3PL/Logistics

The art of cost effective and efficient logistics management is about a lot more than price, says Andre Jansen van Vuuren, divisional director of marketing at South Africa-based Cargo Carriers

The practice of getting goods, information or other resources from one point to another sounds simple, but it actually demands the integration of information, transport, inventory, warehousing, materials handling, packaging and security, with the aim being to have the right quantity of the right item in the right place at the right time and at the right price for the right customer

There are different approaches to and different perceptions of cost and value As American astronaut Neil Armstrong said before climbing into the Apollo 11 space capsule: His greatest fear wasn't that he was sitting on top of a million litres of highly flammable rocket fuel, nor the fact that nobody had ever set foot on the moon before; it was that the two million separate components installed in the Apollo 11 spacecraft were manufactured by the lowest bidder

Today, lowest cost and value for money is still a much debated subject The current international downturn and credit crunch is prompting new pre-occupation with low cost, with manufacturers and suppliers becoming more cost conscious at all levels within their organisations

There is an impact on the logistics industry Logistics, sitting at the end of the supply chain, is invariably hardest hit when it comes to cost cutting, despite the fact that logistics in many cases contributes less than 10% of the total cost in the manufacturing and supply chain Come what may, its status as a cost focus point seems permanent

Van Vuuren believes there is no value in being the cheapest transport contractor The answer is to drive the added-value proposition much harder than cutting costs, since adding value can reduce costs And this is how companies retain existing customers

Such value derives from backward integration within customers' supply chain Cargo Carriers has implemented a branch best practice system within all its contracts that focuses on each customer and his specific needs The results, when compared with international standards, show significant improvements For instance, the comparison against the total acceptable levels of service and complaints in the chemical industry shows massive improvement

Unfortunately, exceptional service levels come at a cost, and Cargo Carriers regards this cost as a non-negotiable issue

"The way South African commercial and industrial enterprises do business changes on a daily basis, and even more so in the current challenging economic times," says van Vuuren "Low-cost logistics services and solutions simply cannot deliver the required depth of experience and industry expertise They invariably require shortcuts that result in unforeseen costs being incurred elsewhere through late, lost or incorrect delivery, inadequate storage, vehicle accidents, damaged loads and product loss and liability"

Van Vuuren says that the real value of expert logistics services and solutions usually becomes apparent only as a company experiences the real costs of low-cost logistics ‘when the wheels fall off'

"Major contracts can be compromised or cancelled and essential product may not reach its destination on time, invoking heavy financial penalties," says Van Vuuren "There are many other variables that can go wrong if a low cost approach is adopted Simply stated, low cost is often very high cost"