Home » SCMAP Perspective » Why Enter Logistics?

The Lucio Tan group is the next conglomerate looking to grow their presence in the logistics industry. While it already operates several companies connected to aviation – not the least flag carrier Philippine Airlines – it’s looking to expand further into logistics to complement the business.

 

Of course there are more synergies at play, as Tan also has interests in tobacco and beverages – two industries where a strong logistics operation is important. One can’t help but think a logistics company under the same umbrella would complement that.

 

And so continues the seeming gold rush towards supply chain that we’ve seen in the past couple of years. SM, Metro Pacific, Ayala and other major conglomerates have made their moves, and it’s safe to say 2018 stands to be an interesting year for everybody in the industry.

 

It’s an indicator of the many opportunities now found in the supply chain industry. More people now understand the merits of a strong, agile and adaptive distribution strategy, particularly in the Philippines where distribution is a challenge, to say the least. We’re a few steps away from people seeing the big picture, of the synergy between all aspects of a supply chain, from sourcing to manufacturing, from distribution to marketing.

 

In particular, it’s clear why conglomerates are now looking to enter the logistics industry themselves.

 

Synergy. These conglomerates have interests in multiple fronts – manufacturing, from consumer goods to industrial goods, as well as retail and, in some cases, property – and a strong logistics complement will ensure that these fronts work together better.

 

Reach. This seems particularly true with SM’s investment into the 2GO Group, whose shipping network serves customers and businesses through most major ports in the country (particularly in Visayas and Mindanao), but most of these “new” players have a nationwide presence, whether through their properties or their products. A dedicated logistics operation ensures more consistent service levels across these islands.

 

Scale. We all know how important achieving economies of scale means for efficiencies and savings. And if anybody knows the virtues of doing more with less – all right, an optimal amount – it’s these conglomerates.

 

Control. This is perhaps the most important benefit. Getting a grip of the whole end-to-end process ensures one has control over every aspect of the consumer’s experience. They’ll know how a product is made, how it is distributed, and how it is sold. Who wouldn’t want that?

 

There’s no denying the benefits of stronger synergy and a wider reach, but the last two aspects raise some interesting questions.

I touched on the question of scale in my last column. Again, a larger, national footprint ensures stronger service levels, but this may come at the expense of agility and responsiveness. There may be a tendency to centralize important logistics decisions, and these decisions may conflict with what is happening on the ground. While I’m pretty sure every supply chain operation worth its salt will have dedicated managers in the regions, I foresee some conflicts needing to be resolved, particularly in unforeseen circumstances like natural calamities and man-made disruptions. (That said, these scenarios is where a bigger scale can shine.)

 

Also, in the past few years the supply chain industry is moving towards collaboration. We’re still calibrating ourselves towards this thinking, but already manufacturers are sharing more information with retailers and distributors in order to align priorities and craft bespoke solutions. The entry of major conglomerates may mean the return to silos – one fleet of trucks for one chain of stores, another fleet for another chain. I know full-on sharing is still a long way away – there’s still no chance competing products with a common destination will be loaded on one truck – but will these ultimately lead to inefficiencies, which is the opposite result?

 

Finally, what about existing players, particularly smaller ones? I don’t see them disappearing just yet, but of course they will have to adapt. Either they specialize on a particular logistics service or a particular industry (each with unique needs), or dig deep into their local knowledge. Even large FMCGs entrust their logistics to provincial players to ensure a wider reach (and to allow them to focus on their core competencies, too). I think these new players will still need these players as they make a bid for industry domination. Or, at least, a comfortable presence.

 

Henrik Batallones is the marketing and communications executive of SCMAP. A former board director, he is also editor-in-chief of the organization’s official publication, Supply Chain Philippines. More information about SCMAP is available at scmap.org.

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