beyondthemba

Third Party Logistics Companies (3PLs) Continue to Hope...

I read in Logistics Magazine today that Armstrong is still holding out for growth in the 3PL business this year. I do not understand how that can be since the size of the pie is continuing to shrink. Their customers are getting smaller. There is no way to avoid that. 

The article is here and my response is:

"I think you will find 3PL revenue has to drop just as a matter of mathematics. The companies they are servicing are seeing a large drop in sales. This translates into far less product being shipped (inbound to manufacturing and outbound to trade). This also translates into a lot less warehouse space needed. I have been looking for warehouses in various cities and I can tell you that many companies are coming to me asking me to take over their warehouse as they no longer need the room. My opinion is this is a "fundamental reset" in the size of the pie. It is getting smaller, will continue to get smaller and the 3PLs need to readjust their model to support this."

Global Supply Chains: Are They Dead?

I think the answer is, of course not. However, global supply chains are built off of the assumption of low fuel costs and low transportation costs. Neither of these are the case anymore and we have to ask ourselves if we ever will see low enough fuel costs to justify the wild supply chains we have seen in the last quarter century. 

Further, global supply chains assume relative political stability and even that is in question moving forward. Imagine a company finding itself in the position of being cost non-competitive due to a complex global supply chain built up over years of assuming low cost fuel and transportation. Further, while being cost non-competitive, they also find their supply chain disrupted due to some global geo-political event. That is the double whammy creating the perfect storm that could shut down a company. 

Read more at the New York Times: Shipping Costs Start to Crimp Globalization

Note: I am not making, nor do I want to engage in, a political argument about globalization. That is for a different audience and a different blog. This discussion is purely about the business case for globalization in the new world of high fuel costs. 

Supply Chain Blog - Supply Chain Innovations Today

I came across, through Linkedin, a great supply chain blog called Supply Chain Innovations Today. You may want to look into it.

The greening of the supply chain - Fact or Fiction?

I have read a lot and heard a lot at conferences about the "greening of the supply chain". Most recently, a report in Supply Chain Management Review covers a conference which AMR participated in. A number of very high level executives attended and spoke.

The question I have been reflecting on is whether this is real or hype? Are the executives going on the offense and giving the appearance of action to hold off regulators as long as they can? I put "green supply chains" into 4 categories:

1. Green Manufacturing - Emissions, toxic chemicals, waste etc. All of these areas need programs to be minimized or eliminated.
2. Green Packaging - This involves limiting or eliminating packaging and having the manufacturer recover packaging for proper recycling.
3. Green distribution - Forcing more intermodal shipping, working with carriers to increase fuel mileage dramatically and clean up truck emissions, maximize cube to reduce trucks on the road, minimize idling etc.  The EPA Smartway program is a good start for this.
4. Recycle of finished goods - This is a "cradle to grave" responsibility for manufacturers. You make it, you deliver AND you recover it when the product has finished its life cycle.

I am sure there are more and there certainly are more subcategories to be explored but that is how I think about the "green supply chain". Now the question is, where is the payback?

One thing I can assure my fellow logicians is that this is not going away. A great reverse logistics process and system will be as important as forward logistics in the coming years.

Customer Centered Supply Chain at P&G

Link: The P&G Customer Centered Supply Chain.

A very good, albeit short, article on the results of the Customer Centered Supply Chain at P&G. Whether you call it "Demand Driven" or CCSC or some other name for a "pull" supply chain, involving the customer's needs in designing the supply chain is all the rage.

It only makes sense. The supply chain does not exist to serve the factories and to give a place for finished goods to "rest" after they are made (usually in some batch quantity to lower manufacturing costs with little demand reason). Rather, the supply chain exists for two reasons:

1. Speed the conversion of raw materials to products which customers will pay for in an appropriate value exchange.
2. Do this as fast as possible thereby reducing the "cash to cash" cycle time for a company.

Having said this, it is all about the customer. If you do not have a supply chain that puts the product in the right place, at the right cost, in the right quantity when a customer needs it, the rest is history. P&G has experienced some key transformations. Specifically:

1. Out of Stock (Right place at right time) reduced from 16.3% to 7.6%
2. Earnings growth (Read: Reduction of cash to cash cycle time) from 15% to 20%,
3. Cost savings (Right cost) of $50 to $100 million.
4. Sales increased from $40 billion to $43.4 billion.

In all cases, this shows the major impact a customer centered supply chain can have on a company's bottom line.

Other Articles on "Customer Centered" methodologies:

1. Customer Centricity: Movement or Myth?
2. Making Your Organization Customer Centric

Another Very Good Supply Chain Blog

Supply chain strategy has a broad appeal and @ Supply Chain Management is another very good blog to go read. I am sure we will have many good discussions between each other in the months and years to come. Chris Jacobs is the author based in Green Bay, Wisconsin!

Third Party Logistics News - 3plwire.com

Link: Third Party Logistics News - 3plwire.com.

Here are the ratings from Armstrong. As I commented on the 3PL Wire, I do not believe these ratings are that good. I worked for one of the companies on this list and I can tell you that his measurement of revenue and profitability was far off.

These are directionally good but then I would really ensure you have a "second opinion" or some real data (i.e., audited reports) which substantiate or don't substantiate the numbers.

Very Good Supply Chain Blog

I am permanently linking to a very good supply chain blog called "BlogOnLog". It is worth reading. It is a bit of an advertisement for Excel Logistics but I think he stays generic enough to make it meaningful.

Sourcing From China is Complicated

Link: Supply Chain Management Review - Surviving the China Riptide.

This article is a fantastic view into the complexities of sourcing from China or any Low Cost Country (LCC). If a company is to embark on this they need to understand all the variables and risks at play which are discussed in detail here. I recommend all read this... NOT JUST LOGISTICIANS! This must be understood by the executive level, manufacturing and all who may be hypnotized by the idea of "going to China".

For example, think about the impact of a demand forecasting error on your supply chain when you have a leadtime of 3 months! The negative impact is a multiplier causing all sorts of premium costs in either extra logistics efforts (i.e., expedites) or in huge costs of lost sales and potentially, lost customers for good.

This is a serious game and one cannot be enticed just because labor is cheaper. The higher end your product and the more your brand equity is worth, the more impactful a wrong decision in LCC sourcing can become.

Global Services | Sourcing & Management | What Can Logistics Do for You?

Link: Global Services | Sourcing & Management | What Can Logistics Do for You?.

An interesting overview of what logistics services are now being provided by the big 3PL companies, DHL and UPS. However, my experience is that most of this tends to be a labor play. The 3PL generally provides cheaper labor. Yes, there are some information systems they provide but I have yet to see anything startling. Indeed, sometimes the 3PL comes with off the shelf software (i.e., Manhatten etc.) that the customer could buy.

Finally, this has been talked about for over 10 years. Are any 3PLs making any money at it? Are any customers really seeing an expected ROI return for the outsourcing which justifies losing the intellectual capital?