Delivering on its promise

30 Jan 2003

The mysterious art and administrative science of logistics has been around since the legions of Ancient Rome marched across Europe with their supply wagons.

In the last decade or so logistics has undergone dramatic change – more than in all the years since the Industrial Revolution in the 19th century, according to several business academics. The occasionally used term ‘e-logistics’ adds a totally unnecessary ‘e’, because logistics as it is today would be totally impossible, even inconceivable, without the instant global communications and sophisticated computer systems on which it is based. The terms ‘logistics’ and ‘supply chain management’ are becoming interchangeable and transport services have evolved into logistics service providers because manufacturers and producers now outsource almost all of these specialised functions.

Which is where DHL is thriving worldwide, because this global express group has been a technological as well as a market leader. Its smart and pioneering ‘track and trace’ systems were the first to offer web access to every customer – even the casual ‘one parcel for the son in Perth’ variety just needs a code number to follow every step of the not-so-long journey to the Antipodes. Today its worldwide collection/delivery service offers guaranteed service levels that can be incorporated into a customer’s service to its own customers. ‘Following day spare parts service? Certainly, no problem.’ Of course it isn’t – you just outsource it to DHL, because no business outside the transport industry could hope to match its resources. DHL has over 4,000 offices in 228 countries and runs a fleet of 254 aircraft, operating 714 scheduled flights every day with another 2,335 daily flights operated for DHL by commercial aircraft. On the ground, almost 17,000 vehicles service a total of 120,000 destinations in all continents.

‘Express logistics’ is the DHL term for its added value services, based on the constantly growing need for businesses to fulfil rising customer demands in terms of delivery, service and repair. Yet most of the elements required are well outside their organisation and core competence. Almost 100pc of transportation is outsourced these days and international research suggests at least 60pc of warehousing is, too. The business logic for taking things at least one stage further is clear. Because of DHL’s world scale and state-of-the-art systems, the set of logistics services can be scaled all the way up to complete strategic inventory management, according to Neil Delaney, logistics business manager of DHL Ireland. One niche particularly illustrates the business logic of such an outsourced service and the strength of the DHL service. “Many manufacturers have to offer a spare parts and repair service across continental regions or even worldwide, often with service level agreements that impose strict time limits on how long the customer might have to wait. We can take over and manage that function for them,” Delaney says. Time-sensitive parts distribution was identified by DHL as a growth opportunity because it is such an important part of the after sales service of so many industries, from IT and electronics to oil and gas exploration to healthcare equipment and hundreds of others.

How about an ‘end of runway’ service? That is DHL’s friendly jargon for overnight turnaround. It can mean either DHL holding a strategic stock of spare parts or a service/repair centre in or at an airport – often a third party contracted repair facility – giving a 12-hour replace or repair window. With straightforward spare parts, holding buffer stocks at such locations can enable companies to offer replacement within hours. “There are industries where vendors face shocking levels of penalties if their customer’s operation goes down for even a couple of hours. Gearing up to cope with that is a major cost,” Delaney points out. “On the other hand, when you can offer that level of service – and we can help you do it, not least with guaranteed transit times – you have both a competitive advantage and a product you can charge a premium price for to some degree.”

His colleague Colin Bauer, customer interface manager, has a close view of the daily needs of DHL’s clients and is convinced that “Today it’s often a case of supply chain competing with supply chain rather than the traditional company with rival company. In addition to the physical side, our systems can give a client business a complete and instant view of its supply chain worldwide from any desk.” In one sense, he explains, smart logistics systems today are constructed with the same building blocks as simple track and trace: once every single item is barcoded and automatically scanned at every waypoint you actually have practically all of the key information in the system. “For example, we have a 20-minute performance target for picking a part in a warehouse and getting it out into the delivery system. If that part has not been scanned out in that time, we can set up automatic alerts, text messages to engineers, provisional alternatives – whatever rules the customer would like to have in place,” Bauer adds.

“We can even set up fully automated systems,” Delaney takes up the story. “Lots of things today have self-diagnostic systems that report faults or potential failures, such as network servers, aircraft systems and so on. It’s in fact easy to link such reports to parts order and delivery systems, field engineer notification, etc. It could go all the way to completion of repair or replacement even before any administrator comes into work the following day or whatever.” Once again the idea is that the DHL customer sets the rules, eg Class 1 customer or critical parts or emergencies get automatic, best speed, no question response. More mundane requirements may be brought to a ready-to-go status but require human sign-off.

It is probably fair to say that after sales service – spares and repairs – is still poorly regarded, fragmented and under-resourced in most organisations. It would certainly be low on management’s attention list. Yet industries where it is recognised and treated as business critical are showing that smart after sales services allow for competitive differentiation and even for added value and revenue improvement. Instead of being regarded as a costs drain and a drag it can become an area of opportunity and competitive advantage. That’s the logistics bet DHL has made. It already looks an inspired investment.
By Leslie Faughnan