Feedback of the Week:
On Barriers to 3PL Collaboration
This is an excellent summary of what I have seen since I started following the industry in 1990. Consistently, buyers are disappointed that LSPs/3PLs are not more innovative and interested in continuous improvement. Equally consistently, the suppliers are disappointed in the lack of commitment of the buyers to the relationships, with some exceptions, which may or may not endure beyond the first outsourcing manager.
To that, let me add the continuing perception by the internal buying group that they can do as good or better than the 3PL on service quality, so what the 3PL has to sell is information technology (IT development money is hard to get for logistics folks) and lower costs. Hence, the continuing disconnect, and the apparent plateau in 3PL penetration (which, by the way, is extremely hard to gauge. Fluctuations in year-to-year samples mean that public data is very difficult to evaluate over time).
Finally, I am seeing increased involvement by procurement professionals in logistics outsourcing contracts and selection, especially in very large industrial firms, where inbound logistics is critical. As a number of experts have observed, bringing the procurement people along requires education about total landed costs and the nuances of transportation and warehousing operations, at least initially.
In the companies I have seen, this sometimes works out well, and sometimes not. Procurement, like logistics, has to have reasonable forecasts, but they have the additional complication of being measured on purchase price variance for supplies, and that may result in higher logistics costs. In the current commodity-constrained world, having the necessary supplies may be much more important than how much the company pays to move them. And the usual issues around terms of sale get even more complicated when country-to-country differences have to be taken into account.
Arnold Maltz
Associate Professor
W. P. Carey School of Business
Arizona State University
More On Barriers to 3PL Collaboration
The US transportation industry will continue to face a steady combination of 1-2-3 and more punches over the coming years in the form of escalating fuel prices, increasing highway congestion, increased regulatory activity, a shortage of quality truck (Class 8) drivers and ever growing market expectations for better service at a lower cost. In response to these challenges, there has been a growing clamor about the need for collaboration to improve service and efficiency, while helping to mitigate the impact of these pressures.
Collaboration should be treated as a strategic initiative. It is a process that should include a structured plan, be managed with discipline, vigor, and adequate resources in order to deliver the desired measurable results. Towards that end, the following are six steps to establishing successful collaborative relationships. All involved parties should:
- Collectively agree on and actively invest in the collaboration effort
- Start with a common understanding of what the relationship is and should be
- Actively engage multiple levels of all relevant stakeholder companies
- Establish a plan to drive results and manage to mutual success metrics
- Quickly identify and prioritize opportunities to achieve mutual “wins”
- Communicate and build on success throughout all involved organizations
Starting with the first step, you need to decide who you want to collaborate with before you actually start the collaboration process, particularly given the time and investment that a successful effort will require. This means a careful and thorough evaluation of the economic reasons why it makes sense to collaborate, as well as a candid assessment of the cultural alignment of the companies. Once each company has completed these reviews internally, they jointly sit down and candidly share their thoughts and perspectives on their findings. This is the most critical step in the process because it identifies the financial benefits that are available and determines the participant’s willingness to commit their respective organizations to changing management activity to effect a successful collaboration. It is important to remember that collaboration is not for everyone and failure to go through this first step can lead to a disappointing effort.
Each of the remaining steps has a similar series of specific detailed actions and activities that have to be undertaken in order to ensure that the overall process is successfully implemented. Successfully implementing each step will build a solid foundation for a long-term collaborative relationship. While it is not practical to list all of these details in this commentary, this is the type of structured, process-driven approach to collaboration that can deliver meaningful and sustainable results.
Paul T. Newbourne
Vice President and General Manager
Leveraged Execution Providers (LXP)
On Design-Build… or Not
I couldn’t agree more with Jim Barnes about the clear advantages of using an independent consultant for your distribution center design vs. a material handling equipment supplier/design-build approach. Companies should remember that when offered a highly discounted or “free” design that “Nothing is free!" This is the proverbial “fox guarding the hen house."
A recent tactic employed by design-build MHE suppliers is to offer that “we will bid the design to three vendors." The problem here is that the three equipment vendors are the three brands of equipment that the design-build firm installs. This is not a true competitive bid, as the design-build MHE supplier will still, in the end, be the installer of the equipment (and the provider of the equipment bids – all of them!), no matter which brand is chosen from their offering!
While most buyers are astute and can see the difference, nevertheless, to confuse the market, many MHE design-build firms are now advertising themselves as “consultants," so much so that you have to dig deep into their literature and website to realize that they are indeed an equipment supplier first, not an independent consultant. They may have added planning service, but, in the end, they are still in the business of selling and installing their brands of equipment. This is their source of income. The bottom line is the buyer of such equipment will pay 20 to 30% more (we have documented this time and time again) than had they employed a true competitive bidding approach using an unbiased, consultant/client designed solution.
Steve Johnson
Principal
Johnson Stephens Consulting, Inc.
On RFID Summary:
I thought Dan Gilmore's summary article "RFID 2007 - Who Did What" was extremely useful. Would be interested in Dan's thoughts on where RFID is going in the coming years. How far along the adoption curve are we now?
Sylvanus Bent
Bent Systems Inc.
President & CEO
Quick response from SCDigest Editor Dan Gilmore:
I don’t believe a lot has changed since last year – with the exception that by year’s end, Wal-Mart was significantly revamping its approach in a more “back to the drawing board” way for the start of 2008.
As we continue to report, most of the activity currently is in “closed loop” systems for asset and work in process tracking. There is huge activity in the medical world, and more in manufacturing than we realize for these kinds of applications.
There is also no question that there is a lot more happening in Europe right now than in the United States, and several companies there are moving forward with additional item-level trials or even full roll-outs.
But, in general, still a lot of pilots.
Dan Gilmore
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How Good Is Your Supply Chain Data Quality? Part 2
