat of a global economy but now it is absolutely a global economy. Manufacturers are still buying the same materials, they are just sending them to a lot of different places that, as manufacturers, they may never have been before. And, in our space, there are raw fee stock prices for gas and other services.
So if you are a domestic manufacturer, you are really looking for other places to manufacture your product. However, you may not have the expertise to actually operate a facility in China, for example, so it is getting much more complex.
We help our customers survive and thrive in the global economy. It is our expertise and what we were designed to do. Customers come to us for that expertise.
— Steve Guthrie, Vice President Sales and Marketing, Cendian
Homeland security is our biggest challenge right now. Shippers are now required to disclose—through RFID or other methods—what is in their containers. We’re setting up our systems so that we will be able to tell our customers what driver picked up the load in Shanghai and drove it down to the dock. And we are also going to be able to tell customers which dock workers actually loaded that shipment. We are starting to develop our software with the capabilities to clear customs before the product even gets there.
— Mike Maris, COO, LOG-NET
Getting attention for their initiatives, given the fact that the purse strings have been held pretty tightly, is the biggest challenge facing our customers. The logistics crowd is not the only community looking for recognition and dollars within a corporation. Even though we feel the argument for what we do is very compelling, I don’t think our colleagues and peers in the industry spend enough time developing the business models and business cases that will help them get an ear at a higher level in their corporations.
Some very notable exceptions, such as Wal-Mart, have certainly gotten attention. But a lot of people are still fighting with their buddies down the hall over that last couple of hundred thousand dollars. I don’t think this community is doing enough internally, such as analysis, benchmarking, and presentation.
Some people are still skittish about the economy. It is not rocket science though. Intelligent people know what needs to be done to build a business but they may not have the resources. We have the tools and the templates, the business experience, and the dirt under our fingernails. Often times we can bridge that gap between a customer’s dream as a senior manager and put together a package that is compelling enough to get somebody else’s attention.
— John Hill, Principal, Esync
The biggest challenge facing our customers is RFID for sure. And the constant challenge in this economy is figuring out how to do more for less. Everybody’s customers are pushing more back on the suppliers. Our clients have to figure out how to get better at what they do with the same resources and without budget increases. It’s all about efficiency and how to do more for less.
With this ‘do more for less’ challenge, many solutions can be found through optimization products. For example, we are helping people get more efficient in existing buildings with roughly the same volume by using less space and fewer people and just squeezing out more productivity. We are developing software that allows people to get more out of a facility in a reduced amount of time while still offering increased personalization for their customers. That is what our product team is working on right now.
— John Pulling, Vice President and COO, Provia Software
That is what our industry experts have to say, now we want your opinion. From your perspective, how is the economy doing? What are the biggest logistics challenges you face moving forward into 2004? Let us know: [email protected]