Road Transport in SEA Markets is still viewed as “Cheap & Dirty”
ROAD TRANSPORT IN SOUTH EAST ASIAN MARKETS IS STILL VIEWED AS “CHEAP & DIRTY”
THE TRUTH IS THAT IT iS “COSTLY & DIRTY” ….. AND HURTING THE BOTTOM LINE
When I arrived South East Asia, 20 years ago, my skill and experience was in deploying new technologies to drive quality and efficiency in logistics operations. I worked for a 3PL company that had grown rapidly by convincing businesses to outsource their tired logistics operations, offering them what my boss termed “Disneyland Warehousing”. We delivered on the promise, setting up slick paperless operations using pick-to-light systems, carousels, cranes and sortation systems to that churned out a consistently high quality service at a competitive cost – leaving a healthy for us!
Soon after landing in the region, I was taken to see a Unilever warehouse in Jakarta. There was no racking and no lift trucks. Every carton was manually handled in and out. If there were any pallets, they were just there to keep the wall-to-wall block-stacked product off of the floor. (I remember thinking, “This is so far away from everything I know. What am I doing here?”)
But….. the numbers for investing in modern logistics operations stacked up, so two decades later we see high quality, well-equipped warehouses right across the region. Warehouse automation will be the next step, as the reliability and cost of labour is becoming a challenge in many markets.
So South East Asian warehousing had a form of warehousing renaissance.
What’s happened to transport?
20 years ago, the common wisdom for multinational 3PLs entering the region was, “Don’t go there!” Transport was seen as a murky business where a multinational would be outmaneuvered by local players playing to “local rules”. Furthermore, the sector operated on such low margins, that there was very little incentive to try to force an entry.
Very little has changed in 20 years. Transport is still viewed as a cheap & dirty service, with “lowest bid” being the dominant criterion in selecting a vendor.
But, guess what? We’ve demonstrated that this lazy approach to procurement is resulting in transport costs being up to 30% higher than they should be – while frequently delivering a sub-standard service (i.e. another set of hidden costs).
Its not that vendors are getting fat on their margins. It’s the massive inefficiencies built into the model precisely because people attempt to buy cheap – avoiding the effort of comprehending the real cost drivers behind transport – and then using them to achieve sustainably lower rates.
This is an important point. Transport is a very easy cost to measure. It may be because it is so tangible that everyone is tempted to go after the quick win of squeezing vendor margins.
How to get to “CHEAP & EFFECTIVE” transport
It just takes a different approach.
When we’re seeking transport savings, we use a tool we’ve dubbed the “Transport Flower”.
We use the 8 petals to break down a transport review to manageable tasks, asking 3 questions:
- What impact does each component (petal) have on my transport cost?
- How can I manipulate each component to drive down my transport cost?
- Is the size-of-prize of the combined changes worth the effort?
Every business is different, but this approach opens doors that were otherwise closed, creating opportunities to find substantial and sustainable savings.
Some Transport Flower highlights:
- 37% savings (USD8.9m p.a.) identified & signed off for client implementation
- 30% reduction in transport budget (USD7.8m p.a.) delivered through 12 months support
- 30% reduction in selected lane costs through improved vehicle configuration & scheduling
Because of the way societies are structured in SE Asia, it is unlikely that the staff responsible for your transport function ever worked on the nuts and bolts of a transport operation. It is even less likely that they ever drove a truck.
As a result, it’s extremely difficult for these staffers to push new thinking and challenge established practices in this very traditional sector. It is completely unreasonable to ask them to plan and execute a roadmap for achieving “Disneyland Transport”.
This is where the use of external professionals can step, bringing the:
- Breadth of experience
- Credibility of a solid track record
- Confidence to engineer and negotiate a practical solution
- Reward based motivation to drive through tangible results
After 20 years in South East Asia I am perplexed as to why most businesses are content to live with “costly and Dirty” transport.
The only explanation that I have is that transport is perceived as simple – and that if there were savings to be found, they would already have been found. After all, “it’s just hiring a truck and telling the driver where to go”
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