Can we build better supply chains?

The ability of logistics firms to connect suppliers and consumers across the world is essential for economic progress. Regrettably, it is too often taken for granted.

So, as we launch the second annual report of the World Economic Forum’s Global Agenda Council on Logistics & Supply Chains, we have a chance to highlight some of the key issues facing the logistics sector worldwide.

Top of the list is the role of logistics in the facilitation of international trade. As product supply chains become longer and more complex, companies face mounting logistical challenges, especially in emerging markets. Many of these countries have been awarded relatively low scores in the latest World Bank Logistics Performance Indicator (LPI) survey. For example, Russia, Ghana and Venezuela got LPI scores half or less that of Singapore, the world’s top logistics performer.

The report argues that prioritizing logistics in trade negotiations, streamlining customs procedures and enhancing critical infrastructure could provide a welcome boost to world trade. India is a perfect example of where many improvements have to be made at the domestic level: 15-20% annual growth in demand for logistics services is putting huge strain on the country’s transport infrastructure and strengthening the case for a national logistics policy.

The majority of world trade moves by sea, much of it in deep-sea container vessels operated by shipping lines which seem to be locked into a constant boom-bust cycle. This resulting financial instability poses a major threat to the long-term growth of international trade. A client-focused business model that is more contract-based and involves a steadier rate of investment in new vessels should be adopted.

On terra firma, investment is becoming increasingly focused on strategically-located hubs, allowing companies to exploit economies of scope, scale and density. The report welcomes this and sees logistics clusters becoming key nodes in global supply chains and nuclei for future regional economic development. But clusters are not just physical entities: they also exist in virtual supply chains created through digital innovations. The report shows, for example, the potential to secure substantial productivity gains through more effective use of something as basic and ubiquitous as the mobile phone.

Improving labour productivity can help address another challenge facing the logistics sector – a shortage of qualified staff. The Council’s report presents the results of a global survey of 300 logistics executives, roughly two-thirds of which claim to find it hard to fill posts. Attracting more high-calibre people to this sector will require awareness campaigns, such as those run in Germany, better training and, in many parts of the world, improvements to pay and conditions. The logistics sector’s future effectiveness and profitability will depend at least as much on its human capital as on its physical assets and infrastructure.

Read the report published by the World Economic Forum’s Global Agenda Council on Logistics and Supply Chain Industry.

Author: Alan McKinnon is Professor and Head of Logistics at Kühne Logistics University, Germany. He is the Chair of the World Economic Forum’s Global Agenda Council on Logistics & Supply Chains.

Image: A view of a shipping container area at the Yangshan Port of Shanghai May 11, 2012. China is one of the many emerging markets where logistics are becoming increasingly complex.