Logistics Alliances: The European Experience
Laarhoven, Peter van, Sharman, Graham, The McKinsey Quarterly
An early report on the development to date of one key building block of the coming "network" economy
A new type of logistics-based alliance is quickly gaining speed in Europe, driven, in large part, by the pressure for restructuring. These alliances represent formal or informal relationships between companies operating in a broad range of industries -- and markets -- and logistics service providers. Despite the current focus of such arrangements on providing "contract" logistics services, they have the potential to offer a much broader range of value-added services, including secondary manufacturing and supply chain integration.
COMPANIES AS DIVERSE as computer manufacturers and grocery retailers are increasingly forming alliances with providers of logistics services in an attempt both to improve delivery for their customers and to reduce their own logistics costs. Even so, information on the logistics services market is scarce. National statistics are dispersed between transportation and warehousing classifications, and numbers often shift between categories when alliances are consummated. Though precise information is not available, we estimate that in Western Europe alone logistics alliances to the annual value of one to two billion dollars are now in place. They are also spreading to markets as far apart as the United States and Australia.
To find out more about logistics alliances and why their popularity is increasing, we have cooperated with the Center for European Logistics (CELO)(*) in a research program that involved visits and in-depth interviews with 50 customers and 20 logistics services providers across five Northern European countries. Our aim was to build a database covering both sides of the alliances.
What is a logistics alliance?
For the purposes of the project, we defined alliances as agreements that met three conditions: they must involve at least one full year of cooperation; cover both transportation and warehousing services; and employ a single provider for the services. In other words, we were seeking partnerships -- "win-win" situations from which both parties could benefit.
Although the frequency with which such alliances are happening is a recent phenomenon, some companies have been aware of their benefits for much longer. One of the earliest and most definitive of these alliances is that between Rank Xerox and the Dutch transport company Frans Maas, which has evolved over a decade with periodic increases in scope and value-added.
TABULAR DATA OMITTED
Though every alliance is different in purpose, structure, scope, needs, and results, our research with CELO identified a number of common features.
Logistics alliance development is still in its early stages. There are, as yet, no major service providers that dominate the European scene. Almost half of the alliances in the research sample were less than two years old, and most had not changed their original scope.
By far the most important factor driving companies toward such alliances is corporate restructuring. In Europe, typical motives are the need to reconfigure production facilities to respond to globalization pressures, and the increasing harmonization and deregulation within the European Union. Corporate restructuring can lead to a logistics alliance in two ways.
If it involves more specialized production and fewer factories, it will be accompanied or quickly followed by a re-evaluation of the logistics configuration. In more than 500 cases to date, disappearing borders, greater distances to market, and improving transport networks have prompted the setting up of one or more European or regional distribution centers. Recent analyses by Dutch information and research institution, Nederland Distributieland, show that one in four of these distribution centers will be outsourced. Our own experience indicates that major US and Japanese companies are in the vanguard of this type of restructuring. …