This article reflects the views of a management level executive for a local supply chain firm servicing modern trade retail outlets for FMCGs in Nigeria.
Selection of logistics service providers is highly critical for any supply chain related enterprise. Selecting and maintaining strong and economically sound relationships with logistics service providers have a direct effect on the output and service levels of an organisation as these vendors are an integral part of the distribution networks and often have direct supplier or customer insight, in some cases more than the company itself.
With the advent of aggregators such as Kobo 360 and Lori Technology, a firm’s decision may tilt towards signing up with a trucking aggregator platform or contracting independent truckers on a need basis. There are several factors to consider, a change from the existing mode of business is a difficult process as the abandonment of a critical service provider with a long history of relationship has its drawbacks. Long-time partners would have organisational learning and experience of interaction with suppliers or customers accumulated over time. Also, the service requirements are well known to the seasoned vendor.
Relationships between companies and trucking partners may come to a crossroad where a change is imminent as a result of poor service, changed market conditions, change in management even a change in operations on both sides. Also, a new entrant to the logistics market with advertised value offerings may entice stakeholders.
In the current logistics space in Nigeria one may have to decide between the aggregator model and the regular truck for hire business.
The highlights of observations with both models are as follows;
Aggregator trucking partner model
Aggregators provide a better structure on services; the relationships tend to last longer and have a critical role in the architecting of supply chains. Personal relationships are solidified for the ease of daily operations
Information systems on the aggregator platforms are mutually supporting providing insight for both parties
There is a pool of vehicles hence availability is not a major concern, expanded contract also leaves room for changes in asset sizes and routes
The company bears liability for goods in transit and takes some of the risks of business
There is a higher chance of structuring beneficial payment terms.
Billing practice from these logistics service providers might show a more flexible acceptance over time. Major findings are that contract-bound services and cost structures seem to drift into less transparent and informal patterns of interactions over time though this is wearing on the business relationship.
Independent trucking model
The market can affect relationships by redefining the context of the business relationship for instance during off-peak periods it is possible to negotiate better rates with independent truckers against contractual rates signed with aggregator platforms.
However, there is a limit to fleet size per trucker.
The relationship is usually unstructured and may be beneficial or unprofitable depending on the key persons involved in the transaction.
The payment terms may be less favourable as independent truckers are mostly unable to finance long term logistics agreements without frequent financial pay-outs from the buying company.
There is also more exposure to risk in these dealings
Anyhow, buyers of logistics services should from time to time, test models, services and potential new relationships and innovation.
Amanda Etuk
Etuk works for a logistics and supply chain firm in Lagos partnered with FMCGs
