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Business is increasingly being done electronically, across borders and instantaneously, and logistics is developing apace. Since slow and inefficient logistics reduces the benefits of e-commerce, logistics services must now undergo a major revolution, both in terms of quality and quantity, right?
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That's right. Due to the lack of necessary information, logistics has until now very much been a hit or miss affair. Information technology changes all this, however, and will completely eliminate many of the inefficiencies witnessed to date. Logistics and supply chain management, or SCM, capable of delivering the exact type and quantity of goods needed, as and when required, will become a reality.
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Could you explain in a little more detail about SCM?
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SCM is a totally new management technique that first emerged in U.S.A. for delivering the things required when required and in the quantity required so as to eliminate waste and irregularity on the factory floor and improve the efficiency of production, and is said to be based in part on the "just-in-time" system developed by Toyota. Its aim, then, is to enable efficient management by creating an advanced logistics system for controlling every aspect of logistics, encompassing different firms, such as manufacturers, wholesalers, retailers and logistics service providers, and stretching from the procurement of materials and manufacture of products through to marketing and the end consumer.
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It means, then, bundling together the logistics of procurement, production and marketing, then.
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In short, yes. The IT revolution has the power to fundamentally transform logistics.
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That would eliminate middlemen such as wholesalers, wouldn't it?
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Very much so. If makers and retailers are linked directly, there is no place for wholesalers. And if logistics routes are made as short as possible and with as few stop-offs as possible, then logistics companies could potentially be excluded. Until now, manufacturers purchased materials to make products that they then sold and delivered to wholesalers, who then sold and delivered them to retailers, who sold them to the consumer. This chain of companies and processes forms what is called the "supply chain". As supply chains in the past consisted of a number of independent companies, they resulted in the duplication of many processes and operations. If, however, information on retail sales is passed directly to the manufacturer, who can then make just the right quantity of products to supply to wholesalers, the process of taking and placing orders is rendered redundant. Use of information in this way also enables systems hindering the efficiency of the supply chain (such as rebate systems where the manufacturer covers profits when the retailer sells at a discount, and systems where manufacturers take back goods that it is judged cannot be sold) to be done away with. Companies that continue to do business in this way will become redundant and be forced to close down. Now, if they are to survive, companies must have something special to offer.
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Wholesalers will be hardest hit, I should think.
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That's right. There are, however, three ways in which wholesalers can reinvent themselves: (1) by providing a full line for small and medium-sized enterprises (and it is because of this that we are now seeing a number of large mergers between wholesalers in Japan); (2) by becoming combined logistics providers and wholesalers that outsource services and provide logistics solutions for large retailers (i.e. by becoming third-party logistics providers); and (3) by providing specialized retail support, such as merchandise control, customer management, financial management and labor management.
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And how can logistics companies survive?
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Logistics providers will find it increasingly difficult to remain profitable by providing simple services, such as just transporting or storing goods. What they must do is transform themselves into third-party logistics providers running bulk logistics centers and providing outsourcing solutions. Whether wholesalers or logistics providers, companies without areas of core competence or competitive services will be left out of the supply chain. Outsourcing operations that do not lie within their area of core competence will naturally be an option for companies, and companies that cannot respond to these needs will go under. For instance, a third-party logistics provider must not only be able to convey and store goods, but must also make use of information technology to enable it to provide information, build and run logistics systems, and provide logistics services.
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Don't you think that the ties between businesses that have traditionally played an important role in Japan make it difficult to cut out the middleman?
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That aspect of things does make immediate change difficult. However, change will occur gradually. The situation is now such that companies will not survive unless they make the change. If a company favors a particular wholesaler purely because it feels indebted to it for achieving high sales in the past, it will find itself enable to make a profit. The result will be a fall in sales endangering that company's own existence.
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One hears a lot about "total logistics" these days, but what exactly is it?
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Providing all the goods needed for each store and department and delivering them, having checked them and forecast shipments, makes it easier to carry out acceptance tests and replenish stocks. This system of logistics is called total logistics. Total logistics centers therefore keep stocks, which makes it possible to deliver goods quickly. Logistics providers just have to decide how much they will order and have delivered when stocks of a product reach what level in order to eliminate excess inventory, and so cut back on interest payments and warehousing costs.
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As more and more people buy things online, won't there be an increase not only in demand for home delivery, but also for services allowing people to pick up and pay for their purchases at places such as nearby supermarkets, service stations, convenience stores and stores in railway stations?
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There will be a shift from logistics catering toward people who want things delivering to them direct, to logistics enabling people to pick things up for themselves from a nearby location. As things cannot be actually delivered via the Internet, people must either have them delivered or go to pick them up by themselves. In the case of delivery services, home delivery carriers are handy. That's because there is a well developed, nationwide delivery network. Shares in home delivery service carriers are therefore rising. Using "KIT" networks, carriers can match information on available vehicles to demand, reducing the time and distance that trucks travel unloaded.
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Could you briefly summarize what IT logistics is all about?
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Put simply, it means cutting waste, increasing productivity and improving efficiency. Unless they adopt SCM, companies will find themselves unable to remain profitable. SCM is thus now a "must". Competition from now on will take the form of competition between supply chains rather than, as in the past, competition between companies.
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