Opinion: Outsourcing the supply chain

MyCustomer.com
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The third party logistics (3PL) market is enjoying rapid growth as companies concentrate on their core business and leave the distribution and warehousing functions to 3PL providers. However, many businesses may be concerned about retaining visibility and control, argues Martin Hiscox, CEO at LIS.

In the past few years, attitudes towards logistics outsourcing have changed significantly. Companies used to shy away from outsourcing as they felt it was a risk to rely on another company to run a key part of their business operation. The mentality was very much ‘if you want something done properly, do it yourself’.

However, during the competitive 1990s, outsourcing non-core aspects of a business became common. Companies rapidly realised that outsourcing the logistics and warehousing function to a third party expert could help them to realise efficiency and productivity benefits in the supply chain.

To meet these increasing demands, 3PL services have become increasingly sophisticated. The most successful 3PLs are the ones who work on a partnership basis with their technology providers, to ensure that they are combining the most innovative technology with operational best practice. In the same way, it is the companies who have treated the outsourcing relationship as a partnership that have been the most successful.

Why should companies outsource? It’s all about buying in to a pool of collective expertise, especially in the supply chain arena. The major third party logistics providers have all been in the distribution business long enough to know what works and what doesn’t. Their employees are experienced in logistics best practice, and the most forward thinking 3PLs ensure their team has access to the latest technology.

Customers’ issues with outsourcing can generally be divided into three main areas of concern: a perceived lack of visibility, possible lack of control and the potential for escalating costs. But all of these can be dealt with by considering outsourcing as a partnership.

Third party logistics companies have the focus and critical mass to invest in improving technology and driving down costs. For example, many 3PLs use supply chain process management software (SCPM) to offer their clients flexible, cost-efficient supply chains. This type of software provides benefits both for the logistics provider and for the customer, and can go some way towards assuaging their concerns.

SCPM solutions give companies a shared view of what is happening in the supply chain, by combining data from a number of warehouse management systems and other applications. They allow a 3PL to offer its clients visibility of their own inventory in its warehouses, providing the reassurance and control that they look for when deciding to outsource. This can be particularly useful if a company is working with more than one 3PL. A multinational company, for example, might use four or five operators across Europe and SCPM software will provide the company with a consolidated view of the whole supply chain.

SCPM applications can also be used to provide visibility of the supply chain to other parties, such as suppliers and customers. Users can see what inventory their suppliers hold, what stock is in transit and what is on its way to the customer. This allows the customer to safely hold less stock, knowing that it can be replenished as necessary.

The alerting technology within SCPM applications allows problems to be automatically dealt with. When an event happens, or when an expected event does not, the system can send an alert either to a person (whether at the 3PL or at the end-user) or direct to a WMS or other application, instructing it to take particular actions to resolve the situation. This allows minor problems to be dealt with automatically, but bigger issues to be brought to the attention of warehouse managers. In an outsourced environment, this functionality assures the 3PL’s customers that day-to-day operations are under control, but ensures that they are notified of potential problems when necessary.

Outsourcing can also help companies financially, since using a third party logistics provider aids cash flow. The responsibility of finding a warehouse, agreeing a lease, setting it up and installing systems becomes the responsibility of the outsourcing partner. What’s more, the client company gets instant access to a national or international network of shared user and dedicated distribution centres.

With the right partner, and the right technology in place, outsourcing logistics can be a smart move for companies looking to improve efficiency and productivity gains in the supply chain. Using technology such as SCEM applications, a 3PL can address its clients’ concerns over losing control and visibility. To enable the process to work smoothly, companies should ensure they outsource to a 3PL partner whose operational know-how is underpinned by strong technology solutions.

LIS is a global provider of supply chain execution solutions, offering products and services that support flexible and innovative supply chain strategies. LIS is a UK company, based in High Wycombe, Bucks, and employs over 200 people. Offices in Britain, the United States and continental Europe provide project management expertise and customer support to industry leaders on four continents. LIS can be found on the Web at www.lis-online.com and on 01628 - 859800

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13th Sep 2002 18:02

The growth of global 3PL services has been enhanced by new SCM (or what acronym you choose to use) software -- but let's not forget that technology is only the enabler, not the strategy. Visibility, event management and alerts, even old fashioned freight and inventory optimization don't do anything without effective business strategies -- and this is where the greatest changes have occurred. Moreover, the greatest value exists for companies that fall below the "global company" scale.

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avatar
13th Sep 2002 18:02

The growth of global 3PL services has been enhanced by new SCM (or what acronym you choose to use) software -- but let's not forget that technology is only the enabler, not the strategy. Visibility, event management and alerts, even old fashioned freight and inventory optimization don't do anything without effective business strategies -- and this is where the greatest changes have occurred. Moreover, the greatest value exists for companies that fall below the "global company" scale.

Thanks (0)