Thought Leadership Article

Out … but not forgotten

Outsourcing logistics and supply chain functions is commonplace today by manufacturers and shippers – but do customers get the deal they expect or deserve? It depends.

Around 1980 Michael Porter – darling of business schools and dinner party name dropping – called the sequence of processes from raw materials to delivering finished goods to customers the ‘Value Chain’. And it still applies. Each customer-serving step to the next supply chain process adds cost but it must add value to the consumer at the end of the value chain. Or the customer will buy from another team or country that does. Beware the weakest link.

Porter’s ‘3 strategies’ also apply. You drive business results through focus, being the lowest cost supplier, or by differentiating your product or service. Apply this to a value chain and core competence starts to play a role often being the reason for outsourcing logistics to specialist lower cost providers.

3PLs fill this space leaving manufacturers to focus on making food, soap, consumer items, industrial equipment and other products. The 3PLs run warehouses and transportation to the market. But if the 3PL is simply cheaper but adds no value to the chain, you’re missing a trick. And they are missing the point. Core competence is no longer enough and a reason many focused providers are being gobbled up by the bigger providers. Beware – acquisitions by logistics groups have to lead to getting better and stronger not just bigger, returning value not just to shareholders but to supply chains.

Outsourced logistics has to incorporate lower cost and differentiation today. Using cool planning techniques and calling oneself a 4PL does add value and considers supply chain not just logistics effects, but is this the only value
needed? Think customer needs and innovative ways to serve these when you think value.

There are key challenges and opportunities to be addressed before I’m going to outsource any part of my value chain to you. You must do way more than I can do in that area, not exceeding my own cost, allowing me to concentrate management skill and span of control to those areas where I can make a difference – my core competencies.

Challenge 1 – Innovation
Innovation in processes is key. Outsourced providers deploy forecasting, planning, storage and movement of your goods to maximum customer service from minimum stock investment. Keep less but in the right place, co-ordinate activities, but speed up movements – in another word, optimise.

Multi-channel effects include value-adding processes like simple goods sourcing for manufacturers – power packs, cables, packaging – perform product testing and QA, then pack these to order for regular distributors and individual e-shoppers in the same facility. Use trucks to DCs or courier transport, and tuk-tuks and bikes for the last mile door-drop service. Perform all of this with lean as a mission.

Challenge 2 – Leverage new technology
Harness data analytics to gain insight from well understood planning, transactional and tracking systems to make the truth visible. Then fight about the truth, not the uninformed opinion of historical thinkers. Learn about the Internet of Things (IOT) – just read about Apple Watch to feed your  appetite for the business opportunities coming to connecteverything that people and machines do.

Challenge 3 – Geographic coverage
Use service providers who can develop new regions and markets for your products, perform sales order and delivery in these regions to grow your market rapidly and effectively – rather than your own ‘colonise Africa’ routine.

Challenge 4 – Power, emissions and sustainability
Use providers who are law-knowledgeable and leaders in managing carbon emissions. Despite the smoking transport pervading Africa, emission management and renewable energy form part of your global brand – or Greenpeace will find you. Never forget you cannot outsource the responsibility for your brand, service delivery and quality. Out of sight is not out of mind – partner well and add value for the end consumer and Africa may one day colonise itself.

Written by: Doug Hunter
Date: 14 April 2015
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