Logistic Services - Between Trust And Control V1 2

Logistic Services – Between Trust and Control
Transport Info Days

Hugo Haarman
Leuven – Belgium, 29th April 2008

Hugo Haarman
Consultant Supply Chain Management

Member of value team Transportation

E-Mail: hugo.haarman@capgemini.com
Tel: +31 6 150 302 96

CE v6.3 © 2008 Capgemini - All rights reserved
2
Logistic Services - Between Trust and Control V1 2.pptx

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

From selection criteria (and expectations) …
The State of Logistics Outsourcing Factors considered when 3PL providers selected
2007 Third-party Logistics
All North Asia Latin
Factors regions America Europe Pacific 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

… to results
Results experienced from use of 3PL services

Factors regions America Europe Pacific America

Logistics cost reduction (%) 13 11 13 12 16

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

Changed from days 14.0 17.4 12.7 13.8 10.2
Average order
cycle length Changed to days 10.3 13.1 10.2 9.7 6.8

Are total costs really reduced? Has flexibility been increased?

3

Sourcing of logistic services is widely applied for less strategic processes

Operational Outsourced logistics service regions America Europe Pacific America
Domestic transportation 83% 77% 91% 85% 79%
International transportation 79 68 87 89 71
• Transportation
Warehousing 69 71 68 73 60 and
Customs clearance and brokerage 67 65 58 78 64 warehousing is
less strategic
Forwarding 51 51 51 60 38
• Customer
Shipment consolidation 43 44 44 45 37 service order
Product labelling, packaging, assembly, kitting 34 31 33 34 41 entry etc.
involves
Transportation management 32 33 41 27 24 customers
Reverse logistics 31 32 33 29 29 (risk of
loosing orders)
Cross-docking 31 36 35 26 25
• More
Freight bill auditing and payment 25 51 18 14 10 confidence is
Fleet management 15 11 21 12 13 needed that
“things are
Supply chain consultancy 14 18 11 11 17 going OK”
Order entry, processing and fulfilment 14 13 7 15 28
Customer- Customer service 13 10 10 17 18
oriented
LLP / 4PL services 11 13 11 10 10

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

4

Customers are dissatisfied with 3PL performance
Continuing problems with 3PL providers as reported by customers

North Asia Latin
Problem with 3PL Provider All regions America Europe Pacific 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

5

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

3 PL interests Shipper interest

• Optimisation of network performance • Lower costs
• Capacity utilisation • High service level
– Human resources • Flexibility
– Assets • Visibility
• High margins • Control over process
• Interests of other customers • Prevent leakage of proprietary information
• Prevent loss of in-depth knowledge
and learning
• Improvement of logistics

3 PL behaviour Shipper behaviour

• Unreliable data • No open communication
• Not able to deliver what is promised (over bidding) • Protection of data
• Not able to coordinate all activities (for different • Not sharing of ideas, vision etc.
customers) • Over specification
• Too much ambition • Scope not clear
• Unreliable volumes

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

6

Trust and control are supplementary elements feeding a relations
confidence

Level of Trust Level of Control

• Depending on non-rational • Depending on rational variables
variables • More investments lead to more
• More investments might lead to confidence
more confidence • Maximum can be defined
• Maximum hard to define

Relational Context

Level of Confidence Relational Context

• What level of confidence is • Defines the required level of
needed? confidence.
• Depends on process • On aspects is Embeddedness:
outsourced exit barrier of partnership.
• Type of service

7

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

Trust Control
• Risk taking • Goal setting
• Fairness, equity • Planning
• Communication • Checking
• Mutual adaptation • Cultural blending

Confidence

8

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

• Sourcing of strategic processes (customer
service etc.)
• Required confidence: High, determined by:
– Partnership specific investments: Medium
– Embededdness: Low
– Downside risk: High
• Needed level of trust and control: High

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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

10

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

Traditional Progressive Leading
People • Limited meaningful 3PL-customer interaction • Good working relationships between 3PL and • Organisational and strategic alignment from
• Individuals focused on area of responsibility customer on an individual basis executive level down to operational level
within their own company • Management open to discrete opportunities • On-site representatives from other company
• 3PL perceived as “just another vendor”, with to work together • Regular cadence of joint review and
a focus on cost management • Planning and review meetings on an “as planning meetings also on strategic topics
• Detailed attention to the terms and conditions needed” basis • Contract structured to foster collaboration.
of the contract • Attention to the “spirit” of the contract – to Gain sharing
ensure good service to the end customer
Process • Process design and execution confined to • Customer and 3PL cooperatively manage • Customer, 3PL, and trading partners work
intra-company boundaries business processes across company together to optimise processes across
• General awareness of importance boundaries extended supply chain
information sharing • Value added services beyond traditional • Shared KPIs / metrics and a joint focus on
• Ad hoc Information exchange transportation and warehousing continuous process improvement
• KPIs limited to internal metrics and vendor • Sharing of information put to some good use • Information shared widely with significant
(3PL) scorecards • Increasing focus on proactive process benefits
• Reactive improvements to resolve process improvement to deliver joint benefits • 3PL services extend to customer facing and
issues between customer and 3PL strategic planning processes

Technology • Non-integrated point solutions • Selective integration of point solutions. • Holistic solutions supporting optimisation
• Information sharing by e-mail and some EDI Customer ERP input used across the extended supply chain
• Shipment status only available by request • Near real-time visibility and alerts for • 3PL Toolbox of applications (services)
(not real time) shipments for some flows allowing fast customer implementations and
• Proprietary data formats • Periodic communication of planning requirements updates
• Legacy IT solutions inherited from information • Open integration based on service oriented
3PL customer • Upgraded IT, leveraging 3PL best practices architecture
• Event management: real time visibility,
forecasting and pro-active alerts
• Global standards applied

How would you define your own partnership?

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How to create trust in your own partnership:
Capgemini best practices
1 2 3 4 5 6
Define
Provider Upstream Implemen-
sourcing Transfer Start
selection preparation tation
strategy

Incorporate Define conflict resolving processes Benefit tracking
costs of trust and communi-
and control in cation about
business case Define decision making processes “Work on trust successes
and commitment”
Be aware of
hidden costs
(risks / lawyers)
Don’t over “We give a lot of responsibility and room for Don’t stop
specify flexibility to our partner” developing your
requirements relationship

Define the what “Steer on management, not on process”
not the how to “Problems start
if your don’t
Cultural fit have a win-win
situation”
Be aware for lock-in mechanisms

Gain sharing Look for win-win
opportunities

Share Share
information information
about data about data
uncertainty uncertainty

Trust Trust Trust Trust Trust Trust Trust Trust Trust

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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?

13

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