Logistic Services - Between Trust And Control V1 2

Hugo Haarman

Leuven – Belgium, 29th April 2008

Logistic Services – Between Trust and ControlTransport Info Days

Hugo Haarman

Consultant Supply Chain Management

CE v6.3 © 2008 Capgemini - All rights reserved

Logistic Services - Between Trust and Control V1 2.pptx2

Member of value team Transportation

E-Mail: [email protected]

Tel: +31 6 150 302 96

Sourcing of logistic services results in cost reduction while improving service levels and flexibility

Factors All

regionsNorth

America EuropeAsia

PacificLatin

America

Price of 3PL services 87% 89% 88% 88% 83%

Quality of tactical, operational services 87 88 86 88 87

Expected capability to improve service levels 67 61 67 75 65

Range of available, value-added services 62 62 61 66 59

Capable information technologies 61 64 54 65 61

The State of Logistics Outsourcing2007 Third-party Logistics

From selection criteria (and expectations) …Factors considered when 3PL providers selected



Are total costs really reduced? Has flexibility been increased?

… to resultsResults experienced from use of 3PL services

Factors All

regionsNorth

America EuropeAsia

PacificLatin

America

Logistics cost reduction (%) 13 11 13 12 16

Fixed logistics asset reduction (%) 18 14 20 17 25

Average order cycle length

Changed from days 14.0 17.4 12.7 13.8 10.2

Changed to days 10.3 13.1 10.2 9.7 6.8

Sourcing of logistic services is widely applied for less strategic processes

• Transportation and warehousing is less strategic

• Customer service order entry etc. involves

Operational Outsourced logistics service

All

regions

North

America Europe

Asia

Pacific

Latin

America

Domestic transportation 83% 77% 91% 85% 79%

International transportation 79 68 87 89 71

Warehousing 69 71 68 73 60

Customs clearance and brokerage 67 65 58 78 64

Forwarding 51 51 51 60 38

Shipment consolidation 43 44 44 45 37

Product labelling, packaging, assembly, kitting 34 31 33 34 41



Customers lack confidence in performance of 3PLs to outsource customer oriented processes.

involves customers (risk of loosing orders)

• More confidence is needed that “things are going OK”

Customer-oriented

Transportation management 32 33 41 27 24

Reverse logistics 31 32 33 29 29

Cross-docking 31 36 35 26 25

Freight bill auditing and payment 25 51 18 14 10

Fleet management 15 11 21 12 13

Supply chain consultancy 14 18 11 11 17

Order entry, processing and fulfilment 14 13 7 15 28

Customer service 13 10 10 17 18

LLP / 4PL services 11 13 11 10 10

Customers are dissatisfied with 3PL performance

Continuing problems with 3PL providers as reported by customers

Problem with 3PL Provider All regions

North

America Europe

Asia

Pacific

Latin

America

Service level commitments not realised 46% 43% 46% 46% 50%

Lack of continuous, ongoing improvements and achievements in offerings 40 37 41 41 43

Cost reductions have not been realised 35 37 37 34 32

Information Technology capabilities not sufficient 35 38 31 38 33

Lack of project management skills 33 31 35 36 31

Unsatisfactory transition during implementation stage 30 34 28 33 21



Ineffective management of Key Performance Indicators (KPIs) 30 28 27 31 39

Too many human conditions related problems 29 30 23 32 34

Lack of consultative / knowledge-based skills 26 22 23 34 27

Lack of global capabilities 19 16 19 20 21

Lack of business process integration across regions and supply chain services 20 21 18 28 12

Inability to form meaningful and trusting relationships 13 15 13 13 12

Poor post-merger integration of acquired companies 13 12 13 21 3

No problems 13 17 16 5 15

Partnership of shippers and 3PL provider consists of two parties both with different goals and interests resulting in non-beneficial behaviour

3 PL interests

• Optimisation of network performance

• Capacity utilisation

– Human resources

– Assets

• High margins

• Interests of other customers

Shipper interest

• Lower costs

• High service level

• Flexibility

• Visibility

• Control over process

• Prevent leakage of proprietary information

• Prevent loss of in-depth knowledge and learning

• Improvement of logistics



How do you behave in your own relationship?How do you create a truly collaborative relationship with your supplier / buyer?

• Improvement of logistics

3 PL behaviour

• Unreliable data

• Not able to deliver what is promised (over bidding)

• Not able to coordinate all activities (for different customers)

• Too much ambition

Shipper behaviour

• No open communication

• Protection of data

• Not sharing of ideas, vision etc.

• Over specification

• Scope not clear

• Unreliable volumes

Trust and control are supplementary elements feeding a relations confidence

Level of Trust

• Depending on non-rational variables

• More investments might lead to more confidence

• Maximum hard to define

Level of Control

• Depending on rational variables

• More investments lead to more confidence

• Maximum can be defined



Relational Context

Level of Confidence

• What level of confidence is needed?

• Depends on process outsourced

• Type of service

Relational Context

• Defines the required level of confidence.

• On aspects is Embeddedness: exit barrier of partnership.

Trust and control are not granted; hard work is needed to create the required confidence

Trust

• Risk taking

• Fairness, equity

• Communication

• Mutual adaptation

Control

• Goal setting

• Planning

• Checking

• Cultural blending



Confidence

Sourcing of strategic logistic processes require a high level of confidence, trust and control

• Sourcing of non-strategic processes (transportation etc.)

• Required confidence: Low, determined by:

– Partnership specific investments: Medium / Low

– Embededdness: Low

– Downside risk: Low

• Needed level of trust and control: Low



• Needed level of trust and control: Low

• Sourcing of strategic processes (customerservice etc.)

• Required confidence: High, determined by:

– Partnership specific investments: Medium

– Embededdness: Low

– Downside risk: High

• Needed level of trust and control: High

What do leading industry experts think of trust and control in their partnerships?

• In September 2007 we organised a Supply Chain Summit

• One of the break out sessions discussed the sourcing of logistics and transportation

• We discussed 3 dilemma's

– What type of relationship is needed?

– How do you formalise your relationship?

– What do you need to secure in the contract?

Some quotes by participants:



• High value products have higher expectations than low end products. This will affect the relationship with your suppliers.

• For commonalities – No partnership needed; For specialties –Partnership is required

• Focus on costs can be dangerous. Higher stock or higher quality of the service can be more important to the customer

• We give a lot of responsibility and room for flexibility to our partner

• Be tough, but fair

• On site of the LSP you can become a part of the problem. As a customer you want to avoid it. Steer on management, not on process

• Contracts? No contract, just prices. Conflicts solve themselves.

• You might run into troubles that you didn’t see before. Often you only see the top of the iceberg. It is important to have a contract into place to deal with situations like this

• Remember: the best deal is not only the best price

• Trust is the main issue. A detailed contract does undermine your trust

Current relationships between shippers and 3PL providers are focussed on control resulting in a lack of partnership confidence

Traditional Progressive Leading

People • Limited meaningful 3PL-customer interaction

• Individuals focused on area of responsibility

within their own company

• 3PL perceived as “just another vendor”, with a focus on cost management

• Detailed attention to the terms and conditions

of the contract

• Good working relationships between 3PL and customer on an individual basis

• Management open to discrete opportunities

to work together

• Planning and review meetings on an “as needed” basis

• Attention to the “spirit” of the contract – to ensure good service to the end customer

• Organisational and strategic alignment from executive level down to operational level

• On-site representatives from other company

• Regular cadence of joint review and planning meetings also on strategic topics

• Contract structured to foster collaboration.

Gain sharing

Process • Process design and execution confined to intra-company boundaries

• General awareness of importance information sharing

• Customer and 3PL cooperatively manage business processes across company boundaries

• Value added services beyond traditional transportation and warehousing

• Customer, 3PL, and trading partners work together to optimise processes across extended supply chain

• Shared KPIs / metrics and a joint focus on

continuous process improvement

High level of control High level of trust



How would you define your own partnership?

• Ad hoc Information exchange

• KPIs limited to internal metrics and vendor (3PL) scorecards

• Reactive improvements to resolve process issues between customer and 3PL

transportation and warehousing

• Sharing of information put to some good use

• Increasing focus on proactive process improvement to deliver joint benefits

continuous process improvement

• Information shared widely with significant benefits

• 3PL services extend to customer facing and strategic planning processes

Technology • Non-integrated point solutions

• Information sharing by e-mail and some EDI

• Shipment status only available by request (not real time)

• Proprietary data formats

• Legacy IT solutions inherited from 3PL customer

• Selective integration of point solutions. Customer ERP input used

• Near real-time visibility and alerts for shipments for some flows

• Periodic communication of planning information

• Upgraded IT, leveraging 3PL best practices

• Holistic solutions supporting optimisation across the extended supply chain

• 3PL Toolbox of applications (services) allowing fast customer implementations and requirements updates

• Open integration based on service oriented architecture

• Event management: real time visibility, forecasting and pro-active alerts

• Global standards applied

How to create trust in your own partnership: Capgemini best practices

Be aware of hidden costs (risks / lawyers)

Don’t over specify requirements

Define decision making processes

Define conflict resolving processesIncorporate costs of trust and control in business case

Benefit tracking and communi-cation about successes

Define sourcing strategy

1

Provider selection

2

Upstream preparation

3

Implemen-tation

4

Transfer

5

Start

6

Don’t stop developing your relationship

“We give a lot of responsibility and room for

flexibility to our partner”

“Work on trust

and commitment”



Look for win-win opportunities

Cultural fit

Gain sharing

Define the what not the how to

Share information about data uncertainty

Share information about data uncertainty

Be aware for lock-in mechanisms

Trust Trust Trust Trust Trust Trust Trust Trust Trust

“Problems start

if your don’t

have a win-win

situation”

“Steer on management, not on process”

Discussion

• How much do you spend on control vs. trust mechanisms?

• How much confidence do you need?

• Is the costs of control and trust in line with the confidence you need?

• Do you manage to incorporate control mechanisms in your processes and IT?



• Are the costs for control and trust part of your business case?

• Is your partnership still beneficial taking the costs for control and trust into account?

• Do you (try to) build a truly collaborative relationship with your partner?

• How do you manage your partnerships?

• Do you really trust your partners?

Thank you very much for your attention!


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