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Entry into the business of asset-based supply chain and logistics requires the investment of substantial assets to perform optimally. These assets include but are not limited to distribution centers, warehouses, material moving equipment and trucks, among others. A non-asset-based supply chain and logistics service provider, on the other hand, lacks the above assets and outsources to companies that own them to offer services to their clients. They, therefore, simply act as experts in negotiating contracts with transporters, warehouses, and distribution centers at the lowest possible costs to the client. There are several barriers that hinder startups in both asset-based and non-asset-based supply chain and logistics service providers. This paper is meant to give insight and address concerns of the newcomers into the asset based and non-asset-based supply chain and logistics service provider’s business
Potential Barriers to Entry for Asset-Based Newcomers and Possible Solutions
There are three main barriers or otherwise challenges that are likely to face the newcomers into the asset-based supply chain and logistics service provider’s business. First, there has been continued globalization of businesses and economies. This means that most customers will require a service provider who is globalized in some sense (Autry, Goldsby, Bell, & Hill, 2013). This may not be easy for a startup business in asset-based supply chain and logistics because the amount of capital required to get the assets and establish global distribution centers is huge to be afforded by any startup venture. The solution to this is to have a mix of both assets based and non-asset-based approach. One may own trucks but outsource distribution centers and warehouses. Similarly, they may start regionally and globalize later. However, for a non-asset-based supply chain and logistics service provider, this may not be much of a challenge since they will not acquire any assets but rather leverage on their expertise to negotiate cheaper contracts with the owner of assets, thereby maintaining their margins.
Secondly, most companies are progressively focusing more on maximizing profit margins and thus vertically integrating. Vertical integration is when a company controls the majority or all the four phases of the supply chain, namely commodity, manufacturing, distribution, and retail. This, therefore, denies the new entrants in the asset-based supply chain and logistics business an opportunity to do work since the companies insist on doing everything for themselves to take ownership and control the narrative in as far as quality service provision is concerned. The solution to this barrier for the asset-based providers is the fact that there are some companies that are now focusing more on their core competencies, thereby engaging in vertical disintegration, providing an opportunity to the newcomers to asset-based supply chain and logistics. The startup companies in the asset-based supply chain and logistics should target such companies that are currently undertaking vertical disintegration. Non-asset-based supply chain and logistics service providers have a real challenge when a client is a stickler to performance without lapses. When one does not have assets, they do not have 100 percent control on how to deliver flawless execution and performance since they rely on third parties to achieve this end. This may not be the case with a service provider who owns assets.
Most companies now regard supply chain function as strategic leverage in the market place. This has seen most service providers operate on the level of mastered complexity resulting from the global and virtual network they own, and they do it comfortably without owning any asset whatsoever. This is the greatest barrier to the newcomers into the asset-based supply chain and logistics service provider’s business and a big opportunity frontier for the non-asset-based supply chain and logistics service provider. My advice to the asset-based supply chain and logistics service provider will be that they focus on the small companies that consume their services so that they can grow together with them. If they angle for bigger companies, they will be in effect biting more than they can chew or even swallow for that matter.
Non-Asset-Based Supply Chain and Logistics Service Provider Recommended
From the above barriers, it is easier to start as a non-asset-based supply chain and logistics service provider. Here, one does not need any huge capital to start up. They only need to leverage on their expertise to negotiate cheaper contracts with the owners of the assets required while protecting some margin for their company. Secondly, it is less headache to shoulder the complexities and costs that comes with managing some supply chain and logistics assets such as trucks: the breakdowns and fuel costs, cargo thefts and manpower costs to operate the logistics department.
Finally, the return on investment for non-asset-based supply chain and logistics service provider is realized sooner than later as compared to the asset-based supply chain and logistics service provider. Any business model that breaks even sooner is better since the shareholders start realizing profits and start focusing on growth and expansion of the company as soon as possible (Farris, 2006). This explains why such companies can grow into global scales, managing complex global and virtual functions that give them an upper hand in the supply chain and logistics market better than their counterparts.
In conclusion, every business requires substantial capital to begin, but when the amount is too big owing to the need to acquire assets, then the risk of failure is also big since the time taken to have a return on investments is relatively long. Moreover, with globalization, it is always good to progress with a lean budget. It is still possible to achieve more with less. It is prudent for one to leverage on the expertise they possess and deliver cutting edge service without the necessity of owning the assets required to deliver that service. To achieve this, one just needs to increase the overall efficiency, cut costs, decrease errors, and mitigate risks and accomplish all the preceding on time.
- Autry C. W. Goldsby, T. J. Bell, J. E. & Hill, A.V. (2013). Managing the global supply chain. Boston, MA:Pearson Education Inc.
- Farris, P. (2006). Marketing Metrics: 50+ Metrics Every Executive Should Master. Upper Saddle River, N.J.: Pearson Education, Inc. Retrieved from http://search.ebscohost.com.ezproxy.bellevue.edu/login.aspx?direct=true&db=nlebk&AN=191950&site=eds-live
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