Feeling the expanding role of logistics providers:
Carriers globally are adding to their capabilities, expanding their logistics’ scope, and positioning themselves as lead logistics providers (LLP or 4PL). Lead logistics providers oversee an entire portion of their customers’ transportation management, warehouse management, or other supply chain segment. These service providers espouse the benefits of increased visibility, tighter rule-based shipment decisions, and continuous network savings primarily by expanding their services into other parts of the supply chain. Many manufacturers, retailers, and wholesalers are considering partnerships with these lead logistics providers. Before choosing this path, however, it is important to consider how an LLP model may affect your internal operating model. Capgemini Consulting has compiled several questions, based on our operating model methodology, to consider before agreeing to one of these partnerships.
Play supply chain chess, not checkers:
- What capabilities do you own/operate that you want to retain? Are they core to your business? Are you a leader in this space? Which ones should you lose? Why?
- Our Thoughts: Consider your company’s competitive advantage. Is your advantage in the supply chain or somewhere else? Moving to an LLP model will shift your focus from transaction management to a more strategic focus with supplier and contract management. These changes and cost implications should be detailed through the creation of a business case.
- What capabilities would you gain from an LLP model?
- Our Thoughts: Customers can anticipate greater visibility into shipment details which provide the basis for a network optimization, mode optimization, and full landed cost modeling. One word of caution though, much of this information and insight will come directly from the LLP provider themselves so should be understood in that context prior to taking any action.
Changing how you’ve done it for years:
- How will the LLP model affect your shipment creation and management processes? Will the LLP add processes to your current steps? How will these new processes be integrated while time and cost are mitigated?
- Our Thoughts: LLPs work best when conducting business with large, structured, standardized, and predictable shipments and networks. If your network has an existing decentralized decision making process, moving to either a control tower or LLP model may be too large a hurdle for the short term. Consider moving to a control tower or centralized model prior to executing a full LLP model to manage the change internally.
- Our Thoughts: LLPs should also provide a good deal of process automation and exception management to mitigate some of the additional administration; however, a business case unique to your company would provide the best insight into those tradeoffs.
Visibility through KPIs:
- What are the new key performance indicators (KPIs) that the LLP can provide? How are they unique and can they provide me any actionable insight into my business?
- Our Thoughts: LLPs can provide greater visibility and metrics throughout the supply chain, however often KPIs are the same or similar between internal stakeholders and the LLP. Ideally you should define your internal required KPIs prior to engaging an LLP to prioritize actionable insights over data inundation.
Keeping the providers in check:
- How will an LLP model shift accountability within your organization? How will the organization produce feedback and incentives/reprimands to the LLP? Is a Quarterly Business Review (QBR) enough to manage the LLP? What events/communications/structures do you need in place to support the LLP model?
- Our Thoughts: An LLP model will shift accountability to the LLP from internal stakeholders and your governance model should reflect those changes. QBRs are necessary for robust supplier management, but broader communication throughout the organization is also necessary for a healthy long term supplier relationship. Consider options that both the LLP and you can provide, like an on-site resource, dedicated help line, or regional task teams that can resolve issues at the tactical level. At the very least, manufacturing, engineering, sales, and operations should have the ability to provide input into the LLP’s performance.
Where to go when you still don’t have all the answers:
Moving to an LLP model supported supply chain is a large business decision with many competing factors. These questions should serve as a starting point for you and your team to address the potential impact of this model. In addition, your team should look at the LLP’s fit within your overall corporate strategy, IT infrastructure, and long term financial implications. Want to learn more? Contact us at Adrian.Penka@capgemini.com or Charles.Schreiner@capgemini.com.