Logistics: the secret to healthy profits in a globalised economy

Of all the changes brought about in business by the information revolution, the transformation of supply chain logistics is perhaps the fastest and most important. For hundreds of thousands of years, supply chains moved at the speed of humans on foot, as nomadic "customers" walked to where the food, shelter and tools could be found.

The rise of sedentary farming saw the creation of local markets, and for millennia, buyers and sellers had to be physically present at these markets to trade. The Industrial Revolution saw mass production introduced, so for a few hundred years, supply chains needed to supply raw materials to production centres, and then deliver manufactured products to markets nationally, and eventually globally.

In less than 50 years, however, the paradigm has shifted again. Global connectivity ensures that suppliers, producers and customers are able to communicate more rapidly than ever before, and the globalised information and transport infrastructure allows components to be sourced wherever they can be produced most cost-effectively, and then assembled in a "just in time" model to supply the customer, sometimes eliminating the need for warehousing.

For this business model to work, however, the logistics job-description has had to be transformed. Once a handy sinecure in which to park a company's less imaginative employees, who could do an adequate job by doggedly following standard procedures, the post of supply chain logistics is now at the centre of many businesses, requiring the most innovative, most flexible talents.

Complexity and capability now define profit

Research conducted by Deloitte in the United States a few years ago reinforced the importance of logistics in modern business. The companies studied were assessed according to the complexity of their entire supply chain, and their delivery capabilities across that supply chain. While 49% of the companies fell into the "low complexity, low capability" quadrant and were viewed as the baseline, businesses that exhibited either high complexity with low capability, or high capability with low complexity (37% and 7% of those surveyed, respectively) showed higher profits than the baseline - by 17% in the former and 19% in the latter. Only 7% of firms surveyed fell into what researchers call the "Complexity Masters" quadrant - those businesses that managed high complexity and high capability in their global supply chains - yet these companies were 73% more profitable than the baseline.

This research was repeated in South Africa in 2009, by TerraNova research specialists for the Supply Chain Intelligence Report, and the results were almost identical - in particular, they showed that Complexity Masters are consistently making much higher profits than less complex or capable competitors. There are a number of reasons for this; the most important is probably the speed at which competitors can mimic new ideas - ensuring a wide variety of choices available to customers. If companies cannot provide what the customer wants, when they want it, at an acceptable price, they will simply buy from a competitor who can. So understocking results in lost sales - but in a world where product life-cycles are measured in months, rather than years, overstocking is also unprofitable, as it takes up retail floor-space and risks obsolescence. Pin-point logistics is the key to profitability in this environment.

Logistics staff need visibility and flexibility

According to the Supply Chain Intelligence Report, the key to modern supply chain logistics is visibility - the ability to know exactly what customers are demanding at any given time, while also understanding the capabilities of suppliers. Logistics staff must monitor both of these areas constantly, but more importantly, must also be able to react swiftly and effectively to ensure that the supply chain adjusts smoothly to changes in the market, without losing customers or incurring unnecessary costs.

To find the talent capable of fulfilling this role isn't easy - the importance of logistics to profitability has placed top logistics talent in high demand. Old-style search criteria, focused on functional competence and experience, is no longer enough - employers now need to assess the consciousness of potential employees.

"Consciousness" refers to a series of important behaviours - namely creativity, openness, trust, courage, self-awareness, confidence, intuition and instinct - which research has shown are strongly correlated to successful leadership in a 21st century world.

Leadership teams and individuals who display these behaviours have the foresight and business agility required by the fast-paced global environment - especially in an expanding African market which has for decades been satisfied with old style logistics standards. Humanity Search & Select is the only logistics experienced search company in South Africa with the tools to assess consciousness and so to find talent particularly suited to modern logistics challenges. As a result, they have a burgeoning logistics search practice. For any company hoping to improve profitability and sustainability in the face of globalisation's lightning changes, complex supply chain management is crucial - the function requires excellent and creative logistics leadership.