THE BUSINESS OF SERVICE

The logistics sector is classified as a part of the tertiary - or service - economy which provides the links in the value chain of a product till the point of sale. However, logistics service providers do not need to restrict themselves to the "cradle-togate" phase of the primary and secondary sectors.

The "gate to grave" phase, which usually happens to be the longest phase in the lifecycle of a product and during which the value of the product is utilized by the end-use, also presents opportunities for logistics companies for expansion of their business profiles. Indeed, the service sector has flourished and accounts for an ever-growing chunk of the economies of countries, not just in the developed, but also the developing world.

The said opportunities have sprouted forth courtesy of concepts like extended producer responsibility, which denotes the continued link between manufacturer and client after the core production phase and the performing of functions like maintenance, repair and refurbishment. One of the said links is the logistics service provider moving further downstream to provide "service logistics services", i.e. serving the supplier to provide services to the end-user.

"Service logistics comprises all activities that restore or maintain the functionality of a finished product throughout the product life cycle, including forward supply of spare parts and aftermarket logistics," Kerry Mok, senior vice President of the Service Logistics and Technology division of DHL Supply Chain's Asia Pacific operations, informs Logistics Insight Asia.

While companies are driven by need to spruce up their business strategies related to service parts execution and fulfi lment in response to an increasing demand for higher asset availability from their customers, several "best-in-class" (terminology adopted by the Aberdeen Research Group) companies have considered the development of logistics network partnerships to enhance service parts execution.

High-performing companies, according to a 2007 Aberdeen report, were twice as likely as others to leverage regional couriers and three times as likely to rely on 3PLs for their service parts execution. Among the companies interviewed, 32 percent of those in the top-class category had outsourced their service parts execution to third party logistics providers. Three years down the line, many more of that sample set would have done so.

DIFFERENTIATING SERVICE

According to Kerry Mok service logistics can be differentiated from traditional logistics owing to its unique requirements and functional attributes in areas like footprint, operations and delivery.

"As such, DHL has dedicated solution off erings, and we manage our own infrastructure, footprint, systems, tools, processes and staffing for service logistics. It operates as a separate profit centre," he tells Logistics Insight Asia.

Gary Weiss, the executive vice president of global operations for Choice Logistics, which is in the business of providing mission-critical service parts logistics (as he terms it) for high-tech companies, tells LIA that few providers focus exclusively on SPL. "It is a specialty niche that requires specialized software to manage inventory control and immediate dispatches, as well as warranty status, defective routing/ processing, tracking, etc. For most that do offer these services, it is an adjunct from their primary transportation business and used to help fuel those operations," he says.

Echoing this view is Kenneth Ko, executive director for Hong Kong headquartered Kerry Logistics: "Demand for a range of value-added services is growing as manufacturers focus on their core competencies and outsource processes such as quality control, testing, repairs, reverse management and installing local language software into electronic devices. It is fair to say that these services are higher yielding than for standard warehousing and distribution and as such are areas that we are looking to develop."

As long as there have been sales, there has always been service logistics. That is according to TNT's Oliver Lemanski, who helms the company's service logistics business in Southeast Asia and India. "Every time someone returns a product or calls a technician to fix something, the resulting activity falls within the scope of service logistics.

"Within any market, to retain existing customers. While service logistics is highly developed in the mature hi-tech markets in the West, in Asia, it is evolving rapidly, although fragmented with multiple local logistics and repair providers acting independently," he explains to LIA.

Still, as things stand today, the Asia-Pacific outsourced service logistics market stands at around US$3.7 billion, with India and China accounting for the largest and the fastest-growing shares of the pie. Not surprisingly, logistics companies are scrambling to get a share of this pie, which is likely to grow at a steady pace over time.

ASIA RISING

The contention of a boom in the service logistics sector is not mere conjecture; there is clear evidence available out there in the marketplace. Take the €50 million investment committed by DHL Supply Chain for the 2010-2015 period in the fi rst half of this year, to spruce up its technical services off ering in the 42 countries it operates in, in the Asia-Pacific region.

"Our focus on this sector will be an industry game-changer. Harnessing the size and scale of our extensive footprint spanning 42 countries and territories in Asia Pacific, we have a unique opportunity to bridge the market gap between companies off ering technical repairs and logistics providers," said Paul Graham, CEO, DHL Supply Chain, Asia Pacific, at the May 26 launch announcement in Singapore.

A far cry from "shifting boxes", skilled personnel are being recruited to provide a range of product-related services - such as final configuration, repairs, and asset recovery - for IT and electronics company clients. The centre of activity from where the service logistics operations - warehousing and distribution of spare parts, product screening, testing, repair, warranty verification, and asset recovery - is Penang in Malaysia.

The Penang facility also houses an Authorized Service Provider (ASP) management team that supports services such as warranty verification and spare parts purchases across Asia Pacific. For one major computer manufacturer, DHL operates a technical call center where customers are assisted with advanced levels of repairs from laptops to servers.

While several big cities and towns in China and India already enjoy the benefits of DHL's service logistics operations, new investment will see the network in those countries widen further to encompass smaller, more far-flung towns.

"Asia is a high-growth market, both for consumer and commercial consumption of technology, healthcare, automotive and industrial products. Coupled with the trend towards outsourcing of service logistics, this leads to signifi cant demand for service logistics solutions.

"And it augurs well for logistics providers such as DHL, as we have the capability to provide integrated end-to-end supply chain solutions, as well as value-added services such as service logistics solutions and bridge the gap between customer needs and our service portfolio," says Kerry Mok.

According to Gary Weiss, by utilizing a third party service logistics partner like Choice Logistics, clients can successfully minimize inventory investment and maximize service engineer time as they are not administering transporting parts, are able to scale quickly and globally, and can concentrate on their core competence.

"Our role entails maintaining the minimum inventory of service parts to support as many client installations as possible, within the contracted contract period, and 24/7 availability of goods and services. This includes management of both good and defective inventories through all avenues of dispatch, management of all warranties so that new purchases are minimized, global trade compliance, and the ability to design and manage replenishment to stocking strategy," says Weiss.

"In the Asian market, we are seeing growing demand for service logistics in China and Southeast Asia as manufacturers driven by competitive pressure look to outsource non-core activities to 3PLs," says Kenneth Ko of Kerry Logistics. "With a rise in the degree of outsourcing and the subsequent lowering of operating costs, a trend is set, whereby competitors would see business sense in toeing the line.There is a very large potential for service logistics in many manufacturing sectors particularly in China, where land and labor costs have risen and the pressure is on to reduce costs."

Kerry covers sectors as diverse as fashion, electronics, retail and automotive, and has developed specific areas in its logistics facilities to manage the different products for each industry sector. For example, secure areas for high fashion goods, temperature controlled, staticfree areas for electronics, and production lines for semi-finished products. Ko says that the company manages service logistics operations across these sectors; for example, for leading global fashion brands, MNC electronics manufacturers, and for automotive spare parts companies.

In April this year, TNT announced that it would be expanding its suite of service logistics solutions for the hi-tech sector, specifi cally the consumer electronics, computing and telecommunications industry. It also announced the appointment of service logistics specialist Oliver Lemanski to spearhead an "aggressive expansion strategy" in the service logistics market.

"Service logistics can be a profitable business but it is not something that can be setup overnight," Lemanksi tells LIA. Upfront costs including recruitment, systems and infrastructure need to be off set against a robust sales pipeline. Understanding the industry and region is critical to ensure prudent investments.

"For TNT, our service logistics solutions are aimed at the hi-tech sector and we continue to build up our infrastructure and system capability across the Asia-Pacifi c region to support these markets. We aim to bridge the gap between repair and transportation, providing basic services such as spare parts management and return-for-repair, as well as more valueadded activities such as IOR/EOR services, time-critical deliveries, product screening and defective parts management," says Lemanski.

Aside from the providers, service logistics is also a keen area of interest for supply chain software suppliers like Kewill. According to chief marketing offi cer Evan Puzey, the Asian service logistics sector is a prime growth area for the company. As he explains to LIA, Kewill offers a service logistics business process management (BPM) application that enables automated management of companies' supply chains related to service logistics operations. "The software manages all the aspects of the supply chain, linking together all the players and supporting the necessary collaboration between them."

MOVING FORWARD

A bright future for service logistics in Asia. That is the consensus view of companies that are active in this area and investing further to grow their share of the pie.

"Asia is a high-growth market, both for consumer and commercial consumption of technology, healthcare, automotive and industrial products. Coupled with the trend towards outsourcing of service logistics, this leads to signifi cant demand for solutions," says DHL's Kerry Mok.

"Outsourcing of service logistics activities is expected to rise in Asia over the next two to five years, further bolstered by continued growth of the whole high technology market," notes Oliver Lemanski of TNT.

"There will be an increasing need for integrators like TNT to provide sustainable regional services that are easily transferred between countries and product groups. These are very exciting times for service logistics and TNT. We have made several major achievements and these will be made known in the near future," he says.

Also optimistic but sounding a slight cautionary note is Choice Logistics' Gary Weiss. "Yes, the service logistics future includes growth, and the Asian market should prove to be the most dynamic, with the most rapid expansion of all regions across the world. But there will be pressure to provide more value-added services, to streamline companies' logistics integration and systems, and bridging the gap between procurement/end-products and service parts for aftermarket support services.

"Specific challenges in this region include intra-regional support across multiple countries, cultural differences and anomalies and the related encumbrances to the establishment of support services and location setups, and the need for expanded and improved transportation infrastructures to support same day and next business day services," he tells LIA.

Talk of the triple bottom line - achieving economic growth while providing social welfare and taking care of the environment - has made planners and decision-makers appreciate the gravitation towards the tertiary sector, by generating more employment and creating more value through the provision of services rather than the supply of products.

And as economies in Asia boom and supply the Western world even while fulfilling the burgeoning demand in the domestic markets, productivity improvements are essential to sustain the benefits which are accruing. Maintenance and repair of machinery and equipment in the industry will assume tremendous significance in the years to come and ensure the continued growth and relevance of the service logistics sector.

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'THE ASIAN SERVICE LOGISTICS MARKET IS A PRIME GROWTH AREA FOR US'

EVAN PUZEY, chief marketing officer, talks to Logistics Insight Asia about the supply chain software company's solution for service logistics.

Q: What exactly is the offering Kewill has for the service logistics sector?

A: Kewill delivers a service logistics business process management (BPM) application that allows for the automated management of a company's supply chain related to its service logistics operations.

The BPM software manages all the aspects of the supply chain, linking together all the players - OEM, carrier, repairer, call centre, warranty unit, etc - and supports the necessary collaboration between them. The outcome is efficient and effective responses to service logistics requests.

Q: What kinds of challenges are faced by your Asia Pacific customers?

A: Kewill's clients in the Asia Pacific region face a unique set of challenges. The marketplace is probably more closely aligned to Europe than North America due to the multi-country environment that companies operate in and the complexities this adds to managing the process. Manual management may be cost-effective, but will fail to address other factors like visibility and control that a centralized system linking all the involved parties has to offer. Manual handling is also error-prone and costly, especially when companies are trying to abide by service level agreements, non-compliance with which entails payment of penalties.

Q: How would you assess the future market potential for service logistics solutions?

A: The Asian service logistics sector is certainly a prime growth area for Kewill. The aftermarket divisions of most companies are now thinking along the lines of reorganizing from being a cost centre to becoming a profit centre.

This they intend to accomplish by outsourcing the post-sales services operations to a trusted player, which will then utilize systems to provide cost-effective value-added services like visibility and control.