Three years ago, supply chain professionals would have said their supply chains were on a positive trajectory. Innovative technologies, globalization, and better access to data all helped to improve the efficiency and effectiveness of their supply chains. When disruptions did occur, they were typically local events, such as strikes or natural disasters, and companies often had comprehensive contingency plans in place for these types of situations.
Then the pandemic hit. Now, businesses must consider and plan for disruptions that are on a global scale and can affect the entire supply chain. Responding effectively to these disruptions often depends on working collaboratively with supply chain partners. And yet, the unexpected challenges of the last few years have strained some supply chain relationships. For example, The 27th Annual 2023 Third-Party Logistics Study, which was released in September 2022, saw a drop in the percentage of surveyed shippers who agreed that their relationship with their third-party logistics provider (3PL) was successful. Traditionally, that percentage has hovered around 90% or above, but for the 2023 survey that number fell to 83%. (3PLs typically respond more favorably, with 99% of 3PL respondents agreeing their relationships are successfully.)
We believe the current difficult business environment has helped to illustrate the potential benefits of organizations moving back to basics, a return to the fundamental principles that have proven successful time and time again. While technology and the global reach of the supply chain has changed, we believe that the fundamental principles that govern supply chains have not.
Almost 15 years ago, one of the authors of this article, C. John Langley Jr., developed “The Seven Immutable Laws of Collaborative Logistics,” which outlined the fundamental principles needed to achieve successful supply chain relationships. Among these were the need for all involved parties to have a common understanding of the goals and objectives of their supply chains and the ability to achieve alignment in their operational and strategic priorities. Furthermore, they needed to understand the upstream and downstream components within the supply chain and how they may work together to create value for customers and end users. These principles applied to traditional supply chain organizations as well as supply chain facilitators, such as 3PLs and fourth-party logistics providers (4PLs).
Some could argue that we lost our way from these principles a few years back. As newer, more innovative technology solutions came onto the scene, we all felt pressure to embrace them, or risk being left behind—sometimes at the expense of taking our eye off those fundamental principles.
The challenge today is reimagining how to apply these principles when the causes of supply chain disruptions have become increasingly numerous, larger in scale, and more simultaneous. As part of the 27th Annual 2023 Third-Party Logistics Study, the study team drew on the original “Seven Immutable Laws for Collaborative Logistics” and updated and modified them in cooperation with noted supply chain experts to establish a concise set of seven back-to-basics principles. (For more information about the Annual 3PL Study, see the associated sidebar.) The team believes that these principles could help guide efforts by those in the industry to reset, rebalance, and strengthen supply chains.
1. Customer focus
Shippers and 3PLs must understand the needs of their supply chains from the consumer or end-user perspective. While some companies may view a retailer or another business as their customer, they should realize that the ultimate focus of the supply chain should be on serving the consumer or end user.
In addition to their responsibilities as supply chain participants, shippers and 3PLs should strive to deliver value not just to their direct customers but also to subsequent customers and consumers. Another way to express this is through the currently popular concept of the “demand-driven supply chain.” Whatever term you choose, ensuring that your supply chain offers value for all supply chain participants—downstream and upstream—is a foundational principle and should be considered a high priority.
2. Well-aligned supply chain relationships
It is important to realize that there are many different types of supply chain relationships. These relationships can vary from tactical/operational to strategic to complex partnerships. No one relationship type is always correct. Rather you should choose the right relationship for the type of engagement and the support needed to meet the needs of customers and end users. Furthermore, some supply chain relationships may operate in hybrid models. For example, a 3PL serving a customer may have one portion of its responsibility that requires some elements of a strategic relationship and another portion that may be more tactical/operational. Overall, relationships rarely fit a “one size fits all” model. They therefore require continuous evaluation and adjustment to match the relationship type to the current needs and objectives.
All supply chain relationships—no matter what type—must focus on optimizing the capabilities of each participant within the network to achieve the overall supply chain objectives. There are four cornerstones to make sure that each supply chain relationship is aligned operationally and strategically:
3. Reliance on data and analytics
Ideally, the supply chain requirements for all supply chain participants should be driven by demand patterns at the customer/consumer level. One way to achieve this is by sharing available forecasts and demand-planning data along with associated analytics and insights with your supply chain partners, including your 3PLs. The best results are achieved when both shippers and 3PLs, along with other supply chain participants, are working with consistent, accurate information. Participants must be willing to share information on potential problems and issues, ranging from a shortage of transportation capacity to unexpected volatility in the availability of needed materials and supplies.
Supply chains have always been data-driven; however, growing complexity and more frequent disruptions have increased the need for real-time (or close to real-time) data visibility combined with advanced, intelligent data analytics. The study team believes that to successfully deal with future supply chain challenges, 3PLs and their customers will need to dedicate themselves to digitizing data and enhancing analytics. These analytical tools, coupled with wisdom and experience, will facilitate the development of complex solutions to today’s problems. As a result, skills related to data analytics and digital technologies will be vital.
4. Innovation and transformation
Although the terms “innovate” and “transform” may feel like contemporary buzzwords, successful supply chains have always been adopters of technology and prioritized innovation and transformation. Take, for example, the adoption of warehouse management systems (WMS). The now-defunct company Logisticon created the first computer-based WMS. Its initial adoption by J.C. Penney in 1975, effectively launched the modern era of warehouse management systems. There are numerous other examples of innovation in the supply chain, ranging from the adoption of robotics in manufacturing to the adoption of labor management solutions for time and motion analysis.
So while the terms “innovate” and “transform” may feel modern, the principles themselves are foundational to successful supply chains and should guide capital investments. Any transformational initiative, however, must be structured around a sound evaluation, selection, and implementation process tied to measurable outcomes.
5. “Survivability” and “sustainability”
Shutdowns, or any cessations of services, impact the viability of all participants within a supply chain network. The principle of “survivability” serves as a reminder that supply chains must be prepared for the worst-case scenario, and supply chain networks need to be designed not just to be cost-efficient but also resilient.
The concept of “sustainability” is a newer addition to this back-to-basic principle, as supply chains are widely viewed as key contributors to enhancing environmental sustainability. A few key examples include: increasing transportation load factors (or the ratio of average load to total vehicle freight capacity) in order to decrease fuel consumption; carbon reduction initiatives that contribute to positive environmental improvement; and the use of electric vehicles that have the potential to be more energy efficient, thereby reducing the need for carbon-based energy sources.
6. Commitment to talent development
Supply chains rely on the availability of talent to address today’s supply chain issues and opportunities. This year’s 3PL study, however, found that organizations are struggling to fill critical supply chain roles. Most respondents—56% of 3PLs and 78% of shippers—said labor shortages impacted their supply chain operations.
There is a broad range of supply chain talent that extends from hourly operational roles to strategic leadership roles with a diversity of levels, skills, and classifications. Successful supply chains require that executives take a thoughtful approach to talent recruitment, development, and retention. Certification programs, continuous training, and skills development are also included in this back-to-basic principle.
An end-to-end (E2E) perspective
The principle of the E2E supply chain focuses on integrated networks that start with product design, move to raw-material sourcing and procurement, continue through the various touch points from planning, scheduling, and production, and end with delivery to the customer. Also included is the management of reverse logistics and post-sales support activities such as spare parts management and facilitating product returns. The concept of the E2E supply chain underscores the importance of achieving coordination, collaboration, integration, and alignment among the participating organizations within a supply chain ecosystem.
This principle has manifested itself in the further development of visibility solutions, control towers, and cloud-based technologies to create a wider range of capabilities throughout the supply chain.
While the back-to-basic principles may seem to be logical and understandable, in the real world, they are not always followed exactly, nor are the implications and consequences of not following them well understood. The annual study offered an example provided by Joe Finney, chief operating officer of third-party logistics provider Dependable Supply Chain Services.
“We have a large customer that takes all their containers that come in on the West Coast and ships them to their warehouse in the central U.S. There they deconsolidate and ship them from that warehouse to fulfillment centers across the country. If they would provide us with the forecast information and inventory demands so we understood what needed to be where and when, we could do this for them on the West Coast,” Finney said.
If the company followed the basic principle of sharing data and analytics with their supply chain partners, it would reduce handling, save time, and reduce expenses.
This year’s annual survey looked at how shippers and 3PLs view the importance of each of the seven back-to-basic principles. In addition to completing written surveys, supply chain practitioners took part in one-on-one interviews and discussions designed to share insights. The participants had an opportunity to assess the importance of each of the principles to achieving future improvement in their organization’s supply chains (on a scale of 1 = not important to 7 = extremely important).
Five of the seven principles received an average score between 6 and 7, as shown in Figure 1, marking them as either very important or extremely important. These were data and analytics, customer focus, innovation and transformation, talent, and supply chain relationships. The remaining two principles (E2E supply chain and survivability and sustainability) received a score between 5 and 6, which places them between somewhat important and very important.
[FIGURE 1] Importance of the back-to-basic principles (based on weighted average)
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As Figure 1 shows, all seven of the back-to-basic principles are deemed important by shippers and 3PLs, reflecting the complexity that professionals face in managing modern supply chains. The term “supply chain” tends to be used as a linear concept—do x before y. Yet successful supply chains require managing and manipulating constantly competing priorities, moving parts, and simultaneous what-if scenarios. The result is that multiple principles are all highly important. No one principle is seen as more important than all the others. Instead, to have a successful supply chain, you must achieve excellence in all.
For this analysis, we used weighted averages in order to diminish the impact of any outlier answers. This approach can smooth out answers by reducing the importance of a response at either end of the spectrum. As a result, the study team decided to look at the results based on two other factors:
The rankings for E2E supply chains and survivability and sustainability did not vary based on either ranking method. These appear to be relatively less important to survey respondents. However, other principles shifted in importance depending on the analysis method. Innovation and transformation, for example, did not receive a high frequency of extremely important responses. Yet, in terms of overall weighted score, it rises to the top. Talent, on the other hand, ranked high in terms of frequency of “extremely important” responses. However, talent quickly drops down in overall importance based on weighted average. This variation is likely due to recent disruptions and pressing issues that are currently claiming leadership attention (as well as news headlines) versus those that are consistently positioned as cornerstones to supply chain success. In other words, “innovation and transformation” is consistently seen as important to supply chain success. Talent, however, is being ranked as “extremely important” due to the news attention on the pressing labor shortage occurring at this moment in time.
The survey respondents also rated their organization’s level of implementation and maturity for the seven principles on a scale of 1= not implemented to 5 = fully implemented. Five of the seven principles received an average score between 3 and 4, which ranges from partial implementation (3) to close to completion (4), as shown in Figure 2. However, two of the five principles received a score below 3, which indicates a lesser stage of maturity in their implementation.
[FIGURE 2] Implementation and maturity against the back-to-basic principles (based on weighted average)
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In terms of implementation and maturity, shipper and 3PL scores resulted in the same ranking with supply chain relationships leading the pack. Unfortunately, these rankings were not fully aligned with level of importance. For example, supply chain relationships ranked highest in terms of implementation and maturity, but only ranked mid-pack (third or fourth) for importance. This difference may be due to the level of complexity involved in achieving implementation maturity in a given principle. It is not unheard of to focus on those things we can quickly achieve versus those that require greater effort or higher investment cost. However, failure to achieve a sufficient level of implementation maturity for any of these back-to-basics principles may contribute to supply chain challenges.
Future supply chain needs
As disruption and complexity continue to increase, meeting supply chain needs has become even harder, but leveraging the back-to-basic principles outlined here can help.
The effectiveness of shippers and their supply chain partners, such as 3PLs, has always boiled down to their ability to create value not just for their customers and their businesses but also for the end customers and consumers. By working together to enhance their supply chain relationships, supply chain partners can make sure they are mutually focused on the end customer. Innovation, data, and analytics will certainly help supply chain practitioners meet their customers’ shifting needs and transform supply chain strategies. In addition, both shippers and 3PLs will need to ensure that they have the right people with the right skills and talents, working together to establish talent-acquisition strategies that complement, not compete, with one another. Finally, to deal with continuing disruption, it will become even more important to view the supply chain from an end-to-end perspective and ensure that it is focused not just on short-term gains but, ultimately, on long-term survivability.
About the study …
The “27th Annual 3PL Study” is sponsored by NTT DATA and Penske Logistics in collaboration with Center for Supply Chain Research at the Pennsylvania State University, CSCMP, and the Reverse Logistics Association. It takes an objective look into the third-party logistics industry both from a user/shipper perspective and from a providers' perspective to reveal trends, 3PL industry growth and development, and the different ways providers are creating value. The study garnered 341 usable responses from both users and non-users of 3PL services and providers of 3PL services. The full study is available at us.nttdata.com/en/engage/the-all-new-2023-third-party-logistics-study-is-here.
Sylvie Thompson is a supply chain executive focused on driving revenue, margin, and profitable results by combining emerging technologies with traditional supply chain best practices. She has co-led the Annual Third Party Logistics Study for the past three years.