Executive Brief

The Heat is On for 3PLs

–

S

Changing the Game and GainingCompetitive Advantage

ix Sig

Operational Excellence as a Competitive Strategy

ma Qualtec

ame

Operational Excellence as a Competitive Strategy for 3PLs

The heat is definitely on for 3PLs with ever-increasing pressure to reduce costs and better manage time and inventories while, at the same time, offering faster and more nimble service to clients. This is true with domestic supply chains and is greatly magnified with global supply chains. Customers demand faster lead times, more innovation, and better visibility, and want it all at a lower cost. How do you balance these seemingly conflicting requirements and maintain profitability?

In this hyper-competitive environment, operational efficiency dictates financial success, and possibly survival. At the stime, customers fully expect 3PLs to deliver the Perfect Order every time - on time, complete, accurate, and undamaged. It is a classic case of do more, do it faster, and do it cheaper.

As the competitive environment changes the way 3PLs do business, savvy companies are embracing structured process improvement initiatives to support cost reductions and improved customer value. Successful 3PLs are building high performance, nimble business process infrastructures that can support rapidly expanding customer requirements, while still maintaining profit margins. Proven approaches and tools that mobilize the entire organization to affect rapid, positive change clear the way for 3PLs to capture an unprecedented opportunity to succeed as true value-add supply chain partners for their customers.

Tough Business Questions for 3PLs

Is it becoming more and more difficult for you to meet customer requirements and expectations at a

cost point that is competitive in the market and profitable for your company?

Are your customers asking you to help them meet a multitude of more complex supply chain challenges

with services that are well beyond your current capabilities?

Are you being forced to decrease profit margins to remain competitive?

Are your customers demanding shorter and shorter lead times?

Is increased emphasis on regulations and requirement stifling your business?

Is the upfront cost of implementing unproven technology solutions hurting your business?

What do Customers Expect? Why do companies use 3PLs? In its most basic form, it is simply the desire to have someone else do the non-core work for them. It's all a part of a core competency strategy that has manufacturers concentrating on developing and making their products, and then letting an outside firm direct exactly how those products will get to the customer. Rather than employing and managing a staff of warehouse, transportation or distribution workers, many manufacturers now prefer to turn at least a portion of their key logistics tasks over to a specialist … the 3PL.

© 2008 Six Sigma Qualtec. All rights reserved.

Yet, there is an interesting dynamic at play in that most potential 3PL customers today say that logistics represents a strategic, competitive advantage for their company. So it’s really not a non-core activity, yet they are willing, even anxious, to outsource the logistics function. What does this mean to 3PLs?

Yet, there is an interesting dynamic at play in that most potential 3PL customers today say that logistics represents a strategic, competitive advantage for their company. So it’s really not a non-core activity, yet they are willing, even anxious, to outsource the logistics function. What does this mean to 3PLs?

Companies want strategicCompanies want strategic 3PL partners, but buy tactically, focused

on cost

The implication for 3PLs is clear: to compete, 3PLs must provide ever increasing, strategic value to the customer while, at the same time, delivering services at an ever-decreasing cost.

Smaswpthargpn3tom

Savvy customers are looking to 3PLs for breakthrough innovation to cut supply chain costs and improve competitive

positioning. Are you up to the challenge?

Continuous Improvement as a Competitive Strategy These days, customers are looking for a 3PL relationship that involves far more than a yearly review of performance against the original contract. They fully expect their 3PL partners to clearly demonstrate continuously improving performance, and they measure improved performance by how much it reduces their overall supply chain costs. Survey after survey shows the same gripe about 3PL providers reacting to situations rather than anticipating and identifying opportunities for improvement. What does this mean for 3PLs? It means that an active and robust continuous improvement program is no longer a nice-to-have, but a necessity to compete effectively.

More and more companies are viewing a demonstrable continuous

improvement program as a requirement for current and

potential 3PL partners.

So, what does an effective Continuous Improvement (CI) program look like for

Questions Savvy Customers ask of existing and potential 3PL partners

Can you demonstrate expertise and proven performance-based results?

Can you offer clear and mutually agreed upon key performance metrics?

Do you plan for cost-out and continuous improvement initiatives?

Do you focus on a true partnership to support our core mission and objectives?

trategic relationships are based on uch greater levels of collaboration and

re still a rarity in the market. There are ome success stories though. Toyota, ith deep and long standing 3PL artnerships, has been able to achieve is type of collaboration. Hershey,

mong other companies, has also ealized strong benefits from continual ain sharing programs with 3PL roviders. While still an exception and ot the rule, the writing is on the wall for PLs that want to be successful in day’s highly competitive, global arket:

a 3PL? There is no out-of-the-box answer as any CI program should be tailored to the business and cultural needs of the enterprise. The good news is that there is a wealth of knowledge and experience out there from which to pull. Programs like Lean and Six Sigma have been used successfully for many years in traditional manufacturing environments. More recently, these approaches have been successfully applied in more services and/or transaction oriented environments like banking, insurance, and healthcare. The 3PL business model represents fertile ground for a well-defined CI program in that typical logistics processes are

fraught with waste, variation, and quality problems, all targets for any CI program.

The approach should be as simple as possible and be based on a simple objective:

To effectively leverage existing human capital resources to make

rapid and sustainable improvements to business processes, allowing you to be more nimble and responsive to

ever-changing customer requirements.

Some key elements of an effective CI program for a 3PL include:

– Recognizes that different operations may be at different levels of maturity when it comes to process, and is flexible in its ability to accommodate different levels of process maturity

– Delivers rapid, measurable results with

clear and immediate ROI. Long-term, strategic projects are important but near-term results are critical to build credibility and create momentum.

– Leverages a purpose-built problem

solving toolkit that is simple, accessible, and effective for your business - pulls from proven approaches like BPM, Lean, and Six Sigma, but leaves the unnecessary complexity behind

– Applies relevant and appropriate tools

based on company and/or functional readiness. Works for low-tech as well as high-tech teams

– Draws teams from multiple levels of the

organization to engage larger segments of the workforce, as opposed to building firefighting teams.

– Encourages customer representation on

project teams. This can be a key enabler for engaging important customers directly

– Takes advantage of existing process

expertise. The people already doing day to day work may have the best answers, if they are engaged properly

– Encourages teams and projects that cross existing functional borders. Functional silos tend to have little in common with value-creating business processes.

Maybe most important of all, the CI program must be integrated with customer relationships. Measures of performance should be based on key performance indicators (KPIs) you develop collaboratively with customers. This brings a needed focus and agreement on what matters most to you and your customer. Mutually-agreed-upon KPIs make it very clear how you and the client will measure results, and makes for practical and realistic SLAs. Finally, there should be some level of gain-sharing defined. If, as a true strategic partner, the 3PL is doing things that reduce costs and/or improve performance in the customers supply chain, then the 3PL should be able to financially benefit from those actions.

Conclusion 3PLs are in a unique and challenging position in that they operate in a highly-competitive market where companies want strategic 3PL partners, but buy tactically, focused mainly on cost. To compete, 3PLs must provide ever increasing, strategic value to the customer while, at the same time, delivering services at an ever-decreasing cost to remain profitable. Customers fully expect their 3PL partners to demonstrate continuously improving performance, and they measure improved performance by how much it reduces their overall supply chain costs. They expect their 3PL partner to anticipate and identify opportunities for improvement, without being asked. This all points to the fact that an active and robust continuous improvement program is now an absolute requirement if a 3PL is to thrive in today’s hyper-competitive business environment. Are you up to the challenge?

© 2008 Six Sigma Qualtec. All rights reserved.

Your Partner for Continuous Improvement Six Sigma Qualtec is a premier provider of process management and business improvement consulting, training, and technology solutions that drive growth, productivity and value for our clients. We are unique in our ability to customize the integration of management to meet the industry-specific requirements of global leaders in logistics, financial services, mining and natural resources, manufacturing, process and service industries.

© 2008 Six Sigma Qualtec. All rights reserved.