COMPETITIVE AND STRATEGIC ADVANTAGES IN THE USE OF LOGISTICS OPERATORS

The use of logistics operators is, without a doubt, one of the most important trends in modern business logistics, both globally and locally. According to Bowersox (1996), in the US alone, 100 new logistics operators emerged between 1990 and 1995. The market for these companies, which in 1995 in the US was US$ 7,0 billion, should reach a total of US$ 60 billion in 2002. Also in Europe this phenomenon seems to be occurring. According to the English newspaper, Financial Times, one of the most respected periodicals specialized in business in the world, “ever stronger and closer links are being forged between the producing companies and their logistics service providers”. In Brazil, this phenomenon is also a reality.

But what is a logistics operator? A good definition would be: “A provider of integrated logistics services, capable of meeting all or almost all of its customers' logistical needs, in a personalized way”. This definition reflects a series of characteristics of logistics operators, characteristics that become more evident when compared with those of specialized service providers, that is, carriers, warehouses, human resources and information managers, etc.. Table 1 below seeks confront the main characteristics of an integrated logistics operator with those of a specialized service provider.

TYPES OF LOGISTICS OPERATORS AND THEIR ORIGINS

In general, it can be said that, from an operational point of view, there are two basic types of logistics operators: operators based on assets and operators based on information and management. Asset-based operators are characterized by having their own investments in transport, storage, etc. Management and information-based operators do not have their own operational assets. They sell management know-how, based on information systems and analytical capacity, which allows them to identify and implement the best solutions for each client, based on the use of third-party assets. There is controversy about the advantages of one type of operator over the other. Those who defend asset-based traders argue that they are more solid and committed, due to the specialized investments they hold. On the other hand, defenders of information-based operators claim that because they are not committed to specific assets, they are more flexible in the search for the best possible solution to serve a given customer.

With regard to origin, there are two main sources for the emergence of logistics operators: expansion of services and diversification of activities. In the first case, the sources are companies specialized in transport, storage or information, which through partnerships or acquisitions expand their operations to offer an expanded and integrated logistics service to their customers. In the second case, there are industrial or commercial companies, which, because they have developed a high competence for the internal management of their logistic operations, decide to diversify their activity through the creation of a company providing integrated logistic services for third parties. Table 2 below presents examples in Brazil and abroad of companies with both types of origin.

WHAT TO CONSIDER WHEN DECIDING ON USING A LOGISTICS OPERATOR

The decision to use or not a logistics operator can be qualified as a choice between doing it internally or contracting it out, that is, verticalizing or unverticalizing the operations. On this issue there is a wide literature that can be considered classic. In general, the problem focuses on the analysis of the impact of the choice on costs and operational control.

The arguments in favor of verticalization are based on the assumption that doing it internally allows you to reduce costs and increase control over the operation. Cost reduction would be achieved by eliminating supplier margin and transaction costs. Considering that suppliers work with a profit margin, the internal execution would allow the appropriation of this profit, that is, the elimination of the margin. On the other hand, a number of transaction costs such as taxes, communications, travel and coordination would be eliminated if the task were performed in-house. On the other hand, when deciding to carry out the operation with its own resources, the company would have greater control over variables such as quality, deadlines, availability, flexibility, due to proximity, exclusivity and ease of coordination.

Although they seem logical, these arguments do not always materialize in practice, due to the non-occurrence of some of the assumptions. The argument that it is possible to obtain lower costs by eliminating the supplier's margin and transaction costs is only true in cases where the company has an operational efficiency similar to that of the logistics operator. In fact, most of the time this is not the case.

By being able to better exploit economies of scale, by being specialized and focused, and often by having lower labor costs, third parties tend to have substantially lower costs than a non-specialized company. On the other hand, the argument that in an internal operation it is easier to guarantee control over quality, deadlines and availability is also not necessarily true. And the main reason is that the internal execution of services tends to create the monopoly syndrome. tends to generate a process of accommodation and resistance to change, which often results in the deterioration of services and efficiency over time. For these reasons, in many cases, a decision to hand over the execution of part of the operation to a third party may result in a combination of lower costs and better services for the contractor.

FACTORS THAT HAVE FAVORED THE HIRING OF LOGISTICS OPERATORS

All over the world, the economic and business environment has undergone major transformations, which have been accelerating in the last 15 years. As a result, logistical operations have become more complex, (which tends to generate more costs), more technologically sophisticated, (implying larger and more frequent investments) and more important from a strategic point of view. (since it allows greater added value and greater competitive differentiation), favoring the use of specialists.

There are five main factors that have pressured logistics towards greater complexity, as shown in figure 1 below.

Technological development, as well as the diffusion of the concept of differentiation, has led companies to a continuous process of launching new products, resulting in a proliferation of products. For logistics, whose role is to provide the right product, at the right time, in the right place, proliferation means more complexity and higher costs.

Globalization, which implies buying and selling products anywhere on the planet, results in a greater number of customers and suppliers, a greater number of locations for supply and distribution, greater distances to be covered, greater cultural and regulatory complexity.

The market segmentation policy implies the need to use different distribution channels for the same product, and the establishment of different service standards for different segments. For logistics, this means the need to create flexible structures capable of meeting different requirements without implying significant cost increases.

The constant technological innovations, combined with the policy of frequently launching new products, has as one of its consequences the reduction of the life cycle of the products. Outstanding examples of this phenomenon can be found, for example, in high technology industries such as information technology and telecommunications, and in fashion industries such as clothing and footwear. Shorter life cycles increase the risk of inventory obsolescence, creating the need for logistics to decrease production and distribution cycle times, as well as inventory levels.

The growing demand for better services on the part of customers and consumers is another factor that has contributed to increase logistics complexity. In the case of institutional clients, whether industrial or commercial, the pressure is on greater consistency, frequency and speed of delivery. Just-in-time movements in industry, and ECR and QR in retail are the most obvious signs of this new trend on the part of institutional clients. In the case of final consumers, the demand is for the ease of being able to make remote purchases (telephone, internet, catalogue) and receive them at the desired location, at a convenient time.

In order to effectively manage this growing complexity, logistics organizations have sought greater technological sophistication. The greatest opportunities are found in information technologies, which involve both hardware and software, and have applications both in the flow of data and information, as well as in transport and storage operations. More common examples of hardware technologies are bar codes, optical readers, radio frequency, EDI, GPS, while software technologies are data warehouse, routing, ERP systems, GIS systems, simulators, and network planning systems.

THE COMPETITIVE ADVANTAGES OF LOGISTICS OPERATORS

The combination of growing operational complexity and technological sophistication has contributed decisively to increasing the demand for logistics operators. By providing services to a substantial number of third parties, they generate economies of scale, which enable continuous investments in assets, technologies, and managerial and operational training. In addition, as they are providing services to a wide range of companies, belonging to different sectors, they have the unique opportunity to learn from the experience of third parties, through a continuous benchmarking process. As a result, logistics operators have the potential to operate at lower costs and offer better services than in-house operations.

In addition to the basic advantages of costs and quality of service, logistics operators have the potential to generate competitive advantages for their contractors in at least three additional dimensions: reduction of investment in assets, focus on the core activity of the business, and greater operational flexibility.

One of the main trends in the current business environment is the quest to maximize return on investments. A growing number of companies have implemented the concept of EVA (economic value added), aiming to pursue this objective. By transferring its logistics operation to a third party, a company has the opportunity to reduce investments in storage, fleet, information technology, and even inventory, which is directly reflected in the improvement of return on assets and investment.

Permanent innovation and learning are, each day more, a basic requirement for companies to remain alive and competitive. In the current environment, competitiveness becomes a moving target, which requires focus on activity and operational excellence. By delegating the logistics activity to a competent external operator, the contracting company's executives free up time and energy to dedicate themselves to the difficult and strategic mission of developing and perfecting the core competence of their business.

In today's uncertain world, operational flexibility, that is, the ability to quickly adapt to fluctuations in prices and demand, and different market demands, is a requirement for survival. By contracting the operation of its logistics activities with third parties, the company transforms fixed costs into variable ones, substantially reducing its break-even point, thus gaining operational flexibility.

POTENTIAL PROBLEMS IN THE USE OF LOGISTICS OPERATORS

Despite the potential for competitive advantages, identified earlier, the use of logistics operators is not free of problems.

The first is the risk of losing access to key market information. Day-to-day involvement with field operations, including direct contact with customers and suppliers, is an important ingredient for staying in tune with the operation's problems and opportunities, and changes in the business environment. By delegating this type of contact to a third party, the company runs the risk of losing the sensitivity of identifying the necessary changes in time.

A second potential problem is the mismatch between the contractor's and the contracted operator's perceptions of what the contracting company's competitive objectives are. In day-to-day operations, companies are forced to make choices between several competitive objectives, such as cost, flexibility, consistency / reliability, innovativeness, speed, etc. These choices should be made based on a previously defined competitive strategy, and modified as market competition conditions change. Furthermore, different customers in different markets require different competitive priorities. The lack of adequate communication mechanisms between the contracting party and the contracted operator tends to generate a mismatch of perceptions about the real competitive priorities, generating, as a consequence, a mismatch regarding operational objectives. A by-product of this mismatch tends to be the inability of the contracted operator to respond to changes in business conditions.

A third potential problem is the logistics operator's inability to meet the targets agreed with the contractor. Often, in the eagerness to win the business, and based only on predictions about the volume and complexity of the operation being outsourced, the operator promises more than is possible to achieve. This generates tensions that need to be monitored to avoid frustration on both sides.

A fourth potential problem is the creation of an excessive dependence of the contracting company on the logistics operator, generating a high switching cost. By dismantling its managerial and operational structure focused on logistics and leaving assets, information and know-how in the hands of a third party, changing suppliers, or even returning to an internal operation, can result in excessively high costs for the contracting company .

To minimize the possibility of problems when contracting logistics operators, the natural path is, therefore, to follow a structured analytical procedure that allows deciding, on the most objective basis possible, on the convenience of outsourcing, and with whom to outsource.

FOUR BASIC QUESTIONS WHEN CHOOSING A LOGISTICS OPERATOR

The experience accumulated by several companies in the outsourcing process with logistics operators points to the advantages of a structured procedure in decision analysis. This procedure is based on seeking answers to four basic questions, as shown in Table 3 below.

WHAT DO YOU WANT TO GAIN? 

Delegating responsibility for logistical activities to an external operator involves significant costs and risks, which need to be offset by gains arising from the decision to outsource. Therefore, a fundamental step in the decision-making process is to define as clearly as possible the possible gains to be achieved by hiring a third party. There are at least four dimensions of potential gains: 1) cost reduction; 2) improvement in the quality of services; 3) increased business profitability; 4) market share growth.

Cost reduction can be achieved by reducing administrative expenses, reducing inventories, and reducing transportation, storage and handling costs. Improved service quality can result, for example, from greater stock availability, shorter cycle times, and greater punctuality in deliveries. Increased business profitability can be achieved through lower investment in assets, economies of scale, and greater efficiency due to greater focus on the core competence of the business. Gains in market share may result from entry into new market segments, or expansion into already explored markets, due to greater capillarity and distribution capacity of the contracted logistics operator.

WHAT CHARACTERISTICS SHOULD THE LOGISTICS OPERATOR HAVE?

Once the potential gains from outsourcing have been clearly identified, the next step is to identify a logistics operator that has a set of characteristics necessary to ensure that the desired results are achieved. Given the strategic importance of the decision, the relationship between the contractor and the external operator tends to move in the direction of partnership, which requires a minimum of compatibility between the needs and characteristics of the partners. These compatibility characteristics can be grouped into four classes: 1) managerial attitudes; 2) living standards; 3) business philosophy; 4) structure / image

Managerial attitudes concern the posture of companies on issues such as employee training, valuing teamwork, and technical cooperation with third parties. The patterns of coexistence involve a predisposition to set common objectives, to provide operational and strategic information, and to share gains and losses. The corporate philosophy refers to growth strategies, investment policies and product and process innovation. The structure and image refer to the size relative to the contractor, the financial soundness and the managerial and technological sophistication.

Establishing the necessary characteristics and finding an operator / partner with these characteristics represents a fundamental step to increase the chances of success in using a logistics operator.

WHAT MANAGEMENT INSTRUMENTS SHOULD BE ESTABLISHED?

Given the complexity of the relationship and the dynamics of the operation, it is of fundamental importance to create planning and control management instruments to monitor the outsourced operation. These managerial instruments should cover joint operational planning and control activities, inter-company communication procedures, cost and benefit sharing, contract features, and investments in the operation and in people.

HOW TO EVALUATE THE RESULTS?

Based on the previously defined earnings objectives and on the information obtained by the management instruments of planning and control, it becomes possible to evaluate the results of the outsourced operation, and use this evaluation as a feedback mechanism to improve both the operation and the mechanisms of planning and control.

BIBLIOGRAPHY

1) Bowersox, D.; Closs, D. Logistical Management: The Integrated Supply Chain Process. McGraw Hill, 1996.

2) Lambert, D.; Emmelhainz, M.; Gardner, M. Developing and Implementing Supply Chain Partnership. The International Journal of Logistics Management, Vol. 7, Number 2, 1996

3) ABML Special Section: The Concept of Logistic Operator. Tecnologística Magazine, Year IV, Number 39, February 1999.