Avoiding the Fate of Commoditization

Companies in all facets of Logistics and Supply Chain need to be very concerned about commoditization. Simply put, when the service or product provided by a firm can be supplied equally well by a number of other firms, then that service/product simply becomes a commodity and price is often the only deterrent in supplier selection. Once a firm becomes simply a a commodity with no value-add, the company often loses control of its destiny to other firms which add value and proactively manage the process on a value added basis.

In this type of situation, costs and margins are known and controlled with little room for improvement or innovation based on such tight cost controls. In many ways, the rise of third party logistics outsourcing was fueled by senior management viewing their in-house Logistics Departments/Operations as commodities and making a simple price/value selection to outsource on that basis.

In-House Logistics Departments that differentiate themselves by going above and beyond the basic warehousing/delivery requirements of their firm to add significant value, cost reduction, service improvement and innovation, would become a truly indispensable part of the organization and not simply a commodity. As market factors dictate, some of this innovation and improvement may involve the selective use of third parties on the logisticians own terms with their role perhaps transitioning into that of internal 4th Party management .

In the groundbreaking book, Blown to Bits, the emerging role of Navigators is discussed and is a true value added role. Firms which become or take on a Navigator role for their clients both from an information, products/services procurement and supply chain management basis, will generate significant competitive advantage and avoid commoditization.
Indeed, it will be firms such as this which will, in many ways, become the commoditizers and wield significant power and control within their area of specialization. In the Third/Fourth Party Logistics Provider and supply chain manager roles, these firms will provide their Logisticians and SCM professional clients with all the tools, knowledge and levers to plan, optimize and manage their supply chains to the greatest effect.

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