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Commentary: How LSPs are driving profits through digital transformation
Many logistics service providers (LSPs), such as third-party logistics (3PL) and fourth-party logistics (4PL) providers, struggle to strike the right balance of cost-effective service and investment in people and systems to help them grow revenue, increase profit, and maximize customer retention.
This is not surprising given the many forces that are buffeting supply chains today. Customer-driven culture shifts, for example, are having a dramatic impact on supply chains. Buyers, retailers, and manufacturers are all demanding shorter lead times and faster delivery. Adding to the complexity is the dramatic increase in new-product introductions, which has created more diverse sets of product options, packaging designs, and logistics arrangements. To meet this demand, supply chains are speeding up and lead times are becoming shorter, yet the pressure to keep inventory at an optimal level has never been greater.
What has not changed is that physical supply chain disruptions still occur and the lack of alignment between demand and supply has not improved. To effectively serve their customers' supply chains in the context of today's new challenges, LSPs must make full use of the technology available to gain visibility, improve collaboration, and provide the proper metrics needed to manage their businesses. Companies that ignore this shifting landscape will be left behind.
Challenges that are stunting LSP growth
The root of the many problems facing LSPs is their lack of access to the crucial supply chain data they need to carry out their work effectively. Often, efforts to overcome this problem, for example through manual workarounds and spreadsheets, only compound the problem and retard growth because they are not scalable, are labor-intensive, and are prone to error.
Just like the retail industry that serves online consumers, business-to-business (B2B) supply chains are challenged to provide real-time visibility to product availability. However, because the data needed to provide real-time visibility is housed in multiple internal systems, LSPs are struggling to deliver on this requirement. Furthermore, in many cases, the data resides in the systems of their supply chain trading partners, making the data even more difficult to access.
The increased speed and complexity of supply chains and the difficulty in accessing data has caused disruptions to occur at an alarming rate. In today's high-speed supply chains, service providers often don't find out about these disturbances early enough to recover—a situation that impacts service-level agreements (SLAs) and customer satisfaction. To overcome the visibility challenge, many logistics service providers have hired large teams to manually gather data from suppliers, carriers, internal systems, and spreadsheets. While this approach is better than nothing, it's ultimately unsustainable due to cost and its inability to scale.
LSPs are not only hampered by the difficulty of accessing data. They are also constrained by their information technology. Shippers expect their LSPs to be at the forefront of technology innovation. However, many LSPs currently depend on disparate, disconnected systems and processes backed by a legacy, one-to-one, trading partner network. These types of networks don't meet the level of innovation shippers expect from their LSPs.
To respond to increased customer expectations, Andrew Tipping and Peter Kauschke of the consulting firm PwC, believe that logistics service providers will need to focus on what they call "digital fitness." In "Shifting patterns: The future of the logistics industry," they write, "Supply chain solution providers—in particular 3PLs and 4PLs—need to integrate data analytics and social supply chains to provide much better traceability and predictability (not to mention lower costs)." In other words, just as cloud-based social networks have created new approaches to how we manage our personal and business contacts, new network platforms and the resulting communities are changing the way business is conducted.
"Technology is changing every aspect of how logistics companies operate," Tipping and Kauschke write. "Digital fitness will be a prerequisite for success [for every logistics company]: the winners will be those who understand how to exploit a whole range of new technologies, from data analytics to automation and platform solutions. Those who don't, risk obsolescence."
A fresh approach
Disparate best-of-breed solutions (and even certain single, enterprise-centric ones) cannot be effectively modified to support the highly dynamic and interconnected business environment that Tipping and Kauschke write about. Instead LSPs will need multiparty networks that connect all trading partners on a single network. Multiparty networks unite all partners and their data into a close-knit community with a single version of the truth. As a result, they can offer complete visibility, faster communication, closer collaboration, and sophisticated solutions that use a wider scope of data to create more powerful optimization and results. For example, just as Uber can match passengers to drivers in real time, so too can cloud networks match supply to demand as it happens.
Additionally, in the same way that LinkedIn or Facebook stores your contact information once and makes it available to all in real time, these digital networks can provide all the parties involved in the end-to-end supply chain with critical, real-time information about orders, inventory, shipments, and more. This real-time information sharing enables collaboration, allowing companies to respond to transactions and messages immediately and to anticipate and correct issues early.
Having a single version of the truth on a network also solves many of the data quality and consistency issues hampering LSPs today. It ensures that data is up-to-date, and there are no data conflicts that can cause confusion and undermine confidence in trading partners. Moreover, with a real-time platform, LSPs can predict disruptions and prescribe solutions proactively and systematically instead of handling them manually when it is often too late or too expensive to fix them.
Additionally, because everyone is viewing the same information (based on permissions), the execution of changes is streamlined. As a result, LSPs can keep up with the increasing speed of supply chains and provide customers with more accurate and timely information without requiring an army of analysts. Furthermore they can do so at a lower cost while also improving customer satisfaction and retention.
Four process improvements
A modern multiparty cloud network platform that provides a single version of the truth helps LSPs better manage their supply chains and provide better service to their customers in a number of ways. Here are just four of the process improvements that such a platform can enable:
Global supply-demand matching (GSDM): When it comes to managing the supply chain, the traditional method of "plan, then execute, then react to disruptions and shortages" fails to scale in today's high-speed world. A better way to gain a complete view of a single decision's impact on cost or service level is to use a holistic approach based on the continuous matching of supply to demand. Known as "global supply-demand matching," (GSDM) this approach allows LSPs to see the full picture of demand and supply, and therefore make more informed decisions and implement better solutions when problems occur. For instance, a pending shortage at one distribution center (DC) could be replenished from another DC where demand has been lower than anticipated. With a full picture, LSPs have more options available and can make decisions based on the urgency of demand and the resources and transportation costs involved in each alternative.
A real-time multiparty platform supports GSDM by allowing LSPs to monitor and manage all changes and updates without having to be inside anyone's firewall. Additionally, such a platform enables early identification of supply-demand imbalances and communication to affected organizations. This helps to reduce information latency and to buy valuable response time for those who must react to those changes. Similarly a multiparty platform can also help LSPs manage many other choices that they must make, such as mode selection, expedite decisions, fulfillment determination, supplier management, and so forth.
Next-generation replenishment planning and distribution: Prior to today's advanced cloud platforms, the prevailing strategy was to implement Collaborative Planning, Forecasting, and Replenishment (CPFR). CPFR brings relevant trading partners into the planning, forecasting, and replenishment processes, streamlining the supply chain and reducing inventory and logistics costs. However, while this process is useful because it defines the flow needed to create sales and order forecasts, generate and execute orders, and gather replenishment feedback, it isn't sufficient in today's high-speed supply chain environment. This is because CPFR solutions are typically serial, ERP batch-type architectures which don't share data in real-time.
New approaches are allowing all parties to continuously align and synchronize demand, supply, and product cycles. They also provide the ability to sense and shape demand to enable a profitable response to that demand. To create this single view of consumer demand for all members of the extended supply chain, you need to connect retailers, manufacturers, and logistics service providers across a multiparty execution backbone that can orchestrate a coordinated response to the end consumer's demand signal. Supply chain solution providers are in a unique position to manage and orchestrate this multiparty execution backbone.
Permission and ownership orchestration: Multiparty networks also allow sophisticated LSPs to provide "orchestration services." These services focus on handling the complex permissibility and ownership challenges that occur when multiple tiers of specialty logistics providers and documentation enablers are incorporated on top of the standard buyer and seller permissions. For example, international moves with multiple modes and transportation providers often involve additional documentation such as insurance and customs. With orchestration, LSPs have the visibility, monitoring, and operational insights required to ensure client service levels are maintained, no matter who is performing a particular task.
Next-generation cloud network platforms provide LSPs with the capability to proactively manage end-to-end supply chain processes through multiple tiers of trading partners and service providers. With orchestration services, LSPs can provide a global backbone to support their multinational clients, global processes, and international operations.
Logistics management: Transportation management remains the foundational capability for most LSPs.However, it's no longer good enough for LSPs to simply provide optimization services to lower the total landed cost of freight through consolidation and routing efficiencies. The best transportation management systems (TMS) provide these capabilities plus natively integrated global transportation management, appointment scheduling, yard management, dispatching, predictive analytics, and agent-based prescriptive execution. They also allow for local and regional variations to meet the specific needs of the different geographies served.
LSPs need to take the next step of providing a single, aggregated view of network shipments, transportation assets, and benchmark rates. By providing a single-view capability, supply chain solution providers can create and share benchmarks and baselines as well as better leverage spend and/or dedicated assets. Best-in-class cloud network platforms can help LSPs take this next step, as they are designed to support and optimize all transportation modes, including parcel. This level of maturity goes far beyond the scope of traditional transportation management systems (TMS).
The key to responsive demand-driven service
In today's world of outsourced operations and increasing complexity, LSPs that want to survive and grow can benefit from leveraging cloud-based planning and execution services that span the complete end-to-end supply chain from inbound shipments through manufacturing, replenishment, distribution, and final delivery to their client's customers. However, they first need to establish a supply chain process that stretches far beyond traditional logistics management into providing completely outsourced fulfillment operations that take into consideration not just the customer but also other trading partners in the customer's supply chain. In doing so, they can offer a demand-driven service that reacts instantaneously to shifts in demand and supply. This creates efficiencies and revenue opportunities by optimizing multiparty fulfillment service rather than simply a transportation and warehousing service.
By connecting to modern cloud platforms, logistics service providers can provide a more valuable service across all trading partners, taking demand from the forward-most source and coordinating all downstream fulfillment requirements for maximum efficiency. Today, cloud network technology platforms have become the secret weapon of the world's largest LSPs. And it won't be long before the imperative for "digital fitness" will demand it.
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