“Multichannel is so 1990s.”
We say this tongue-in-cheek, but for anybody who hasn’t been asleep at their desk for the last decade, it’s obvious that the omni-channel consumer is here to stay. The digital disruption that’s happening in retail has brought about a consumer democracy and a deep involvement of the consumer in the supply chain, where the last mile is more important than ever.
Consumers want what they want, when they want it, delivered where they want it. Oh, and they also want sustainable and ethical processes ….. and they don’t want to pay any extra for it.
When you have the biggest players in e-com, retail, wholesale, and logistics conforming to this process, and you are dealing with pricing concerns from recession scarred customers, it has a cost and complexity impact that moves quickly up through the supply chain.
And 3PLs are taking the brunt of it.
The solution? Collaboration. It’s a hot topic today—especially in CPG (Consumer Packaged Goods) where these efforts have quickly grown in popularity over the past few years—and companies that collaborate effectively across the supply chain enjoy dramatic reductions in inventory and cost, together with key improvements in speed, service level and customer satisfaction.
It sounds so simple, but it’s best if we take a look at how we got there.
Collaboration in logistics is the final frontier
Perhaps, you agree with this statement; perhaps, you don’t. But many companies are focusing on delivering collaborative views of raw material, component and finished goods inventory along the end-to-end supply chain—allowing them to optimize inventory levels against serviceability and unpredictable demand and take-out cost. This means pulling inventory data from component, raw material or accessory suppliers as well as resellers of their product to gain a single view.
Let’s back up quickly and look at the historical progression through which 3PLs have evolved their operations and increased their margins.
Big fish eat little fish! If you’re bigger, you can buy cheaper. Increasing the size and scope of your deals is not just good for volume, but also for your procurement costs. Simple enough. At a certain point, though, the marginal increase levels off, which leads to the next step…
As your in-house operations or your 3PL network grows, you now have distribution centers here and there, replicated resource and process, a fleet of trucks, and perhaps some other infrastructure. You begin connecting the dots and increasing efficiency, whether through new technology, new process, or both. You’ve got one vehicle making two stops instead of two vehicles making a single stop each. You’re more accurately forecasting demand and responding quicker. You have taken out irrelevant assets and reduced costs dramatically!
Your customers love it…and so does your board.
3PLs have been doing this for years and just like procurement, there comes a point where marginal increases in efficiency in your own organization take major investment in effort. You’ve mastered intra-organizational collaboration and it’s time to move onto inter-organizational collaboration…
The majority of the base products of 3PLs are being commoditized before our eyes. Procurement value is exhausted, integration has delivered so inter-organizational collaboration is the next level of value. 3PLs that play nice within an ecosystem with others, offering a bit of capacity here, giving visibility of joined up data over here or partnering on a project there, will be the ones that succeed. This assumes all of the implementation details and the commercial terms have been resolved through some form of joint ‘value share’ agreement. That’s where it often gets sticky.
“Value share” is essentially a collaborative delivery of value through an agreed project involving two or more parties—jointly identified, jointly scoped, jointly measured and jointly delivered between the stakeholders—with reward based on the value and the delivery. What makes these commercial arrangements succeed brilliantly or fail miserably is a tightly coordinated and agreed approach to the projects, their scoping, responsibility, measurement, ownership and delivery.
Why collaboration efforts in logistics fail
But none of this is easy. In the logistics industry, the majority of collaboration efforts fail. Mid-level managers who fail at a collaborative assignment aren’t likely to try again, and you can’t really blame them. A real pity: you have not only destroyed the opportunity to deliver significant value but permanently damaged the enthusiasm to ‘try gain’—within their own organizations and those of their trading partners. That directly impacts organizational efficiency and ultimately success.
But if you look at the larger picture, failures in collaboration are somewhat predictable and therefore, preventable. Let’s take a look at the most common causes of collaborative failure.
If the senior executives in charge assigned a collaborative effort but didn’t really commit to it or didn’t create a structure to support it, the project is bound to fail. There must be a ‘message’, a process, follow-through, and accountability in place. True collaboration in logistics, i.e., collaborative efforts that are mutually beneficial, require enormous conviction from the top of the organization.
If there’s a member of the team who can’t wrap his head around the concept of doing business with a competitor or his or her bonus reward measurements are misaligned with the joint effort, that effort is doomed. The logistics industry is chock-full of people who “just don’t want to work with that guy” because of a prior relationship.
Embracing the spirit of “co-opetition’’ (or “frenemies”, as the Millennials would say!) has very significant value in today’s business climate.
If none of the info and communication is clear, and the supporting processes are sub-optimal, in your collaborative effort – in other words, your ability to share data, appoint task responsibility and monitor progress quickly, effectively and accurately is ineffective – again, you’re doomed. Collaboration is strongly tied to value share—you need to pay people fairly to be involved. If the expectations aren’t matched with records of who’s done what (and indeed who hasn’t!) and for how much, the effort won’t work.
Generally speaking, if your collaborative effort has failed, it will likely be from one of the above three reasons. You must figure out why it failed before you go back and try again.
Logistics is no longer about things—it’s about data.
Most 3PLs are developing networks that feed into other 3PLs, whether or not they’re experiencing the problems listed above. Value share agreements are incredibly complicated and notoriously fraught with dangers.
Successful collaboration depends upon developing mutual trust and willingness to share information, the adoption of a method of defining the value to all parties, and measuring and monitoring that mutual value delivered over time and tools to support that. It’s all about joint decisions and joint activities so when you go into a collaborative relationship, it’s essential that you’re able to record and monitor the projects you deliver: And that record needs to one that is regularly appraised and agreed by all the stakeholders in that collaborative effort. After all, they’re the reason you got it signed off by your board. You told the board, “I’ll give you 20% over the next year with these 5 projects.” If you can’t deliver that, you’ve got a huge problem.
So you must create—and live by—a process, not just where everybody talks about it, but something that you can all agree where the start and finish is, a process that everybody agrees with and is inclined to use, clarity on who is delivering what, at which date and at what rate. And of course, the amount that is paid out should everything go to plan.
Since you’re dealing with people who are not only your partners, but also your competitors, it’s a bit like playing chess. And if you’re playing chess, you need a chessboard to act as a point of mutual focus and communication for the ‘collaboration game’, create a boundary and define a record of all the events taking place.
You plot collaborative products on the chessboard, you record data on the chessboard, you record progress and who’s responsible. Oftentimes, collaborative projects fail not because the person doesn’t want to deliver the project, but because he doesn’t have the right info, data set, buy-in or resources… or the right tools. In the chess analogy, you turn up for a game of chess the board is there, but you can only find chequers pieces!
Once all of the pieces are laid out on the chessboard and you all crowd around to start the game, the bard becomes the focus of the objective and the communication, it becomes much easier to see progress, and track whose turn it is. You can more easily identify potential hang-ups as well as potential opportunities.
The chessboard is our analogy for a digital platform that allows collaboration in logistics that’s never been seen before. Lanetix, an app for logistics, is now in a position to do just that.
Consider Lanetix a control center for collaborative projects. If you’d like to see any of the specific features we’re building for enterprise-level collaboration, reach out to us to schedule a solution tour.
Mick Jones is a thought leader in supply chain vision and execution, working with manufacturers, shippers and supply chain service providers. As Vice-President of Global Logistics for one of the world’s largest technology companies, Mick built and led a $1.5B end-to-end logistics organization with over 500 employees in 28 manufacturing sites and 40 distribution nodes in 120 countries.