Today's frantic pace of globalization, fueled by rampant outsourcing, has created unprecedented complexity within the logistics process and spiraling transportation costs. A top challenge for best-in-class enterprises is taking back control of the logistics process. Firms are under tremendous pressure to create real-time logistics visibility within their organizations by closing the information gap between manufacturing and the rest of the enterprise and this pressure is increasing daily as the global business day becomes ever more frenetic. To retain their competitive edge in a global market, best-in-class enterprises are adopting new technologies that bring logistics operations in line with the rest of the company's operations to simplify delivery processes and create efficiencies that can deliver real cost savings.
Global Logistics Challenges
Historically, the field of global logistics has not benefited from long-term study or research due in large part to its nature of constant motion. Lack of formal training in the profession has exacerbated its inherent challenges. In recognition of how complex the logistics field has become, the Massachusetts Institute of Technology recently introduced a new Masters degree dedicated to logistics in the school of engineering. But those currently on the logistics battlefield have been fighting on the front lines without the benefit of formal tools they can use to handle today's complex delivery challenges.
Challenge 1: Offshoring and Outsourcing Increase Delivery Costs
With ongoing market pressure for the rapid development and deployment of goods, many companies have moved their manufacturing overseas to save costs on materials. For some best-in-class enterprises, offshore sourcing has gone from 5 percent to almost 50 percent of their materials' spend. Despite the cost-reduction gains from sourcing materials offshore, companies lacking real-time visibility across their logistics operations, together with the ability to optimize international transportation costs, can inadvertently grossly underestimate total landed costs. In addition to transportation fees, enterprises face import duties, taxes, fees, carrying costs, quality costs, supply risk and safety stock as other direct cost factors — costs that can add up to 50 percent, or more, of COGS (cost of goods sold).
Challenge 2: Globalization Impacts Shipping Lanes and Costs
Currently, there is an enormous imbalance between East-West trade. As China's trade activity has increased around the globe, the westbound shipping lanes to the United States have become congested, driving up logistics costs. On the other hand, eastbound delivery routes have been severely discounted so that empty containers can be returned to the Far East. As the world's trade activities proliferate, trade lane changes, which directly drive transportation costs, will continue to impact logistics costs.
To compound the challenge, import regulations, with their extensive use of exceptions and "provisional" rules, as well as the application of non-linear tariff formulas, make it difficult to predict logistics costs. This adds a level of complexity that makes cost certainty in these areas difficult to predict over any length of time — with actual costs often not known until the actual billing has been received.
Fluctuating trade imbalances — not only with China but all around the world — have prompted best-in-class enterprises to look for a technology solution that can provide visibility and control for wildly changeable logistics costs.
Challenge 3: Absence of Centralized Cross-Carrier Logistics Information Impedes Visibility
Many of today's logistics processes are handled manually; logistics data for freight shipments do not flow into the other operational systems of most firms, thus undermining the ability to identify trends, forecast costs or get an overview of delivery activity. Invoices, reports and miscellaneous logistics paperwork come in different formats: static PDF files, sparsely populated Excel spreadsheets, illegible receipts and more. Without data that can be easily reformatted into reports, most enterprises lack the visibility needed to make truly informed decisions about how to reduce transportation costs.