FEATURE ARTICLE

Differentiated logistics services providing competitive advantages

Published: September 11, 2017

Michael O’Hara, Global Head of Chemicals at DHL Global Forwarding, speaks to Sarah Harding, Editor of Speciality Chemicals Magazine, about a new white paper that helps chemical companies develop an added-value approach to logistics, offering advantages in a competitive marketplace.

The power of differentiation is on display everywhere. Big data and sophisticated algorithms enable smarter, more flexible, agile and better automated responses to individual customers. The chemical industry is no exception to this trend. For many chemical businesses, future competitive success will be determined not only by the product itself, but by the package of logistics services offered with that product.

Chemical companies that make the transition to a more customer- and service-centric approach to logistics could be tomorrow’s leaders of a global industry expected to be worth €5.6 trillion by 2035, according to a new study by DHL Global Forwarding.1 The whitepaper ‘Differentiated Logistics Services’, which was commissioned by DHL and developed by Kompetenzgruppe Chemielogistik together with chemical company Evonik Industries, presents two tools – the Logistics Service Cube and the Cost-Benefit Scale – to help chemical companies achieve this goal.

Sarah Harding (SH), Editor of Speciality Chemicals Magazine, spoke to Michael O’Hara (MO’H), Global Head of Chemicals, DHL Global Forwarding, about the trend for responsive logistics, and DHL’s research published in a new white paper.

SH: How can logistics create ‘added value’ for chemical companies’ customers?

MO’H: In order to create value it is important to challenge the traditional view of logistics as simply a process, or a cost, related to moving product from A to B. Logistics needs to be considered holistically, in the context of Total Cost of Ownership. Customized logistics services allow chemical companies to not only sell their products, but to fulfil client demands, in the desired amount and time, to the requested place.

In addition to standard transportation, packing and labelling, logistics can be used to support chemical companies throughout the production process, for example in the area of pre- and post-production services, such as premixing, grinding and milling, quality control, vendor planning, timed deliveries and document preparation.

These elements require the supply chain to be much more flexible, and to keep control of (or reduce) overall costs. Logistics companies are emerging as strong strategic partners who add real value while simplifying customers’ lives, and who can provide competitive advantages in Chemical companies’ offerings to their own customers.

SH: The White Paper talks about ‘differentiated logistics’ – can you explain what is meant by this term, and what examples can you give that are pertinent to our readers?

MO’H: Differentiated Logistics refers to the use of logistics as a tool that can individualize a company’s products in the marketplace, and that helps to develop customer loyalty, brand recognition and, depending on the market, improve margin.

Taking the example used in the white paper, a company producing an agricultural chemical tailors the quantity of product to be provided to the actual needs of the customer. This reduces transport and storage costs to the customer. It also allows chemical producers to adjust to market needs and stand out from competition by offering customized provision to their customers. Securing those competitive advantages helps chemicals companies to strengthen customer loyalty and profitability. Among many advantages, this approach enables greater alignment across value chains, leads to reduced overall supply chain and business risks, and helps streamline order flows while making them more stable and predictable.

The white paper introduces two tools to help companies deploying those differentiated and future-oriented business models and support them driving a strategic realignment. A key factor for developing differentiated logistics models is to have a Logistics Service Provider with a similar mindset, and a portfolio of services capable of providing a global support platform. We as DHL see ourselves as collaborative partners triggering and accompanying this process, as our market-leading services combine not only express, air and ocean, road and rail, and warehousing solutions, but extensive experience and expertise within the chemicals industry.

SH: Your Logistics Service Cube (Figure 1) enables a more systematic approach to identifying the right logistics service levels for a product, supply chain type and customer segment. How would this be used on a practical level?

MO’H: The Logistics Service Cube is practical and simple to use. By combining individual product specifications, linked to the service requirements of the customer, and relating both of these elements to available logistics options, it becomes a straightforward exercise to match the three core areas of:

  • 1.Client needs
  • 2.Product specifications
  • 3.Available logistics channel.

This exercise identifies the most cost–effective, and timely service to be used in order to fulfil the individual client demand. The use of the Logistics Service Cube enables a granular approach to the choice of fulfilment services required.


Figure 1. The Logistics Service Cube considers business units, supply chain type and the required service level to derive logistic requirements, which are further divided into custom, package or basic services. As we move from lean to agile, the degree of customization increases, as does the price.

SH: Some of these services may have considerable cost associations – how would you explain the justification of those costs?

MO’H: Costs have to be considered in the context of Total Cost of Ownership (TCO). Of course, logistics services come at a cost, but these costs need to be weighed against the value generated, like improved customer experience leading to greater customer loyalty, more business and potentially increased margins. Ultimately, the manufacturer needs to decide on which option provides the best outcome for their product or business unit.

SH: The Cost-Benefit Scale (Figure 2) provides a method for quantifying the impact of differentiated services on logistics costs and benefits. Can you tell us more about this?

MO’H: This is a straightforward method of assessing the costs and benefits of differentiated logistics services, and allows for the impact of these services to be quantified. Chemical companies can evaluate the positive and negative effects of each service on their company and take this as the basis for sound decision-making and transition to more service-oriented and differentiated logistics. By adapting individual criteria, the tool can also be applied to each individual customer perspective.


Figure 2. The Cost-Benefit Scale assesses the benefits of differentiated logistics services (or service innovations) and provides a first quantification of the impact of these services on costs and benefits.

SH: How do you see these tools being applied on a day-to-day basis? Would they, for example, be included somehow in companies’ Enterprise Resource Planning (ERP) platforms, are they paper-based tools, or simply considered mentally by managers?

MO’H: The principles behind the tools could be integrated into an ERP system, but a probable common approach would be to use them as part of a check process in the distribution planning and strategy cycle.

SH: Are you confident that these tools would be applicable across the breadth of the chemicals industry?

MO’H: Yes, the tools are relatively straightforward, and could be applied in most areas within the Chemical Sector.

SH: What would be your final words of advice for chemicals companies aiming for competitive success?

MO’H: The market is changing, and having a good product does not necessarily guarantee success. Product availability, flexibility, and the ability to respect and respond to individual customer requirements are areas of increasing importance. As today’s chemical industry becomes more service oriented, chemical companies have to challenge traditional logistics strategies and create new business models.

For many chemical businesses, future competitive success will be determined not so much by the product itself, but by the package of logistics services offered in connection with that product. And as the trend gains momentum, having more responsive logistics solutions becomes not just ‘nice to have’ but a crucial factor to differentiate itself from the competition and gain competitive advantages.

Choosing the appropriate logistics strategy and the most suitable logistics partners, are key decisions which should be made early in the sales & distribution planning cycle.

 

 

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