COMMENT: Growing logistics sector a cause for concern?by ASC Staff on Jan 12, 2017
Khizer Hayat, co-founder & CTO, RigBasket on why businesses should be concerned by strong growth in the logistics industry in the Middle East.
According to a report by Frost & Sullivan, the UAE logistics sector was expected to grow by 4 percent in 2016, with a compound annual growth rate of 5.7 percent between 2015 and 2020. The transportation and logistics industry contributed close to $29 billion to UAE’s GDP in 2015 and continues to grow. The growth is largely due to government investment plans and infrastructure development initiative. Ongoing economic diversification, growing domestic demand and development of multimodal transportation will continue to aid the growth of the UAE’s logistics industry.
Airport expansion and the GCC rail network will strengthen alternate mode for freight and cargo transportation. Furthermore, the lifting of economic sanctions on Iran will most likely increase trade activities in the region and add to the growth in logistics. Companies like Aramex are already preparing for the strong logistics growth with the construction of a new facility in the Umm Ramool area in Dubai.
Based on the above information exciting times lie ahead for the UAE economy. Strong growth in the logistics sector will provide employment opportunities in the region as well as increase the strength of the Dirham.
So why should organizations be concerned? Why is there a downside to this logistics growth which can actually hurt the bottom line of organizations?
The $26 trillion global supply chain industry touches every aspect of a business from HR to operations. Logistics is a major player in the supply chain sector. In the United States, the demand for logistics personnel is expected to grow by 26% between 2010 and 2020 but the supply is unable to meet the demand. In the UAE the trade and logistics growth in hiring was 55% year on year in 2015. However, 25% to 33% of the supply chain workforce is either at or already passed the retirement age and there is currently a 61% talent gap in middle management supply chain. For every supply chain manager entering the work force two (or more) are retiring. In the United States more than 60 million employees will retire by 2025 but only 40 million are expected to enter the supply chain and logistics sector.
To further add to this, there is currently a 15% turnover in supply chain personnel showing that not only is talent hard to find but retaining talent is not easy either. Only 14% of companies believe that they are doing better than their peer groups in managing supply chain talent, 43% actually believe they are doing a worse job. Most CEOs are aware of this talent shortage and know they’re not doing enough to fix this problem.
Growth in any industry often results in process problems which results in the need to hire more personnel to fix these issues. Due to the talent shortage most companies end up hiring personnel unfit for the supply chain role and believe that they can train them up to lead supply chain/logistics in the future. On average it costs organizations close to $350,000 to train up a supply chain employee in order to make a significant impact on cost savings. To add to this, 15% of supply chain employees leave their organizations due to job dissatisfaction. Imagine spending close to $350,000 only to lose that employee. The organization has just lost a tremendous amount of knowledge and experience apart from their investment. Oftentimes the training is rushed so the employee takes a very long time to make any significant cost saving impact on organizations. Hence, profits tend to drop instead of rise with growth.
Currently organizations try to preserve the knowledge base through training courses, design books, best practice books, mentoring sessions and standard work instructions. While these are great for the preservation of knowledge, it requires a substantial amount of time to go through these and understand the supply chain principles in detail. Let’s see how we might be able to solve this problem using technology.
Modern technology, especially in the field of Artificial Intelligence, allows us to make better use of this knowledge by integrating it into a single platform that gives insights to the end-user to highlight bottlenecks in supply chain processes. We live in an age where a ton of data is being generated every millisecond. Automating the data analysis process can not only accelerate decision making but also significantly reduce training costs while preserving knowledge. On average 70% of the total time for a supply chain strategy project is spent on data cleaning and analysis. Such a solution would not only reduce the talent gap problem but make it easier for people in supply chain especially logistics to focus on implementing key strategies instead of wasting time on data analysis.
Thus, all hope is not lost. Through proper utilization of technology, logistics organizations can not only overcome problems as a result of the growth but also make higher profit margins compared to their competitors and become an industry leader in logistics.
About the author: Khizer Hayat is co-founder & CTO of RigBasket, a virtual supply chain analyst.