Leadership in logistics

Journal of Business Logistics, 1998 by Lynch, Clifford F

My belief is that the greatest challenge of the new millennium will be a need to increase logistical professionalism. Like most facets of business, the challenges of logistics change will be constant, dramatic, and in some cases, a little frightening. In order to vision the future, it is useful to quickly review where we have been and some significant changes of recent years. The growth of modem logistics in the United States is a relatively recent movement, generally considered to have begun in the early 1960's. It was in 1962 that the often-quoted Peter Drucker developed his now famous treatise that distribution was the "economy's dark continent." It was then that he said,

"We know little more about distribution today than Napoleon's contemporaries knew about the interior of Africa. We know it is there, and we know it is big, and that's about all."

There are many who feel that Mr. Drucker's position was somewhat overstated, but most will agree he visioned the beginning of a new era in the field of distribution and/or logistics. The National Council of Physical Distribution Management was founded in 1963, and most of the sixties were spent in reorganizing and refining the function. Transportation departments became distribution departments as new areas of responsibility such as inventory management, order processing, materials handling, warehousing, and others were added to the more traditional activities.

This functional expansion continued into the 1970's when serious inflationary pressures began to have an impact on distribution performance. Costs increased rapidly. For the first time in modern history, industry saw rising distribution costs erode corporate profits. Fuel costs rose dramatically. The average price of a gallon of gasoline rose from $.37 in 1973 to well over $ 1.50 by 1977. In the food industry, for example, distribution costs during the 1970's increased at a rate of 12 percent per year. It was time for serious cost controls, productivity improvement, and a reevaluation of management styles and techniques.

The year 1980 brought with it the opportunity to do all these things. It was during this year that the transportation industry in the United States was deregulated. After over 100 years of outmoded and often inequitably applied laws, the nation's carriers were at last free to operate in a free-market environment. They were free to be creative and innovative. Most importantly, their customers were free to behave competitively.

Notwithstanding this, the early eighties were painful years for many throughout industry. At the time of the Staggers Act deregulating railroads, United States rail carriers were earning a 4.3 percent return on investment. While not terribly attractive, it represented a 25-year high. In 1981, ROI dropped to 4 percent and was at 2.2 percent in 1982. A massive restructuring in the transportation industry involving mergers, railroads acquiring motor carriers, steamship lines, and energy companies occurred. By 1990, ROI reached a more respectable 8 percent.

The late seventies were also difficult years for the motor carriers. The primary problems resulted from escalating fuel and labor costs. However, no one was adequately prepared for the first few years of motor carrier deregulation. The ease of entry into the trucking business, along with the influx of non-union drivers and owner-operators into the system, and what amounted to near predatory competition, combined to devastate the industry as a whole. In 1980, there were 18,000 motor carriers in the United States. Today, there are over 40,000. Only a few of the 40,000 have as much as 2 to 3 percent market position. Also worth noting is the fact that most new carriers are non-union. Between 1980 and 1989, 23,000 new carriers entered the market, and 24,000 quietly exited. These dramatic changes had a favorable impact on most transportation users. Freight bills were significantly reduced in many traffic lanes. These events also had a major impact on the way carrier and shipper managements conducted their day-to-day businesses. More importantly, this dynamic environment forced a new mind-set-that of increased productivity, innovative thinking, and creative distribution system design. Add to this free-market, free-thinking, competitive atmosphere, the increased access to the personal computer and related software, and the way was paved for a new and exciting era in the field of logistics-without question, the most exciting period since its modem genesis in 1962.

As we look to the future, change will continue. American firms are becoming increasingly involved in global markets. Developments such as the EEC, NAFTA, and China's "most favored nation" status have created world markets where in the past none existed. This will make logistics much more complicated and add pressure to distribution systems and managers alike. We can expect continued fallout from the mergers and acquisitions of the 1990's. While many of the new alliances were quite successful, some synergies proved to be elusive, especially in the area of logistics. Businesses continue to turn over every rock, and question every decision as they seek to streamline their organizations for profitability. Once again, growth has become a primary business objective. What we all have discovered is that the competitive edge is customer service. Consequently, outsourcing has become a powerful new tool for achieving both streamlined productivity and competitive customer service.