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| Past Issues |
April 2010
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The 6th Annual State of Logistics™ Survey for South Africa, sponsored by Imperial Logistics and produced by the CSIR and Stellenbosch University, is a must read for anybody involved in the logistics and supply chain management sectors. The article here is a précis of the overall content which explains just how good and bad South Africa is in the highly competitive global freight transport arena. On reading through the report, FleetWatch finds that in some areas, South African logisticians are doing extremely well but in others, they struggle to get the basics right
IN THE INTRODUCTION “The overriding goal and objective of each and every chain is to transport, distribute and move products and services ever closer to final consumption in a more costeffective way, adding value in the process. This requires dedication, creativity and innovation by all parties involved.” Needless to say, given the persisting global financial sensitivities, the overriding emphasis of the report is on the value that can be derived from logistics. Before we get into the heart of the report, here is some good news: A recent World Bank report on logistics competitiveness is encouraging from a South African point of view. Although we are now positioned 28th as opposed to 24th in 2007, the actual LPI (Logistics Performance Indicator) score has improved from 3,53 to 3,46. When high income countries - such as Germany and the USA - are excluded, South Africa ranks among the 10 most significant overperformers in the logistics field which includes China and India. Sustained integration Marius Swanepoel, CEO of Imperial Logistics, reports that a positive effect of the recession is that customers are now more willing to engage their logistics service provider (LSP) and create more sustainable and cost effective solutions. “In the past, it was all about rates where the company with the lowest rate would get the contract,” Swanepoel says. “Now it is about sustainability and removing waste out of the supply chain.” David King, a researcher at the CSIR Built Environment, says for South Africa to become globally competitive, the logistics and supply chain sector will need to step up and improve its overall performance. “While taking into account the issue of continual sustainability, the value that logistics adds to the country should be greater than the costs.” Incredible as it may sound, as South Africa emerges from a back-breaking financial Tsunami, logistics costs in South Africa relative to GDP are at their lowest level since the inception of this particular survey and stand at R339-billion or 14,7% of GDP, a drop of 1,2% from the previous year. Although these numbers are seemingly moving in the right direction, they need to be analysed carefully in order to understand which factors are driving this percentage down. Compared to other countries, the logistics costs as a percentage are still high. In the USA for example, the percentage for 2008 was 9,4% . Transport cost increases are lower than in any of the previous surveys (transport costs increased by 2,4%, but account for 50,4% of total logistics costs). Inventory carrying costs were higher in 2008 and increased by 21,2% from the previous year constituting 18,6% of total logistics costs. Freight transport activity increased by 4% in 2008 in ton-kilometres shipped and 2% in tons shipped, which is just over 1,6-billion tons shipped on the four transport typologies (metropolitan, rural, corridor and bulk mining) in South Africa.
Road is King Just over 1,6-billion tons were shipped on the four transport typologies (metropolitan, rural, corridor and bulk mining). Road transported 1,4-billion tons of freight at an average transport distance of 185 km. Rail transported 204-million tons at an average transport distance of 640 km - of which 100 million tons were on the two bulk mining corridors. Transnet’s much talked about capital investment plan will have a positive impact on rail volumes but most probably, not enough. Much more funding is needed to develop more capacity, especially if domestic intermodal solutions come into play. Given the significant contribution of fuel costs to total transport costs and the volatility of global supplies, the mitigation of this risk remains prominent and the drive towards a more sustainable logistics system is gaining prominence. King warns that these improvements are approaching a natural limit: “The real mitigation of risk and an increase in sustainability can come only from a structural change. And this is critical – right now,” he states. The cost of bad roads It is not ‘breaking news’ to hear that the deteriorating road quality can potentially have many negative effects on vehicle maintenance costs which, in turn, can translate into increased logistics costs and may eventually have a negative effect on the broader economy of a country. The bad news is that the percentage of bad and very bad roads in the secondary road network of South Africa increased from 8% in 1998 to 20% in 2008. According to a case study, the potential effect of deteriorating road quality on vehicle maintenance and repair costs and the total logistics costs of a company is significant. Total vehicle maintenance and repair can increase by as much as 121% and the logistics costs of a company by as much as 10% for a truck travelling on a bad road. It is therefore vital to create awareness among stakeholders of the potential negative impacts of bad roads to ensure that proper attention is given to timely and proper maintenance of the road network. Competitive advantage The challenge of any supply chain is to add value throughout. To do this, customers, manufacturers and suppliers need to work together and optimise the flow of information, products, services and money for mutual benefit. The best results are usually achieved by selecting and leveraging the right strategic partners. According to the report, many CEOs struggle to see the value of supply chain management to their organisations if not measured in financial metrics. The solution, according to the report, is not to try to explain the value to the CEO but to let him experience it first-hand, thereby showing that it encompasses more than just a cost centre that is either outsourced or kept in-house. Supply chains trends Worldwide, supply chain professionals are struggling to manage the unprecedented pace of change. What was standard practice yesterday is ineffective today. The one certainty is that supply chains operate in a dynamic and volatile business environment and will continue to do so in future. The trend will increasingly be towards dynamic alignment of supply chains which is the ability to engage different supply chain configurations as customers change their buying activities.
A brave new world A recent IBM study suggests that supply chains of the future will be “instrumented, interconnected, and intelligent.” Supply chain professionals will be working in a highly-automated world consisting of sensors, radio-frequency identification tags, meters, global positioning systems and other technologies. What is reported in this study is almost like science fiction. Inventory will count itself; containers will detect their content; and pallets will report if they end up at the wrong place. Advanced analytics and modelling will help decision makers evaluate alternatives while taking complex risks and constraints into account. In short, the trend is towards more intelligent, automated and smarter supply chains. It is estimated in the next five or six years the majority of companies will have reconfigured their supply chain networks. The following is a list of events most likely to come about in the short to medium term: • Supply chain planning and execution will start to blur. Focus on emerging markets Further to this, the focus of supply chains will turn to emerging markets which mean us here in South Africa. The message in this survey is blatant: “either get on the supply chain management/logistics bus or stay locked in the logistical backwaters with all its costly snags and delays.” As soon as the current financial crisis has diminished, the focus will shift again to climate change and global warming, with green supply chains becoming a requirement. Logistics and supply chains are integral parts of the economy of a country. For South Africa to be reckoned as a quality player in the global marketplace, the logistics and supply chain management environment will have to stay abreast of developments. It is therefore critically important that supply chain professionals take note of these trends.
Storage and inventory The R1,2-billion net increase for storage costs as reported in the survey is a result of storing slightly less inventory for a longer period of time at slightly lower real storage rates. This is a mixed result for efficiency and a positive result as far as price increases are concerned. Unfortunately, the positive effect of lower storage rates is negated by higher inventory carrying costs. The trend in inventory carrying costs were once again much higher in 2008 (21,2% higher than in 2007). The reasons for the increase in inventory carrying costs are two-fold: The average weighted interest rate increased from 13% to 15% between 2007 and 2008, and the levels of inventory increased. The change in interest rates contributed 40% to the increase in inventory carrying costs, while the increase in inventory levels contributed the remaining 60%. Skills shortages Much has been written about skills shortages. The survey points out that we are not just short of people with skills but of people with the right skills - people who link their functional role and activities to the needs of the supply chain within which they operate. We certainly need to work much harder at attracting ‘new blood’ into logistics and portray it to young people as attractive, interesting and important - as it truly is. Simultaneously, we need to develop ‘supply chain thinking’ in all those who work in logistics, be they a CEO of a retailer or manufacturer, or a warehouse or transport manager. History has shown that one size does not fit all and that future supply chains must first and foremost be tailored to the end-user. In today’s world, low costs can typically be replicated readily and thus be unlikely to lead to a competitive advantage over the long term. Supply chain managers will succeed only if they understand the needs of key customers and strive to maintain alignment between the supply chain’s design and its customers’ changing needs and desires. To paraphrase Charles Darwin: “It is not the strongest that survives. It is the most adaptable to change”. |
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