Will the latest cuts in supply chain affect the logistics industry?

Why are some of the world’s largest companies supply chain and the effects on logisticsconsidering slowing down their supply chains?

At the Stifel Transportation and Logistics conference, world-class companies including Dell and Wal-Mart discussed the potential benefits and dangers of intentionally slowing down supply chains, and why it might be beneficial in today’s economic climate. So, what do they know that we don’t?

It is important to remember that supply chain and logistics cost targets are set by fairly high-level executives at companies of this size. There seems to be the feeling at these rarefied levels that it may be time to cut logistics spending, even at the cost of a slower supply chain. They are asking themselves whether the supply chain speed they are currently offering is necessary, desirable, or even profitable. They are wondering whether the improved customer service that a fast supply chain allows is appreciated more than lower prices would be.

Dell has officially slowed their supply chain from 58 hours (about 2 ½ days) to seven days.

This is a significant change, not just because the time has nearly tripled, but also because of the emphasis Dell had previously put on speed. That’s not all they’re changing. Dell is shifting away from its ‘made to order’ model as well, incorporating more units made to stock specifications. Whether the speed change can really be analysed by itself or as part of this major shift is an open question. Dell’s representative’s take on it is that margins in the electronics industry will continue to fall, so the costs associated with a fast, custom-order supply chain were no longer justified, or even profitable.

The other shippers on the same panel at Steifel all pointed out different pressures that their organisations were facing, and different reasons to cut costs in areas that have been relatively safe from trimming up until now. Savings are being sought in Asian outsourcing, less expensive packaging options, and closer, more efficient relationships with shippers and third party logistics providers as well. Supply chain slowdown is not the only option on the table for trimming logistics budgets, but it is being used.

On the smaller scale that most of us operate on, this could mean that the big names will be reducing delivery speed and customer service spending in general. As the levels of service they provide fall, smaller companies have several options in how to respond. Some will choose to offer better service and response times, and garner a share of the market there. Others will choose to lower their own costs (and performance) to match, and take advantage of the higher margins.




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