Ensuring that an organisation’s supply chain supports the delivery of its business strategies, whilst maximising shareholder value and financial returns, has always been a challenge. However, given today’s increasingly global, complex and fragmented supply chains, this is becoming increasingly difficult to achieve, MARTIN FLEMING argues.
The concept of outsourcing all supply chain activities has been around for 20 years or
more through the concept of the ‘lead logistics partner’ (LLP). In this context the LLP takes responsibility for a wide range of supply chain activities from order management, transport planning, freight procurement and payment through to providing additional management services, such as packaging design for example. The LLP is a vehicle by which companies are able to bring in appropriately skilled and experienced supply chain personnel, re-engineering tools and techniques, transport management systems (TMS), and supply chain modelling expertise. This provides the resources to re-design supply chains and drive cost reduction and continuous improvement efforts. As a concept it has been taken up most strongly in the automotive sector but it still has far from universal acceptance even here and is somewhat of a rarity in many other industries. However, it is a concept in which interest is growing with now many companies actively exploring the possibilities.
There are many reasons why LLP has such a high profile nowadays compared to the past. Today’s supply chains are increasingly complex: sourcing is global; shipments can involve air, sea and road transport; suppliers operate in a diversity of time zones; and successive mergers and acquisitions mean that large multi-nationals are often faced with a number of separate and completely independent and nonstandardised supply chain systems and processes. In addition fuel costs are rising; regulations and legislation are rapidly changing; and supply chain technologies evolving at a speed which makes it difficult to keep pace with developments. At the same time pressure is growing to reduce carbon footprint – and obviously a major contributor to this are a company’s supply chain activities.
LLP is not a ‘one size fits all’ solution and for certain companies may not even be the best approach to redesigning and optimising a supply chain. It is a configurable set of components, underpinned by a common philosophy and approach to instigating supply chain improvements. An LLP works best when it is applied to a significant supply chain spend (high
volumes and high number of freight lanes), operating in multiple geographies, in a multi modal environment. The greater complexity a supply chain has, the greater the opportunity that exists to improve and optimise it in order to generate cost savings.
Given that some or all of these attributes exist, then for an LLP implementation to be successful, certain prerequisites need to be in place. Supply chain transformation projects, by their very nature, touch most elements of a business. There are many stakeholders – in different factories, warehouses, departments, business units and operating divisions – who need to be satisfied. To succeed, an LLP project needs strong internal leadership: a senior
executive sponsor, who is prepared to be involved for the long haul, is paramount. These projects are not achieved quickly, as it can take six to 12 months from initial discussion to project launch and possibly up to an additional three years before the roll-out of a fully engineered supply chain solution can be completed.
Other important prerequisites include a centralised logistics function and a degree of organisational stability, which will allow internal ownership of the project to be affirmed. Achieving strong internal ownership and buy in, is the only way an organisation can address the change management issues that major projects of this type undoubtedly create. Other positive factors for a successful LLP outsource include selecting a partner who already has some operational knowledge of the company’s business, as this will reduce the gradient of the learning curve that an external partner will need to go through.
Visionaries and theorists see LLP as an important stage in the development of the ‘Supply Chain Partner’ (SCP) model. This vision sees the SCP as responsible not just for operational and tactical functions, but for strategic issues as well – such as materials sourcing support and manufacturing footprint optimisation. It sits alongside outsourced manufacturing in a futurist vision that sees companies focusing on core competencies and managing a virtual network of partners providing all other activities on a service basis.
Once an organisation has decided to take the LLP path, the approach to developing the solution is important. Outsourcing the supply chain to a third party, (like any business process outsourcing project) needs to be well planned and managed. It is a business solution
that needs to be outsourced, not a business problem; so the early engagement between a company and a potential LLP partner needs to concentrate on identifying the business problems and on creating the overall solution which addresses them. Only when this is done can a reliable business case for change be created. Given that very few companies initially have a precise understanding or total visibility of their supply chain operations, this represents a real challenge to the implementation process.
A joint project team of in-company and 3PL experts needs to be formed to analyse exactly what is happening; to identify where there are barriers to success and opportunities to generate savings. It is a major learning process because – in that time honoured phrase – ‘you don’t know what you don’t know’; and where a large complex supply chain is concerned ‘what you don’t know’ is often a very great deal.
This initial phase of the project is where the problem must be scoped and defined. At DHL Exel Supply Chain we have developed a six-stage implementation roadmap. It starts with a strategic review and progresses through opportunity assessment, feasibility study, business case and implementation, to roll-out. It is a model which has been developed over many years, directly incorporating learning lessons from previous LLP projects. We believe our approach mitigates risk and creates a safe path for both parties to develop confidence in each other and the validity of a new supply chain strategy.
Best practice across sectors
Having an external 3PL look closely and critically at a supply chain can be a salutary experience for any business. The external experts have knowledge of best practice across a range of sectors, they will be familiar with the latest supply chain IT solutions, and can
quickly identify any major failings. Manufacturing industries have traditionally focused on improving their manufacturing processes. That is where most major investments in technology have taken place and where ERP suites have been implemented. The result – all too often – is an amazingly slick product plant but a completely different story once the goods have left the back door.
This initial review stage in the project can be challenging for other reasons, as not all staff involved in the supply chain will take kindly to criticism, implied or otherwise: many consider themselves experts in their fields and they have probably achieved the best they
could given the lack of resources, supply chain IT and modelling tools. It is these potential gatekeepers who need to be treated with empathy and respect.
Collaboration and participation are vital here. If the external LLP team takes over and ‘owns’ the project, then it can be doomed; conversely, if the external LLP team takes a back seat, the final solution that emerges may be flawed and inappropriate. It is a time when
people, relationships and team working are key to eventual success.
Identifying likely benefit opportunities which drive the business case are obviously vital. Those benefits can be significant. Typically LLP can take 15-25 per cent of costs out of the supply chain and significantly streamline operations by leveraging synergies between sites, business units and regions. Cost is not the only consideration: companies are under growing pressure to reduce their carbon footprint and if you can reduce your transport costs by 20 per cent the odds are you
have lowered your carbon footprint by a comparable amount. We all know that legislation to force reductions in carbon emissions cannot be far away and outsourcing can be an effective way of helping to meet targets in this area.
LLP can also deliver much more than just a reduction in supply chain costs: it can help introduce lean logistics processes and an optimised logistics network which can deliver ongoing savings and efficiencies, and help to drive business expansion as improved supply chain performance leads straight through to improved customer satisfaction.
That vision of SCP may be some way in the future for most organisations, but LLP is a vital stepping-stone to the sort of business transformation that such theoretical models imply.
Martin Fleming is solutions director, Managed Transport and LLP, Automotive and Industrial for EMEA at DHL Exel Supply Chain. Email: email@example.com
- An LLP works best when it is applied to a significant supply chain spend (high volumes and high number of freight lanes), operating in multiple geographies, in a multi modal environment
- It is a business solution that needs to be outsourced, not a business problem; so early engagement needs to concentrate on the problems and on creating overall solutions