Outsourcing and Supply Chain Strategies

Martin Christopher

Agenda
The changing competitive environment The supply chain becomes the value chain Creating agile networks The need for supply chain orchestration The role of 4PLs

Oscs.ppt

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
Oscs.ppt

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.

Oscs.ppt

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
Oscs.ppt

The two dimensions of supply chain excellence

Cost advantage : Lower end-to-end delivered cost

Value advantage : Creating superior customer value through enhanced service

Oscs.ppt

Supply chain excellence

High Relative Customer Value Low

High Relative Delivered Cost

Low

Oscs.ppt

Pathways to agility
Supply side Strategic sourcing Synchronised production & sequencing Co-location Internal Reduce non-value adding time Reduce complexity Postponement Data systems integration Demand side JIT replenishment Co-managed inventory

Manage the extended enterprise

Oscs.ppt

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

Oscs.ppt

10

Oscs.ppt

11

Framework for logistics outsourcing decisions

Outsource functions, maintain control of process

Yes Is logistics a critical success factor in this market?

Perform in-house

No

Outsource

Spin-off

No

Source : A T Kearney Oscs.ppt

Yes Is logistics a core competency in the business?

12

The 4PLTM Concept

Primary clients contribution
Start-up equity Assets Working capital Operational expertise Operational staff Procures logistics services from 4PLTM organization

3PL service providers contribution

Transportation services Warehouse facilities

Partners contribution
Set-up equity Logistics strategy Reengineering skill Best practice benchmarks IT development Customer service management Supplier management Logistics consultancy

Primary clients KEY CHARACTERISTICS

4PLTM organization

Partner(s)

Hybrid 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
Oscs.ppt

Potential for revenue generation

13

Four key components a 4PL must assemble

Architect/Integrator
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 INFORMATION Nervous 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

Control Room (Intelligence) 4PL Supply Chain Infomediary

Resource Providers

Oscs.ppt Source: Accenture

14

How the customer organisation benefits from a 4PL

Ownership and Governance Customer(s) Co. Customer(s) Co. (Y% of 4PL) (Y% of 4PL) Capital Best Practices Technology People

Partners Partners (X% of 4PL) (X% of 4PL)

Capital Assets People

Equity Return

Capital

Financial Institutions Financial Institutions (Z% of 4PL) (Z% of 4PL)

Equity Return

MANAGING A 4PL MANAGING A 4PL ORGANISATION ORGANISATION

Equity Return

Services

Services and Results

Service Providers Service Providers 3PLs 3PLs Software Cos Software Cos
Oscs.ppt

Fees

Fees

Customer Co. Customer Co. Other Customers Other Customers

Trading Relationships

Source: Accenture

15

Logistics co-ordination provides advantage

Co-ordination of complex global networks of company activities is becoming a prime source of competitive advantage. Todays game of global strategy sees to be increasingly a game of co-ordination - getting dispersed production facilities, R&D laboratories and market facilities really to work together
Professor Michael Porter Harvard Business School

Oscs.ppt