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A recent survey of logistics managers revealed that more companies are demanding that logistics be a source of genuine strategic advantage that contributes to the bottom line and not pure overhead. This revelation follows an Accenture study that says many companies consider logistics outsourcing less of a strategic business imperative, and more of a cost-cutting measure. For logistics managers, these two studies expose a gap in the perception between what is and what can be. Given that perception, what are the impediments to convince these decision makers that 3PLs are well positioned to be a strategic partner in the logistics process?
To answer that question we must look at what solutions managers are exploring in order to gain strategic advantage. According to the survey, the most common solutions they are pursuing are network restructuring, partner collaboration, new information technologies and outsourcing.
While 3PLs traditionally have excelled in one or several of these solutions, they are now asked to deliver all of them. The primary reasons are the emergence of global supply chains; the proliferation of suppliers and thus the need to reduce the complexity of the supply chain; and the demand to integrate/consolidate separate silos within the supply chain, such as warehousing and transportation.
The latter two being the most imperative have driven 3PLs to develop single provider initiatives, which address managing the entire supply chain and provide the best chance for gaining strategic value. Of course, the converse of that - the more complex the supply chain the more difficult it is to gain a strategic advantage - is an unalterable fact. This was pointed out in a study by Robert Lieb, professor of supply-chain management at Northeastern University in Boston, who concluded that as shippers outsource a growing range of services within an expanded geography, they will need 3PLs that offer more scope. Indeed, the implied conclusion is that the greater portions of a supply that can be taken over by a 3PL, the more that complexity and costs are reduced.
But before 3PLs can offer single provider initiatives they must not only have scale but the technology that integrates disparate supply-chain functions, such as warehousing, transportation, and order fulfillment.
Historically, most supply-chain applications operate independently of the other and are dedicated to one vertical, such as transportation, warehousing, or order fulfillment. Now, through a unique architecture these and other applications can be connected to better integrate their respective silos and provide supplier collaboration. The result is an exception-based performance tool that presents real-time potential points of failure across the complete supply chain - an essential element of single provider initiatives that lead to cost reductions in the critical areas of controlling inventory holding costs, reducing stock-outs, and reducing transit times.
Single provider initiatives are becoming more frequent. For example, BMW North America has implemented such a solution to manage its entire North America inbound supply chain from supplier pick to line-side delivery at its Greer, S.C., manufacturing plant. The automotive manufacturer sought to reduce overall costs by integrating the warehousing and transportation silos of the supply chain under one provider as opposed to approaching them independently through many.
The key to success, whether consolidating supply chains within a company or tying together global operations, is performance visibility. Forrester Research cites how critical this is to the supply chain when it determined that 76 percent of shippers can't track their product en route and 38 percent of manufacturers lack visibility into their shop floor operations. Forrester's research becomes even more relevant in light of the emergence of data-driven models that translate supply and demand characteristics, item by item, into recommended inventory levels. Thus, without the ability to track product and gain visibility into warehouse operations, there can be no advantage to these data-driven models of determining correct inventory levels.
For the past decade, both supply-chain event management and logistics companies have been developing applications that can provide visibility throughout the supply chain. But visibility is not enough. Visibility must be combined with performance goals to create a more responsive supply chain. Performance visibility is the result of not only a depth of vision throughout the supply chain, but also by determining critical performance objectives from the visibility provided. It distinguishes only the information that results in measurable performance. Specifically, it differentiates between expected and unexpected outcomes and only publishes the unexpected outcome for problem resolution. An analogy might be having a blueprint of one's metabolism to determine what vitamins and minerals are needed instead of bombarding your entire system with useless vitamins.
For single provider initiatives to be successful, performance visibility must be customized. In other words, whereas most supply-chain visibility is restricted by canned and indiscriminate information, performance visibility provides selected information based on specific criteria, which results in directing alerts to specific end points, such as a material or transportation planner.
According to Forrester, the failure of most applications to filter out the information that is needed to be acted upon represents a major deficiency. Too often, the research concludes, applications need time to collect and synthesize data from multiple sources - even those unaffected by the exception at hand. Their centralized data architecture prevents them from breaking down the problem into component pieces and distributing them to the relevant supply network members that possess the contextual information needed to fix them.
To achieve performance visibility requires not only technology savvy, but also operational intelligence. Often, before single sourced solutions can be initiated, providers must perform pilot studies, which yield critical information into the dynamics of the supply chain. In the case of BMW North America, the automaker worked with a team of logistics solution engineers on the individual silos of their supply chain, i.e., transportation and warehousing, as they sought to consolidate and optimize it and expand cost reductions beyond those offered by single silo optimization.
What the BMW case study demonstrates is that performance visibility cannot be achieved through one supply-chain application. Since single provider initiatives require an analysis of the dynamics among all the silos within the supply chain so too must the dynamics of the integrated applications be harnessed. Consequently, it would be a mistake to assume that performance visibility can be achieved from the separate functioning of several supply-chain execution applications. Instead, they must be linked by an architecture that ties together warehouse management, transportation management (purchased or dedicated), audit/freight payment and material replenishment. As Jill Jenkins, senior analyst of e-business applications with Current Analysis, cautions, "Supply-chain execution does not adhere to a core set of products ... and customers are increasingly frustrated in trying to evaluate and products being offered by supply-chain execution vendors." According to Jenkins, the problem is that vendors prefer to hide behind their execution monikers rather than tout their core competencies for fear of not being considered a comprehensive execution provider. Third-party logistics providers have emerged as the prime "integrators" of supply-chain applications. Quietly, the leading 3PLs have forged an amalgam of supply-chain applications from commercial and proprietary sources that have both the scope and flexibility to meet the diverse needs of customers. For too long the commercial marketplace has overlooked these composite applications because they have not been marketed and branded competitively. Yet, customers are quickly realizing that many of the solutions to complex supply-chain challenges can be found within the composite formed by these diverse applications.
And this truism is found throughout the outsourced logistics process. For example, optimization is an ongoing process because the moment you achieve optimization the process is obsolete and requires more optimization.
As more companies outsource their supply chains, the imperative is to search for greater efficiencies that extend beyond managing transportation costs or warehouse costs individually. As evidenced by the growing value of performance visibility, 3PLs are proving the best optimizer of supply-chain processes operationally and technologically, and are achieving greater cost reductions from the total supply chain. And this can only translate into strategic advantage for manufacturers.
David G. Kulik is the president and CEO of TNT Logistics North America, based in Jacksonville, Fla.
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