The Logistics Summit is a biennial event organized by CII. The 6th edition will be held in Chennai, India in Sept 2007.
One of the objectives of this edition of the Logistics Summit is to develop an action agenda for the stakeholders in the logistics industry, 3PLs[3rd Party Logistics]/LSPs [Logistics Service Providers] to integrate themselves with the supply chain.
For the stakeholders in the Logistics Industry to become supply chain players they will have to move up the value chain.
Currently, most players in the logistics industry, in India, 3PLs/LSPs, provide plain vanilla services- transportation, warehousing, customization, stickering, bundling. These services are transactional and have now been commoditized.
Moving up the value chain
To integrate themselves with the supply chain, 3PLs/LSPs will have to move up the value chain and provide solutions rather than services.
How can the 3PLs/ LSPs make the transition to Supply Chain Solution Providers?
1. What supply chain solutions can the 3PLs/LSPs offer?
LOGISTICS SERVICES —————————->SUPPLY CHAIN SOLUTIONS
Data –> Analysis –> Process –> Ownership –> Solutions
The continuum from Logistics Service Providers to Supply Chain Solution Providers
3PLs/ LSPs should start by proactively providing data on the services they provide. The next step would be to share an analysis on the data. Then the LSP/ 3PL could take over the complete process. And finally make the move to provide solutions.
For example, a warehousing service provider could begin by providing a list of skus with more than x days of inventory, skus not moved for y days, inventory about to expire in z months, list of expired stocks. The next step could be to help liquidate the stocks about to expire.
Similarly transporters could proactively provide data on transit times between locations, delays in unloading, detention at the warehouse, truck utilization etc. The next step would be to analyze the data and find the root cause for delays or options to reduce the lead times.
Once they build confidence, 3PLs/LSPs could also start by getting the clients to outsource a complete supply chain processes to them. The process could be dispatch planning, inventory analysis, transportation planning et al.
And finally 3PLs/LSPs could move to providing a complete solution.
With the increase in number of modern retailers in India, 3PLs/LSPs could provide a complete ‘retail solution’ to manufacturers/ FMCG companies.
The 3PLs/LSPs would pick the stocks from the warehouse, transporting it to the retailer’s DC, stocking the products in the backroom, replenishing the products on the shelves, measuring shelf out-of-stock, sharing the data with some analysis would be a complete retail solution.
Needless to say the solutions will have to be customized and tailored to the client. It cannot be a one size fits all.
2. What skills will the 3PLs/LSPs have to be develop to make the journey to Supply Chain Solution Providers?
The LSPs will have to be proactive and continuously look for opportunities.
Any discontinuity or change , would provide an opportunity for a 3PLs/LSPs to provide value added services and solutions. Implementation of VAT , increase in modern retailers, boom in construction, companies merging, fuel price increase are all changes which provide opportunities for supply chain solution providers.
3. What alliances and organizational changes will the 3PLs/LSPs have to make to become a supply chain solution provider?
The 3PLs/LSPs will have to form partnerships and networks with supply chain consultants, IT companies, analytics experts to create and deliver the solutions for customers. 3PLs and the consultants would understand the customer’s supply chain and their supply chain priorities, then they would identify opportunities in the supply chain, then create solutions and then implement the solution.
3PLs/LSPs are best placed to offer solutions and integrate themselves with the supply chains. 3PLs have a ‘foot in the door’ as they are a part and parcel of manufacturers and clients day to day logistics operations. 3PLs/LSPs understand their client’s business well. They have visibility to the supply chain targets/KPIs and goals.
4. Why should the 3PLs/LSPs make the transition towards supply chain solutions provider?
In the long term the margins for solutions is higher than for services. [Packing and moving, which is a ‘solution’, has much higher margins than transportation or warehousing which are’ services’.] In the call centre business, companies have moved from a T& M [Time and Material] model to a solution model [ I will reduce to time take to resolve your issue].
In fact clients would engage only supply chain solutions providers rather than 3PLs/LSPs. Clients would form longer relationships with the supply chain solution providers and will see them as partners and not as suppliers.
The advertising industry could be a good model for the LSPs to adopt, as they make the journey towards supply chain service providers.
Advertising agencies are seen as partners of the client. A client changing an advertising agency is big news. Most clients have the same advertising agency for years and across markets around the world.
Advertising agencies create the storyboard, develop the creatives, decide the media, media weights, shoot the copy and could even provide feedback on the advertisement. Thus advertising agencies provide a complete media solution to clients.
Hence most companies do not have an advertising manager. They have a marketing manager.
To apply a similar analogy, companies should have a supply manager but no warehousing or transportation manager. But companies do have a transportation manager and warehousing manager [ called logistics manager]
We will know when 3PLs moved up the value chain and become supply chain solution providers- when 3PLs/LSPs become supply chain solution providers, clients will not have their own Warehouse Manager or Transportation Manager. The Warehouse Manager or Transportation Manager will be on the rolls of the Supply Chain Solutions Provider