The Future of contract logistics

The opportunities and challenges of the future

The global economy is being shaped by increased outsourcing of services that can be separated from a core business. Specialized and flexible contract logistics-service providers can profit from this trend. They must offer specialized, sector-focused solutions and operate near customers in order to respond as quickly and as flexibly as possible to their needs.

The outsourcing trend as a driving force

In the global economy, service and individualization are playing increasingly large roles - specialization is continuously growing. More and more companies are hiring third parties to perform services and are fueling the trend toward outsourcing in the process. Amid this change, shorter technology and production cycles and the overall acceleration of business activities require new organizational structures. Modern, successful companies focus on holistic management of the value chain or supply chain that optimizes the structure and process organization of the entire value chain.

The trend toward outsourcing and integrated, cross-company management (facilitated by up-to-date IT solutions) is the driving force behind the growing importance of contract logistics.

Opportunities for small and mid-sized companies

By concentrating on certain sectors and niches, small and mid-sized logistics companies can achieve larger market shares particularly in the contract-logistics sector. In contract logistics with consumer goods, for instance, both available capital and, to a greater degree, direct and good relations with customers play a decisive role. Small and mid-sized companies are expected to have promising development opportunities by orientating communication instruments on these demands [1].

High flexibility for consumer goods

In contract logistics with consumer goods, tough demands are being placed on service providers as a result of constantly intensifying competition. So-called “fast-moving goods,” that is, everyday products, must be constantly distributed at very high speeds and in large quantities. To achieve these high delivery speeds, it is frequently necessary to erect central or regional warehouses. This involves adherence to extensive perishable-food, hygiene and cleanliness requirements that can be assured only through high levels of equipment and personnel quality. The complex IT infrastructures typically found in retailing also create special challenges. The contract-service provider must adapt these infrastructures to a certain extent and frequently integrate his own IT systems into the existing IT landscape [1].

Nearness for industrial goods

For industrial contract logistics, closeness between the shipper and the service provider is a key criterion. This leads to a location-based contract award, but also forces the logistics provider to follow the customer when production is moved to low-wage countries. At the local site, delivery and provisioning systems are designed according to the customer’s individual needs - e.g., for replacement parts in the automotive industry. This requires extensive knowledge about products and sectors, extensive skills in IT, process management and personnel leadership as well as a high level of individualization ability. Special demands on the individual organization are also placed by certain material-flow concepts as well as “on-demand" or “just in time”. Other tasks in this area include the performance of light assembly and dispatch-preparation jobs that are not part of the classic logistics portfolio of services.

The probably most interesting and most developed sectors of industrial contract logistics are the vehicle-making and supply industry; iron, steel and metal processing; and the electronics industry. Among consumer goods, health care and hospital logistics are becoming increasingly important along with retail.

In addition, companies are increasingly transferring their logistics activities to stand-alone subsidiaries, which, in turn, offer their services to third parties