The financial crisis saw an unpredictable rise and fall of different logistics segments. Transport and warehousing, being the core logistics activities, remained relatively stable, even though the revenue generated out of them dropped significantly. Green supply chain activities dropped down manufacturers’ priority lists while reverse logistics moved to a long-term strategy. Valueadded services were generally taken back in-house by the carmakers.
At the same time there were some segments which reaped profits out of this recessionary period. The focus on communication and supply chain integration increased and investments have continued for providing more visibility and connectivity in the supply chain.
Most importantly, we also saw a rise of a logistics segment with great potential: emergency logistics services (ELS).
Traditionally a part of the on-demand service package, ELS is steadily developing as a stand-alone offering by logistics companies. Below are some of the drivers that have led to its significant growth in the previous year:
Increased customisation of motorcars has led to a change in the supply chain from being supply-based to demandbased. This trend has led to less buffer stock and more milkruns between suppliers and manufacturers. Reduced stock levels require contingency measures in the form of ELS to take care of delays and transport failures.
When manufacturing supplier locations are regionalised, then the cost of inventory storage is eliminated by bringing raw materials in the order of the scheduling line. So, supplier delays, human errors, part rejections and machine breakdowns could result in a loss of millions for the manufacturers. They, in turn, depend on ELS providers to bail them out of such disasters.
The launch of every new car requires considerable supply chain risk management. Following a dormant period, carmakers are aggressively launching new models. ELS is increasingly involved for flowing in such model launches and test periods, taking care of any hitches during inbound and outbound transport.
The fluctuating demand following the market slump, the scrapping bonus scheme and the increasing small car sales resulted in inconsistent scheduling accuracy. Instead of losing millions, manufacturers are investing in ELS to get the raw materials on time.
Poor infrastructure levels and quality issues related to the shift of manufacturing to Eastern Europe and Southeast Asia have resulted in an increased probability of failure, especially because of transport breakdowns or part rejections.
Can ELS maintain its growth rate of 10-15% , or will it die out like the 4PL segment? What are the future prospects for ELS and premium freight companies? The issue is debatable, and there are some signs carmakers are becoming cannier at taking the risk for this service into account (such as GM’s ‘total enterprise cost’ model, page 10, and Ford’s new risk table, page 26). But with increasing lean and just-intime production, it is definitely a segment the logistics industry should watch out for.