It is ironic that in an industry so characterized by its fragmentation, both commercially and technologically, logistics service providers constantly claim to offer "seamless end-to-end solutions across the supply chain." In reality, few parties can offer end-to-end solutions, as defined by electronic bookings at multiple points of entry, multiple physical drop points, full tracking and tracing capabilities, and consolidated invoicing. There are also rampant fears that some major player, perhaps a new player, will succeed in dominating the supply chain.
Rapid and often fundamental changes in international supply chain operations are outstripping the ability of most logistics service providers to satisfy customer requirements fully. Customers want integrated supply chain operations to provide total global geographical coverage but, few players have the business desire, financial strength, technological ability, and managerial expertise to create, offer, and execute an integrated supply chain solution.
A bleak scenario? Perhaps, but recognizing this reality helps us understand the sheer scale of the endeavors of the few global players who are out to engineer and/or buy integrated supply chain solutions. It also enables us to identify the characteristics of future supply chain leaders. We believe the future supply chain leaders are currently in the process of forming themselves, almost like mutant, stronger, cells in search of partners with whom to team up. Far from being pessimistic, we believe the logistics industry is moving toward an exciting, less-fragmented market where it will be more in tune with customer requirements than it is today.
In a recent survey, shippers placed their priorities in the following order: reliability and price were first, followed by speed, and tracking and tracing. Those surveyed also pointed to the growing importance of forwarders in the supply chain. These finding suggest customers are looking for an integrated solution across the supply chain to increase value.
Integration across the industry is not helped by the fact that moving goods from point A to B requires not just a shipper, but a road transporter, a forwarder, a handling agent, a customs official, a carrier, and at the other end, a chain of handling agents, customs officials, forwarders, and road transporters. Each player uses a different technological platform with varying degrees of technological depth or expertise.
As illustrated in Figure 1, some players are more dominant than others. The carriers and forwarders largely determine the shape and size of the industry, with the handlers a distant, and even more fragmented, third. One would think the industry couldn't live without plug-and-play connectivity, yet the dominant parties use IT systems that are not even remotely similar, which hasn't helped to end the fragmentation. Truckers, forwarders, and cargo handlers often complain the airlines are too inward-looking and have their own priorities rather than opening their internal systems. But the entire supply chain takes advantage of transparency offered by airlines to squeeze margins on the airlines by deferring the confirmations for cargo consignments. The advent of Internet-based connectivity has the potential to improve matters, offering the basis for better links across the supply chain (see www.cargovision.com).
We also see the demand for one-stop shopping, with customers preferring to appoint a lead logistics provider to manage the entire supply chain. For example, Ford Automotive has Ryder manage and integrate all supply chains into its 20 North American assembly plants. UPS has responded to this customer need by setting up Worldwide Logistics (see www.upslogistics.com) and Fritz and others are positioning themselves to be integrated logistics companies. However, the success of these logistics players depends greatly on their ability to integrate a highly fragmented supply chain. On one side we see competition increasing in the vertical columns, and on the other we see an abundance of logistics players trying to vie for a share of the integration piece.
The challenges for the industry will be to have visibility in the inventory across the supply chain, provide shared sell-through and forecast information to link the demand chain to supply chain, and collaborate on products to decrease time to market.
We believe the future key players in air cargo logistics will be those with an international network, leading-edge capabilities, and consistent worldwide performance. They must possess process reengineering skills and be supported by shared procedures and measurements.
As suggested in Figure 2, an Application Service Provider for any of the columns with a strong presence in that column is likely to be a very strong player for that particular column. A player in the supply chain may have technological expertise unique to his column and may be well positioned to offer this to other players (including competitors) in the same column. At this point in time, no player is able to offer an integrated solution for the supply chain, let alone fully control it. Deutsche Post may currently be best positioned to achieve this, since its partnersLufthansa, DHL, AEI/Danzashave this as their business objective, and because Deutsche Post has the financial strength, but it must still prove itself in terms of technological ability and managerial expertise.
Players in one column may seek out players in other columns, as depicted in Figure 3, with generically implementable solutions for their columns. Together they can begin to form virtual supply chains. Many cargo handling companies and truckers are seeking forwarders and vice versa, to command a piece of the supply chain.
We also see many organizations forming partnerships to better service their customers. SAS, a star alliance partner, is leveraging a partnership with Lufthansa and JAL to improve service to their customers, which will involve use of common facilities as well as group products. Case Corp, a U.S.-based manufacturer of Agricultural and Construction equipment, has outsourced its supply chain solution to a trio including Fritz for international freight forwarding, Schneider for trucking, and GATX for warehousing. All three are connected through electronic media.
The air cargo industry is a $200 billion industry and is increasing 6.6% every year, with experts predicting it to double by 2016. The key issues the industry must address are:
Because of the industry's fragmentation, any business solution must address the basic connectivity issue. In a global marketplace, trading partners should use e-business technology to ensure visibility over the entire supply chain. New products should be shared across the supply chain for increased customer value. The solution framework we propose offers a robust and open platform for supply chain members to collaborate and take advantage of the connectivity in the entire chain. The layers of the proposed business model are illustrated in Figure 4, and described in the following paragraphs.
Connectivity layer. The connectivity layer is a set of modules with a standardized set of Enterprise Application Integration (EAI) links with standard interfaces like XML, and EDIFACT. The connectivity layer allows the stakeholders to send and receive messages across the supply chain, allowing them to be a part of the supply chain without heavily investing in IT infrastructure.
Knowledge layer. Massive amounts of data flows across the entire supply chain. The knowledge layer consists of business intelligence components that store the data in a data warehouse. The event manager allows this data to be used very effectively for forecasting and planning.
Functionality layer. Any e-business application must have the capability to quickly adapt to customer requirements, and must provide exchange features including auctioning, e-procurement, and so forth. The functionality layer allows supply chain participants to do all of this, and also enhances the collaboration between participants by sharing common products across the supply chain.
Not all logistics players canor even wish tobecome global one-stop operators. Only players who have the will to collaborate and prove their management and technical capabilities are likely to succeed in this task of integrating the supply chain. The logistics players have to realize that innovating to keep pace with the fast-evolving requirements of customers is the only way to stay ahead, for only a connected supply chain will be able to offer true value to the end customer. Only a handful of major players who have the financial strength, managerial competence, and technological ability will succeed in this venture of achieving true connectivity, which we expect will take up to 18 months.
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