In order to compete effectively in demanding global markets, shippers are looking for more creative supply chain solutions from third-party service providers. While logistics outsource providers are rising to the challenge with innovative service packages, shippers need to be open to the kind of change that can take supply chains to much higher levels of efficiency. Building the necessary level of alignment to effectively manage change within a shipper’s organization is critical to taking a more holistic approach to global supply chain challenges.
Supply chain directors or leaders who are actively looking for fresh ideas to raise the performance bar can argue that they are already pursuing new directions. However, even within these organizations there can be unseen limitations that make it difficult for new ideas to take hold. Involving a third-party through a logistics outsource engagement can add the expertise and technology to identify the most mission-critical outcomes in order to make better informed business decisions.
For example, a shipper in collaboration with their logistics outsource provider has identified a way to cut transportation costs by switching a large portion of their LTL in one facility to multi-stop truckload. The shift requires a primary distribution center to hold certain shipments for an extra day, but the overall improvements more than justify the delay. It turns out, however, that the DC’s performance is measured on the basis of getting shipments out the door according to a computerized schedule. Delaying the loads for a day negatively impacts the facility’s internal scorecard, and the DC manager is less than supportive of the new strategy.
The root cause of the disagreement is a misalignment of key stakeholders and performance metrics. It is the type of issue that should have surfaced early in the project, but is easily overlooked. Logistics outsourcing should provide you with the necessary analysis and proposed modifications of key metrics by offering visibility to the entire supply chain. Key stakeholders throughout the organization can commit to business critical metrics and understand the upstream and downstream affect of supply chain improvements. The continued monitoring, analysis, and reporting of these metrics by a third party will provide the flexibility to adapt to evolving market conditions and core business objectives.
There are misalignments that are wider in both organizational and geographic terms that can frustrate more strategically ambitious projects. Aggregation of all transportation data through a single platform global TMS, for example, would help bridge the information gap for stakeholders in local, regional, and global geographies. In this case, a US-based director wants to streamline a domestic distribution network. The products are manufactured in Asia and shipped to West Coast ports. The logistics outsourcing provider has generated a proposal that reaches beyond distribution in the US, but yields much greater savings.
The director is enthusiastic because the proposal achieves impressive cost reductions and service improvements. However, the strategy involves big changes to consolidation practices in Asia that will require cooperation from the director’s counterparts across the Pacific. The proposal is not supported by the other region due to the necessary operational and process changes along with the need to retrain employees in Asia. The strategic vision is lost on the Asian counterpart as there is no direct benefit to them, even though it would benefit the company as a whole.
In addition to causing the company to miss out on some substantial benefits, senior executives get wind of the original proposal and question why the manager did not implement the changes. They are under pressure to free up working capital because a major competitor has cut inventory volumes by streamlining its transpacific supply chain.
There are a number of possible reasons why the director declined to pursue the higher-level strategy. Perhaps he was not able to clearly articulate the value of the strategy or communicate the ROI in terms that could be supported by senior leadership, was unaware of the market changes his bosses were tracking, or stumbled over divisive misalignments between functional and geographic silos in the organization. Regardless, the bottom line is that a project that promised to give the company a competitive advantage never got off the drawing board because the enterprise was not ready to accept it.
How can companies avoid frustrations like these? Here are some pointers.
- Look before you leap. Your logistics outsource provider should be able to review every facet of the supply chain for potential conflicts such as metric and organizational misalignment’s.
- Give key managers sufficient responsibility to implement strategic measures that have a robust AND sustainable ROI.
- Pick project teams that include representatives from all relevant functions and geographic areas.
- Make sure that everyone involved – including senior executives – share the same expectations.
- Invite senior executives to be part of the process and to share confidential market information where relevant.
- Include language in proposals that speaks to the needs of C-level executives.
The advance of globalization and the need for greater operational agility are just two of the business trends that are raising the competitive stakes in most markets. Third party providers can help companies meet these challenges by partnering with them to develop smarter supply chains; but only if shippers are ready and able to make the necessary changes.
A version of this blog was originally published on April 14, 2011 as a guest commentary for ARC Advisory Group’s Logistics Viewpoints.