Collaboration can help to manage supply chains more efficiently – but only if done properly says transport management expert Tim Fawkes
Most companies involved in logistics are operating on fairly tight margins, which means that they will always be on the lookout for ways to reduce cost – without impacting service. The easiest way of achieving this is to reduce waste in the supply chain by working more efficiently. Simple – but how do you actually do it?
Collaboration is one strategy commonly favoured by organisations as a way of reducing costs and their carbon footprint while maintaining customer service. However, true collaboration is actually a complex arrangement involving a whole range of issues.
Customers and end consumers are demanding increased choice, lower prices and immediate availability. This requirement has the following impact on the supply chain:
- Shorter lead times
- Smaller, more frequent deliveries
- Reduced cost
- Greater value added initiatives, including consignment stock
Greater agility is required from the supply chain to deliver on these objectives. However, the onus is very much on suppliers to provide solutions – at their own expense.
Collaboration in practice
Collaboration enables the sharing of cost for mutual benefit. Within transport management, it can also help offset the impact of the reduction in lead times and delivery sizes.
In its simplest form, if two suppliers (supplier A and B) based in the same city are delivering a full load to the same customer twice a week, shifting to four half loads a week and combining deliveries would largely offset the impact of any cost increase whilst achieving the consignee’s objective. Of course, the carrier does have the additional cost of collecting each consignment from two collection points, but much of the potential cost increase can be avoided. If we multiply this scenario across A and B’s customer base and consider the impact of the trend, the problem becomes more complicated – but still theoretically possible.
Why collaboration fails
Unfortunately, collaboration doesn’t always work. Reasons for unsuccessful collaboration do vary, but are likely include at least one of the following:
- Looking inward – few companies think beyond their customers, themselves and some of their competitors. Identifying potential collaborative partners is not easy – in fact, the end customer is often best placed to advise suppliers who might be a good fit in terms of geography and product compatibility.
- Compatibility – products need to be compatible. For example, an ambient supplier would be incompatible with a chilled supplier in terms of transport processes. There are also many types of trailer which can make collaboration difficult.
- Ordering patterns and visibility – the trend towards smaller deliveries with a greater lead time affects the variability in the size of the order. The approach of having what you want when you want it inevitably goes against the desire to smooth out volumes and increase supply chain visibility, reducing the amount of time available to react and identify opportunities as they occur.
- Delivery frequency and schedule – each supplier will have their own demands and requirements to meet, including those of their own suppliers.
- Objectives and culture – small variances in the supplier’s culture may result in a different approach to situations. Every company will have a different view of customer service, as well as longer and shorter term strategies. If the overriding objective is not aligned, collaboration is destined to fail.
- Trust – as in any successful relationship, separate companies have to be able to trust each other to work in a partnership that is advantageous to all involved. This includes the ability to deliver the same service without putting each other’s business at risk.
- Sharing the spoils – the arrangement for any division of savings must be agreed in advance. A saving for one company should not result in a cost increase to another. The baseline and mechanism for fairly measuring and apportioning savings needs to be agreed.
Bringing in a 3rd party
In my experience, successful collaboration is most likely to be achieved by engaging with an independent 3rd party. Many 3rd party logistics companies already combine customer volume and take advantage of the savings that would be achieved through collaboration. Shared user networks and local carriers that offer part load services combine traffic from local shippers to end customers and charge a rate based on the space taken up in the vehicle. This works well and is a structured way of dealing with the changing demands of customers. However, it can be more expensive for customers because the carrier is building the risk of not filling vehicles into their rate card.
The 4PL solution
4PLs base their entire business on collaborative solutions. A true 4PL doesn’t mark-up freight rates or build profit into a tariff structure. The benefits of efficiency are passed onto the customer and the fee is taken out of the overall benefit. Therefore, it is in the 4PL’s best interest to collaborate as much as possible. A 4PL’s transport management system (TMS) can deal with the complexity of multiple carriers and multiple shipping lanes, allocating cost fairly and transparently to each party. The TMS not only provides an acceptable allocation of cost, but it significantly automates the administration tasks involved in transport management for customers, its own staff and the carrier, enabling more time to be focused on continuous improvement activity. The 4PL will act as an independent mediator to ensure that profits are shared fairly and that any disputes are objectively resolved.
Collaboration can be a difficult concept to embrace in a marketplace based on competition. However, as experts in transport management, we know it can work. It may not be the only way, but it can be one way of maintaining (and enhancing) service levels while making significant cost savings.
Tim Fawkes is MD at 3T Logistics. Tim has over 20 years’ experience working with companies from a range of industries, helping them to reduce their transport cost. 3T has offices in UK, France and Spain and customers include JCB, Honda and LINPAC Packaging.