Rebuilding Logistics As a Management Agenda (Part 1)

Logistics is coming to a crossroads as the makeup of society changes, technological transformations take place and environmental problems grow more severe. Based on the business environment we described in our introduction, we can collect the challenges companies need to face in order to keep up with the rapidly changing times into the two categories of responding resiliently to business continuity risks and executing on social responsibilities centered on Green Transformation (GX).

The competition for talent is heating up due to the decline in the workforce, while concurrent increases to the minimum wage are leading personnel costs to trend upward. There are also concerns over declining quality in logistical services, as delivery frequencies rise and the burden on people on the ground increases due to the trend towards smaller shipments and tighter deadlines.
To date, companies have made progress on efforts to employ more diverse talent and reduce labor needs. However, going forward, further automation, streamlining and establishment of better working environments will be necessary. The development of the next generation of talent in the form of passing on know-how and work quality is also becoming an urgent task as Japanese society ages.

As inflation in personnel and fuel costs persists, it is essential for companies to secure appropriate freight rates through the correction of the persistently and excessively multilayered business structure in the logistics industry and to steadily promote wage increases, so that they can secure sustainable revenue structures. Companies also need to comply with the Revised Logistics Act, the Act to amend the Subcontract Act and the Act on the Promotion of Subcontracting Small and Medium-sized Enterprises, as well as other laws and regulations set to be strengthened in future. Companies will also need to revise excessive service levels or appropriately pass on cost increases into prices through cost settings that are responsive to service volume and quality such as dynamic pricing.

Natural disasters, which are increasing in frequency and severity, carry the serious risk of stopping logistics operations altogether through the cutting off transportation infrastructure such as roads and railways, loss of or interruption the supply of inventories due to disasters at logistics sites, or loss of information infrastructure functions due to blackouts or communications faults.
It is thus essential for companies to build resilient logistics systems that not only protect the company’s logistical functions, but also fulfil their responsibilities as social infrastructure.

Addressing environmental risks and social challenges is a core element of management that affects corporate value and social credibility. Even in the logistics industry, companies are being called on to make proactive contributions to the realization of a sustainable society. In particular, reducing greenhouse gas (GHG) emissions and transitioning to a circular economy are major challenges that will impact the future competitiveness of companies.

Initiatives by companies aimed at reducing their environmental impact, such as promoting eco-friendly driving, switching to EV trucks and low-emissions vehicles, promoting modal shift and introducing renewable energy, and transitioning to energy-efficient and decarbonized logistics facilities, are becoming unavoidable corporate responsibilities. On top of this, the Japanese government is also mandating disclosure starting in 2027 in line with its sustainability disclosure standards (SSBJ Standards).

Companies are facing calls to expand the use of and improve the recovery accuracy of returnable containers such as flat palettes, basket carts and reusable shipping cartons. They are also required to build resource recycling routes by integrating operations with reverse logistics, by, for example, reusing and redesigning shipping materials, and recycling and recovering waste materials.

All of the logistics management agenda items presented in the preceding section must be tackled from a whole-of-company perspective and not in terms of departmental optimization. This will require leadership to clearly position logistics as a strategic domain and drive transformation having aligned their entire organizations.
This section will describe the logistics planning needed to make these efforts effective and the command centers needed to control their execution in an integrated manner.

Logistics has long been treated as synonymous with the “distribution of goods.” But logistics was originally intended as a strategic function that manages and optimizes the flow of goods and information in a joined-up manner, in order to increase agility and resilience. Coordinating planning across procurement, production, sales and distribution departments and optimizing across all of these functions is the essence of logistics.

In practice, however, there are plenty of cases where procurement, production or sales planning take precedence and have major impacts on logistics departments.
Increased leasing of third-party warehouses as a way of dealing with overstocking and the procurement of vehicles and workers in response to fluctuations in distribution have become routine, inviting cost increases.
Companies need to have command centers that take an end-to-end view of their supply chains as a whole and control planning and execution of logistics in an integrated manner if they are to break through the status quo and evolve to have logistics functions that pursue companywide optimization. The following two elements are essential to establishing effective command centers.

• Putting in place digital platforms
• Establishing a logistics office

Companies need to get an end-to-end view of their supply chains and develop the capacity to produce optimized planning as well as the executive capacity to incorporate such planning reliably into on-the-ground operations if they are to bring out the true value of logistics. Underpinning these efforts are digital platforms that capture necessary information in real time and support appropriate decision making.

It is common practice at many companies to make plans while coordinating production, (procurement) sales and inventory across relevant departments such as procurement, production and sales. If the limitations and intentions of logistics are not reflected in this process, however, companies will fail to optimize across logistics as a whole.
To that end, companies need not only procurement, production and sales planning, but also integrated visualization of distribution center shipping capacity, transportation capabilities and storage capacities, as well as mechanisms for facilitating prompt decision making.
For example, this would include functions to support calculating and visualizing the shipping and delivery loads and transportation and storage volumes of multiple shippers based on vendor order data and demand forecasting, and using this information in the formulation of driver procurement and personnel deployment plans.

Because logistics departments, by their nature, struggle to quantify per item costs and beneficial impacts, putting in place digital platforms that aggregate and visualize such quantitative data is key to realizing coordination and optimization across departments.

Even if companies put in place the right digital platforms, if the organizations remain vertically integrated, they will struggle to make and execute decisions that are optimal on the whole-of-company level.

While procurement, production and sales departments each continue to act independently of one another, the role of the logistics department will remain relatively　limited. This means that creating more concrete systems will play an important role in efforts to improve coordination with other departments.

This is where the establishment of a specialized organization in the form of a “logistics office” to optimally control logistics activities becomes necessary.
The logistics office is a permanent organization composed of carefully selected members from multiple departments. It not only enhances the role of the logistics department but also serves as a command center with the responsibility and the authority to coordinate interests among departments.
What matters here is for the logistics office to play more than a mere coordinating role, instead leading policy that is optimized on a companywide level and possessing the strong authority to get related departments moving.

Building up systems in which logistics departments can escape from structures under which they are swayed by circumstances in other departments and in which they can take an end-to-end view of logistics as a whole to proactively drive the business is the only way forward for ensuring effectiveness in the function.

In the coming transformation of logistics, it will be critical for companies to build command centers that both visualize information using digital platforms and have in place logistics offices charged with cross-departmental decision making. They will need to thus make logistics function strategically in pursuit of maximizing corporate value and realizing sustainable growth.

In Part 2, we will go on a deep dive into the often highlighted themes of joint delivery and distribution center streamlining.