But experts say firms should focus more on building revenue than reining in expenses The global economic downturn has done a service to logistics service providers. With demand falling and production overheads down to a minimum, chief information officers have been looking for cost-saving strategies; logistics outsourcing has become the next big thing for corporate bean-counters. Aspects such as warehousing, transportation, inbound delivery and others have been taken 'off the books' and outsourced to third-party logistics providers (3PLs). Cost saving from outsourcing could be up to 40 per cent of a company's total logistics expenditure, claimed the 3PLs. Logistics outsourcing has been especially successful in Asia. According to International Data Corporation (IDC), it has been growing by more than 40 per cent a year since 2000, and will continue to do so at the same rate for another three to four years, and more so in less-developed economies. Despite the financial benefits, however, industry experts are saying that the sole cost-cutting objective of supply-chain management in companies is fundamentally wrong. 'Most supply chain managers today are stuck in what we call the efficiency trap. That is, they focus inwardly on operational cost control rather than on creating supply chain and customer service strategies to drive additional revenues,' William Copacino and Jonathan Byrnes of management consultancy firm Accenture said in an article published by Supply Chain Management Review. 'Companies that have successfully mastered their supply chains have realised documented gains measuring up to 35 per cent in market share,' they added. A report by the Performance Measurement Group (PMG), based in the United States, goes further, saying companies that use advanced supply chain techniques enjoy sales growth of up to 76 per cent higher than those with a less sophisticated supply chain. 'The real leverage of a lean supply chain is in creating capacity for growth,' said James Reeve, professor in enterprise information management at the University of Tennessee. One fundamental reason behind this is a well-run supply chain's ability to react to changes in customer demand, and to get products to market more rapidly than a traditional chain. 'A key objective of supply-chain management is to have the right stock at the right place at the right time. 'The more efficient a supply chain, the more likely it is to be able to do that,' said Roger Sanderson, supply-chain consultant for the Thomas Group. 'From a product's design through its production and delivery to the consumer, a well-designed supply chain will be able to respond highly efficiently - taking unwanted inventory out of the system, and allocating investment and value to where it is needed,' he added. This need not be at the expense of operating costs, either. According to Mr Sanderson, responsive supply chains are often some of the most efficient. 'If you can drive costs out of the supply chain properly - looking at total costs along the chain rather than functional costs in isolation - then you are on your way towards having a more responsive supply chain.' Experts advocate a holistic approach to the chain. Cost saving on a single section of the supply chain can often mean inefficiency somewhere else, so it is essential to look at end-to-end processes. According to Mr Copacino and Mr Byrnes, good supply-chain management in a company means it has made supply-chain capabilities the core of its business model. 'This requires both creating a new strategy and bringing the company's other core activities into alignment with this new business model - most importantly, account selection, in-customer operations, core operations capabilities and management/organisation structure.' According to the PMG report, companies with advanced supply chains techniques need 40 days less to increase production by 20 per cent than those with less well-developed supply chains, giving them an important lead in satisfying a surge in demand. Dell (described by Mr Copacino and Mr Byrnes as a 'supply chain master') built market share in the 1990s by bringing the latest technical innovation into the market weeks before the competition. When its rivals managed to get their version out, demand had already fallen and they were left with unwanted inventory. A significant component of efficient supply chain management is the flow of information up the chain. 'That information should not only flow internally. In today's world of outsourced manufacturing it is essential that information flows to everyone with an input to the chain. So you have to look at a supplier's processes as well as your own.' A benefit of this is in the development of new products. 'Dell understands, through the use of point-of-sale data and marketing, what the consumer wants today, and it can predict what it wants tomorrow. 'Its marketing function is tied in with its supply chain, and it can outline the type of components its raw material suppliers should be producing,' said a Hong Kong-based consultant. A well-run supply chain can also compete heavily on price. The recent success of Wal-Mart's US grocery sales is attributed in part to its lean supply chain and logistics, which has allowed it to build market share during the retail downturn. 'The more costs you can take out of a supply chain, the more you can pass that saving on to the customer and build market share, with a resulting benefit on revenue,' Mr Sanderson said. 'That dollar saved can also be spent on research and development, and on constantly upgrading the products you sell.'