Contract logistics help to future-proof their supply chains

In the past few years alone, organizations across North America have weathered a pandemic, political instability in far flung countries critical to their supply chains, labour disruptions and labour cost increases, the rise of friend-shoring, and the onset of a new age of innovation, automation, and AI.

Image: DP World

It’s hard to argue that change is coming more rapidly and unpredictably than ever before.

For many organizations, these changes and disruptions are making their supply chains increasingly complex and unwieldly. That’s why so many companies are outsourcing their logistics work to expert contract logistics providers.

Contract logistics providers offer a number of benefits to companies, including reducing their costs, improving operational efficiencies, and optimizing their inventory levels – all while providing access to best-in-class services and innovations.

By choosing contract logistics providers, organizations are acknowledging a dawning reality about the future: they’d rather focus on their core competencies – product development, manufacturing, marketing, and sales – instead of trying to put their arms around the ever-changing world of logistics.

“Many new and rapidly growing companies, notably in technology and fast fashion, never had in-house logistics capabilities to begin with,” said Mike Valentine, Chief Commercial Officer, USA/Mexico at DP World.

“For those that do, the equation may be shifting. Is it smarter to develop innovative capacity in artificial intelligence and automation and build distribution centres across the continent, or outsource those costs and risks to contract logistics providers?”

Here are some of the trends that are making the answer to that question increasingly obvious.

Innovation, automation, and AI
Efficiencies and ROI can now come faster than ever before. As we enter the age of AI, and as warehouses are increasingly populated by robotics, the opportunity for organizations to drive efficiencies and reduce costs has never been greater.

But the price of entry for that is also higher than ever before.

Competing for in-demand talent, investing in innovation, and maintaining that capability over time – that’s challenging for organizations to do themselves. The smarter play for these companies is usually to leverage the investments made by companies like DP World – which now hires software developers as much as it does industrial and electrical engineers. Organizations get all the benefits of technology without the risks and exposure that come along with it.

Faster deliveries from more distribution centres
Consumers and organizations have become accustomed to next-day and same-day deliveries. But they aren’t possible for most organizations that have just a single (or even two or three) distribution centres in North America. That might have worked twenty years ago. But everyone’s expectations have changed.

Of course, not every organization is focused on improving lead times to customers. B2B-oriented organizations may be less concerned. But for companies that are feeling pressure to deliver faster, accessing additional distribution centres through contract logistics providers offers additional (and scalable) capacity without the equivalent upfront capital investment.

Friend-shoring, multi-sourcing
By now, the concept of friend-shoring is well established. But what makes more sense – building a corporate footprint from scratch in a near-shore country like Mexico or working with contract logistics providers that already operate there effectively and efficiently?

Now add another layer: the post-pandemic trend towards multi-source suppliers rather than just single suppliers. What if the move away from a less stable single jurisdiction now means opening up operations in two new countries? If you’re Canada or US based, are you willing to invest not just in Mexico but India as well? Or do you want to hire a firm that’s already there?

Labour costs and talent availability
The recent rise of labour movements, the war for talent, and the costs associated with both have some companies rethinking whether they want to keep those costs on their books or outsource that to contract logistics providers so they can focus on hiring, retaining, and paying the core talent for their core business.

Sustainability
As organizations make more public and quantifiable commitments to sustainability and supply chains are more sharply scrutinized for their climate impacts, sustainability will drive more logistics decisions. For example, in the past, goods that come in from the Port of Long Beach, CA might have ended up shipped by rail to a single distribution centre in Memphis… and then trucked right back to California. The solution here is a west coast distribution centre. But as noted above, building it may not make sense for most companies.

Contract logistics providers are a relief valve for companies. They remove the pressure of trying to manage an unmanageable global economic, political, environmental, and technological landscape.

With that pressure gone, companies can focus their resources on the core things that make them great – their products and their brands. At the same time, they lose nothing when it comes to futureproofing. In fact, by working with global contract logistics experts, companies reduce risk, access innovation, and strengthen their supply chains, no matter what shocks may come next.

“We hear it every day from across industries,” said Tabare Dominguez, vice-president, commercial at DP World Canada. “Complexity is increasing. Change is accelerating. Companies aren’t just looking for partners that can help them make smart decisions about logistics. They want to outsource that function.”

Mike Valentine, is chief commercial officer, USA/Mexico, at DP World.