You Might Be Spending More On Logistics Than You Should

Logistics has emerged as one of the key industries in the middle east. There has been a huge investment by government to set up infrastructure to support global logistics operations. Dubai has emerged as a leading multimodal transport in the world. Government regulations and efficient customs processes have further boosted the positioning of middle east on the supply chain globe.

As middle east is an exciting logistics market, we conducted market research to analyze the process maturity of logistics industry in middle east

During our research and interaction with prospective customers, we have realized that logistics cost in the middle east is 10 – 15 % higher than what it should be. Favorable logistics scenario has led to saturation in process improvements. Companies are reluctant to get into details and as the margins are already good in the business.

3PL companies can bring in efficiency by ensuring higher capacity utilization and bringing in innovation in supply chain management. Many companies in the middle east are now outsourcing logistics to 3PL as they realize that it brings cost efficiency and better services to them.

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Our study shows that companies are incurring higher logistics costs mainly due to below five reasons:

1. Not a Holistic Approach towards Logistics

In the middle east, companies are still looking at logistics in silos. Land transportation, freight forwarding and warehousing are working as separate functions which add inefficiency in the system. A good 3PL can look at the entire ecosystem holistically and reduce cost by providing end to end solution.

2. Process Inefficiencies

Many companies in middle east manage logistics in-house and are working in same fashion year on year. As logistics is not a core activity for these companies, they tend to accept the status quo and are reluctant to put additional efforts in increasing process efficiency. An efficient 3PL can help remove process inefficiencies and bring continuous improvement. This, in turn, would reduce the total spending on logistics.

3. Not enough Research

During our study, we found that logistics is seen as a support function in the middle east and not much research goes in customizing the solution as per requirement. Especially companies which are themselves managing their supply chain are happy working in the traditional way. Lack of research over the years has restricted innovation in supply chain and costs have remained on the higher side.

4. Lack of Innovative Practices

We observed that the warehouses look modern in construction and are equipped with best of facilities but the processes are still archaic. During interviews with warehouse managers, we realized that the middle east companies have not yet adopted the innovative ways of managing the supply chain. Similarly, freight and transportation also have the scope of implementing newer technologies of tracking and tracing which would reduce theft, damage and delays.

5. In-house management and Underutilised capacities

While doing this research, we found that the companies in middle east have the tendency to set up their own assets and have built overcapacity to meet their peak demand. This excess capacity is not shared with other organizations and remains wasteful. This leads to underutilized capacity and higher costs.

3PL companies work on the model of shared resources and significantly improve the asset utilization.

Middle east companies have been reluctant in adopting new supply chain models. There is a scope of 10 – 15 % cost reduction in logistics by applying innovative techniques and using technology. Companies need to look at logistics holistically and remove inefficiency by increasing capacity utilization. Supply chain experts need to reassess the existing practices and develop customized supply chain models. Efficient 3PL companies can add significant value by bringing in innovation and reducing supply chain cost.

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