Logistics linked to profitability

Heath E. Combs, Furniture/Today -- Home Accents Today, 7/27/2011 7:22:40 AM

UPS Freight President Jack Holmes speaks about the changing face of logistics at the 2011 Sandow Media Logistics Conference.IN OLD-SCHOOL THINKING, the world of logistics was pretty predictable.

"The new logistics has been portrayed as glamorous, sexy pop. Well it isn't. What it is, is a new approach needed to impact new obstacles.

Not so in the past several years, as logistics emerged as a competitive weapon that businesses now use to differentiate themselves from the pack in a sometimes volatile global economy, said UPS Freight President Jack Holmes.

Holmes was the keynote speaker at the 2011 Sandow Media Logistics Conference, held at Americasmart last month and attended by about 135 retailers, suppliers and logistics professionals.

"The new logistics has been portrayed as glamorous, sexy pop. Well it isn't. What it is, is a new approach needed to impact new obstacles. The new logistics ... levels the playing field and changes the way you reach your customers," he said.

Holmes - who said UPS manages shipments whose value amounts to about 6% of the U.S. GDP each day - said the home furnishings industry is shifting its focus from its traditional reliance on brick and mortar stores to a number of different retail models.

Like the industry, UPS has faced a changing global marketplace and has had to go from a sometimes rigid approach to a more nimble one, he said, outlining some of the challenges in logistics in recent years.

Commenting on the opportunities provided by the global marketplace, Holmes said that four out of every five transactions take place outside the United States. The new logistics environment has given companies access to new customers, he said, but it also opens them up to new competition and high expectations from customers who want product quickly and at yesterday's prices.

Pressure has built in recent years to reduce inventories, meaning it's more important to make sure product gets to the right place at the right time, Holmes said.

Whether they personally manage or outsource logistics, companies need to know more than just where in-transit shipments are, he said. They need to know where next week's shipments are and what customer returns and warehouse shortages will be.

Today's more complex supply chain means information management is more valuable and is required for a more efficient flow of goods, Holmes said, adding that information is a key to reducing logistics costs and increasing customer satisfaction.

The dynamics of shipping also have changed, Holmes said.

An order cycle that was once pretty predictable and typically weekly has been replaced by a daily, sometimes hourly cycle with a broader base of customers and logistics providers, he said.

"The demand is much more cyclical than it typically was," Holmes said.

For example, he said businesses used to stock up for the Christmas season in September and October. Now, the freight cycle spikes in November and December, and the air business goes crazy as the holiday approaches.

Another changing dynamic has been that as commerce has become more global, reverse logistics, or return policies, have become a huge issue, Holmes said.

He cited a study by Forrester Research that concluded that 81% of customers favor retailers with generous return policies.

That helps those retailers capture a customer who fears buying sight unseen via the Internet, he said. He stressed that companies embracing a good return strategy differentiate themselves and give themselves a competitive advantage.

Holmes said companies must also factor the natural world into their logistics strategies. Earthquakes, volcanoes, flooding, tornadoes and hurricanes are variables that can't be controlled, but that must be planned around.

When those circumstances arise again, better plans often result, he said.

"When the volcano erupted in Iceland last year we had to mitigate the impact of that. We had to put together what we believe was some great plan B action to move freight around that," Holmes said. "And after you do that, then you go look back and try to put better plans together if that scenario were to happen again, as a lot of companies did and which benefited us this year."

Having strategies in place to deal with factors like high fuel costs would have been unheard of until a few years ago, he said.

Sustainability also is becoming a bigger part of the decision-making process and will continue to play a growing role, Holmes said.

Companies also face currency exchange rates that are sometimes unfavorable, technology compatibility issues, language mistranslations, political considerations and varying levels of safety and security in the world marketplace.

Holmes also discussed the UPS relationship with third-party logistics providers, or 3PLs - companies that don't take title to product, but integrate services like transportation, warehousing, cross-docking, inventory management, packaging, and freight forwarding.

In the past, UPS viewed 3PLs as coming in between UPS and a customer, Holmes said.

He said these days, as 3PLs grow, UPS will choose its partners and work with those whose businesses it can help make better and whose models it is comfortable with.

"In today's competitive market, you have to change ahead of your customer's needs, understand the supply chain, get closer than ever to your customer and be nimble," Holmes said.

"At the end of the day, you have to make logistics a priority because your customers and your competitors are going to judge you on the strength or weakness of your logistics platform."