Outsourcing and Supply Chain Outsourcing and Supply Chain StrategiesStrategies

Martin Christopher

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Agenda

The changing competitive environmentThe supply chain becomes the value chainCreating agile networksThe need for supply chain orchestrationThe role of 4PLs

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The changing competitive environment

The new rules of competition : advantage comes from capabilities

Global over-capacity leads to further concentration of buying power

Continued downward pressure on price puts further pressure on cost

Changing balance of power in the distribution channel

Customers take control

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The goal of supply chain management

“To manage upstream and downstream relationships with suppliers and customers in order to create

enhanced value in the final market place at less cost to the supply chain as a whole.”

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Gaining competitive advantage

“A business is profitable if the value it creates exceeds the cost of performing the value activities. To gain competitive advantage over its rivals, a company must either perform these activities at a lower cost or perform them in a way that leads to differentiation and a premium price (more value).”

Michael Porter

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The two dimensions of supply chain excellence

Cost advantage :

Lower end-to-end delivered cost

Value advantage :

Creating superior customer value through enhanced service

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Supply chain excellence

RelativeCustomer

Value

RelativeDelivered Cost

High

Low

LowHigh

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Pathways to agility

Supply side

•Strategic sourcing

•Synchronised production& sequencing

•Co-location

Internal

•Reduce non-valueadding time

•Reduce complexity

•Postponement

Demand side

•JIT replenishment

•Co-managed inventory

•Data systems integration

Manage the extended enterprise

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Why outsource?

Can someone else do it better or cheaper?Can someone else do it for less than our cost of capital?Does someone else have a better means of achieving end-to-end visibility?Do we have the necessary skills to orchestrate a complex supply chain?Outsource the execution of a process but not its control

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Framework for logistics outsourcing decisions

Source : A T Kearney

Outsourcefunctions,maintaincontrol ofprocess

Spin-offOutsource

Performin-house

No

No

Yes

Yes

Is logistics a criticalsuccess factor inthis market?

Is logistics a corecompetency in thebusiness?

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The 4PLTM Concept3PL service providers’ contribution

Transportation servicesWarehouse facilities

Partners’ contributionSet-up equityLogistics strategyReengineering skillBest practice benchmarksIT developmentCustomer service managementSupplier managementLogistics consultancy

4PLTM

organizationPartner(s)Primary clients

KEY CHARACTERISTICSHybrid organization - formed from a number of different entities

Typically established as a JV or long-term contract

Alignment of goals of partners and clients through profit sharing

Responsible for management and operation of entire supply chain

Continual flow of information between partners and 4PLTM organization

Potential for revenue generation

Primary client’s contributionStart-up equityAssetsWorking capitalOperational expertiseOperational staffProcures logistics servicesfrom 4PLTM organization

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Four key components a 4PL must assemble

4PL

Architect/Integrator

Control Room(Intelligence)

Supply ChainInfomediary

Resource Providers

CHANGE LEADER• Supply-chain visionary• Multiple customer relationship• Deal shaper and maker• Supply-chain re-engineers• Project management• Service, systems and information integrator• Continuous innovation

DECISION-MAKERS• Experienced logisticians• Optimisation engines and decision support• Neutral positioning• Manage multiple 3PLs• Continuous improvement

INFORMATIONNervous System• IT system integration• IT infrastructure provision• Real-time data to information• Convert data to information• Provide info to point of need•Technical support

ASSETS• Transportation asset provider• Warehouse, cross-dock, property facility• Manufacturing – outsourcing• Procurement service• Co-packing service

Source: Accenture

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How the customer organisation benefits from a 4PL

MANAGING A 4PLORGANISATION

MANAGING A 4PLORGANISATION

Ownership and Governance

Trading Relationships

Fees Fees

Equity Return Equity Return

Capital

CapitalAssetsPeople

EquityReturn

Customer(s) Co.(Y% of 4PL)

Customer(s) Co.(Y% of 4PL)

Financial Institutions(Z% of 4PL)

Financial Institutions(Z% of 4PL)

CapitalBest Practices

TechnologyPeople

Partners(X% of 4PL)Partners

(X% of 4PL)

Services

Service ProvidersService Providers

3PLs3PLs

Software Co’sSoftware Co’s

Customer Co.Customer Co.

Other CustomersOther Customers

Services and Results

Source: Accenture

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Logistics co-ordination provides advantage

“Co-ordination of complex global networks of companyactivities is becoming a prime source of competitive

advantage. Today’s game of global strategy see’s to beincreasingly a game of co-ordination - getting dispersed

production facilities, R&D laboratories and market facilitiesreally to work together”

Professor Michael PorterHarvard Business School