I was lucky enough to participate in a supply chain session once where Damian Jones, FMCG President of Linfox, spoke about the challenges facing the Australian Logistics industry. Some of the things he talked about are the changing economic environment, upward cost drivers for logistics, climate change andlogistics skill shortage.
One of the things I remember in that talk was the argument that it is far better for FMCG manufacturing companies to outsource their logistics because it is not a differentiator in the marketplace.
There are global-optimization arguments against that statement, but they can be overcome by appropriate SLA’s. Jones actually touched on the optimization problem when he mentioned that the demand for toilet paper never changes, but the variability in the demand for logistics services transporting toilet paper is quite high due to localized promotions.
At the time, my client was a food company engaged in talks with Linfox to put in a national DC. Informally, I was asked the question whether the related IT infrastructure is better off outsourced as well. Of significance is the Warehouse and Transport Management Systems. There was a significant investment in SAP prior to the talks with Linfox which complicated the decision.
In return, I asked if holding the IT infrastructure had any strategic significance.
I believed it is quite different to outsource transport information management and to outsource actual logistics. While outsourcing logistics is outsourcing service, outsourcing warehouse and transport information can be viewed as relinquishing more control.
I was not there to see what eventuated. I suspect WMS will be outsourced to Linfox as it mainly holds only operational concerns. Interfaces will be built with bits of transport information on both sides of the fence due to the prior investment in SAP. None of this touches on stock optimization across the chain. It is mainly controlled from the food company.
Agreements on stock levels and Promotions typically are between the manufacturer and the groceries. This would have been an innovative opportunity, as putting the 3PL’s in the loop can potentially provide further transport optimization benefits. But there are risks. I think the risk of losing tactical edge by sharing promotions information to Logistics is a big psychological barrier that manufacturers face. And controls around tactical information are held sacred in Marketing and Sales functions in firms.
