Community of Inquiry article series

Article in English language   2016.05.29 • published on LinkedIn   LinkedIn Networks

Logistics industry from the institutional investor's perspective

Article 5: Seeking alignment with supply chain's driving forces

1. With respect to this article series

This is the fifth article in a Logistics Community of Inquiry series in the following four linkedIn groups:
LinkedIn Group Logistics Network LinkedIn Group Global Logistics & Supply Chain Professional Group LinkedIn Group Logistics Executive LinkedIn Pulse Group
Logistics Network Global Logistics & Supply
Chain Professional Group
Logistics Executive LinkedIn Pulse
For a more comprehensive elucidation of purpose and objectives of a CoI (Community of Inquiry), please read the first article in this series. The following topics are covered by the former articles:
  • investment considerations of an institutional investor
  • risk mitigation in the supply chain network structure and participation possibilities for the landlord
  • alignment between the investor's and logistics service provider (LSP) site selection criteria
  • different impediments in lease agreement negotiations between the landlord (investor) and the LSP.
The idea behind the article series is finding a thesis on a thorough alignment between investor/landlord and LSP/tenant strategic housing decisions, by looking at the decision logic of both parties.

In this fifth and last article in this series we focus on identifying driving forces in the supply chain, and their influence on the housing strategy.

2. Integrated transport demand approach

On a global, regional and local scale flows of freight are growing, due to contemporary changes in economic systems. Changes are not only of a quantitative character but also included structural and operational adaptations. More and more science is of the opinion that it matters how the freight is moving, and not anymore simply moving the freight from A to B. Military in former days referred to logistics as the means to combine all transport resources and sheltering of their troops. Today we face a lot more complexity if we look at the total set of operations necessary to bring goods on markets or to specific locations.

Logistics and supply chain management have a more and more intertwined relationship, where in former days logistics focused on warehousing and transportation, and supply chain management considered with activities from sourcing to final distribution. In recent times we see a convergent development between both activities. Important here is that the complete activity of logistics comprises out of physical distribution and materials management. According to Rodrigue and Hesse (n.d.) one can define physical distribution and materials management as follows:
  • Physical distribution is the collective term for the range of activities involved in the movement of goods from points of production to final points of sale and consumption. It must insure that the mobility requirements of supply chains are entirely met. Physical distribution includes all the functions of movement and handling of goods, particularly transportation services (trucking, freight rail, air freight, inland waterways, marine shipping, and pipelines), transshipment and warehousing services (e.g. consignment, storage, inventory management), trade, wholesale and, in principle, retail.
  • Materials management considers all the activities involved in the manufacturing of commodities in all their stages of production along a supply chain. It includes production and marketing activities such as production planning, demand forecasting, purchasing and inventory management.

Figure 1: Role of Distribution Centres(Rodrigue et al. - 2013, adapted by author)

The close integration of materials management and physical distribution calls for a more integrated transport demand approach of logistics, where DCs (Distribution Centres) are the coordinating main facilities (see fig. 1).
Continuous improvements in inventory management, storage and transport lead to lower lead times (fulfilment of the order) and cycle times (receiving and completing an order and make it ready for delivery). Getting control in cycle times, lead times and costs in contemporary supply chains becomes even more important when involving e-commerce. This is why the whole supply chain is focusing on flexibility in complex networks of suppliers and subcontractors. Globalisation is another driver where more global economic integration asks for an intricate network of global freight flows and hubs. A hub consists of a logistic centre in a specific area where all activities relating to transport, logistics and good distributions - both for national and international transit - are carried out, on a commercial basis, by various operators (EUROPLATFORMS, 2004, p.3).

3. Identifying driving forces (drivers)

After getting the integrated definition of logistics processes as described above, the literature is not very clear on what typical driving forces are in the total chain. We often see a mix up of megatrends, game changers, value added components and future forecasting elements that are used to define driving forces. During our survey we also found that the literature contains quite some deviations and contradictions depending on the specific logistics activity, such as rail transport, car freight, maritime, airport based etc.

Out of the literature we compiled table 1 which gives an overview of possible drivers/driving forces that go with the logistics activities.

Table 1: Overview various driving forces according to literature (author)

Table 1 definitely is a discursive enumeration so it is arguable to itemise all driving forces into manageable categories.
For this we connect with the categories, GCI Global Commerce Initiative | Capgemini (2008) identified as being future trends in logistics.

Figure 2: Forces and trends that will impact the future supply chain (CGI | Capgemini, 2008)

It is arguable to put e-commerce into one of the above categories. Due to the impact e-commerce nowadays has on logistics processes we added, next to above categories, e-commerce as a ninth category to table 2. For the driving forces of e-commerce we connect to LTD Management (n.d.) that succeeded in successfully linking up e-commerce supply chain management strategy issues with blue ocean strategies. If you want to find out more about the blue ocean strategy concept please visit

Of course the enumeration in table 2 arouses the question in how an element is considered a driving force, part of a megatrends cycle, game changer, or simply a future strategy prediction. We are aware of this interpretive problem, but unfortunately literature doesn't help us along. It is even arguable to name the categories in table 2 as being driving forces and the driving forces in the second column as being a sub-set of the items in the first column.

Table 2: Dividing driving forces in categories (author)

4. Activity mapping and Value Chain Analysis as driving forces determination tools

Figure 3: Activity Mapping supply chain (source: Sliwczyski, 2008)

Figure 3 represents an Activity Map by Sliwczyski (2008). Mr. Sliwczyski maps a huge part of an entire supply chain. There are seven main categories of process controlling steps defined:
  • Sourcing and procurement
  • Inventory
  • Warehouse
  • Production and materials management
  • Distribution
  • Transport
  • Customer service.
Every process step has four control elements: planning, organisation, control and inspection. The control elements have a break-down in various sub-steps, all used to determine certain analysis in the total integrated controlling system Mr. Sliwczyski utilises. The seven main process controlling categories can serve as driving forces in this supply chain and can be easily adapted to the categorical division in table 2.

A third possibility to identify driving forces is by constructing a value chain analysis (Porter, 1985).

Figure 4: Value Chain analysis of an equipment rental company (Feng, 2009)

Please note this analysis only include the primary activities in the supply chain. There are a lot supporting activities thinkable of, such as procurement, human resources, technology etc. A value chain is a typical instrument to break down the supply chain functions into activities, thus giving insight in the components that make up added value for the customer (in this case). In fact a lot of the components can be classified as driving forces, take e.g. product quality, order fulfilment, On Time Delivery, understanding customer needs.

If you go into the exercise to adapt the components to the categories in table 2 you will find again that this can be easily achieved. Thus we can conclude out of this survey that table 2 represents the most important driving forces one could find in a nowadays supply chain.

There's no doubt that there are dozens of other management tools to identify driving forces, but due to the confined space in this article series we assume there is enough academic evidence that gives the list in table 2 the right of existence.

Bottom line is, that supply chain driving forces that need to be identified, satisfy the 7R requirements (Coyle et al, 2002):
  • Right product
  • Right quantity
  • Right condition
  • Right place
  • Right time
  • Right customer
  • Right cost.
If the 7R is achieved, then the right driving forces should be determined, and the supply chain fulfilled its targets.

5. The sum of it all

Taking into account table 2, interpreting and integrating figures 3 and 4, and looking at the 7R requirements, a more or less definitive list of general driving forces for the supply-chain can be compiled.

Table 3: Most important driving forces (author)

To the author's opinion all other strategic, tactical and operational activities as mentioned by Sliwczyski (2008), Feng (2009), CGI | Capgemini (2008), and those out of the extensive literature research (table 2), fit into one of the five general categories of driving forces as shown in table 3.

6. Involvement of the landlord

Out of the landlords perspective it is very hard to align to supply chain strategies with underlying driving forces (table 3). In the former articles out of this series evidence rises that it is very complicated for a landlord to be an integral part of the supply chain. To be supportive with the driving forces identified, could only be accomplished by offering as much as possible, flexibility with the construction and utilisation of the building. Building sustainable housing, flexible leasing conditions regarding space and pricing, providing modern and up-to-date construction-technical facilities, pro-active management, everything about the premises that doesn't hinder the processes of the logistics provider.

Thus supply chain driving forces as flexibility and rapid fulfilment, inventory optimisation and the lowering of the environmental impact, could be supported by the landlord. Most of the driving forces the supply chain encounters are very branch-specific and go beyond the scope and competence of the landlord.

With this article the series "Logistics industry from the institutional investor's perspective" is finished. From whatever landlord's perspective, the final conclusion is that there's only a limited availability of resources (physical, knowledge, collaboration possibilities) from the landlord's side to align with the strategy of the logistics provider. The landlord decides on building location with all attached details, the same as the logistics provider does (see article 1). There's definitely an alignment strategy, the landlord will not purchase a building that in the nearby future will be worthless for the logistics provider. This is confirmed by the analysis in the third article of this series, where we see a large overlap (and thus strategic alignment), in the location selection criteria.

According to the second article in this series there are possibilities that the landlord partly involves in risk mitigation, although the alignment with the risk strategy of the logistics provider is rather limited.
Due to a great deal of non-transparency and failing openness in the supply chain it is almost impossible for the landlord to find an alignment thesis on rental costs, flexibility in the duration of a lease agreement and flexibility in the provisional cutting or adding of space. Article 4 out of this series clearly stated that if logistics providers are not willing to sharing cost and profit, institutional investors will remain reluctant to discuss lease and space adaptations.