June 2003 | Commentary | 3PL Line

One Throat to Choke: The Case for One-Stop Logistics

Tags: 3PL

When companies choose to outsource a portion of their supply chains, they often struggle with the decision of how much control over their business and customer relationships they should put in the hands of an outsider.

Most often, outsourced logistics is limited to transportation because it is more likely to reap quantifiable savings that are easy to discern. Also, if the outsourcer fails, it's easy to regain control.

When companies choose to broadly outsource, however, they often split their projects among a variety of providers. This philosophy assumes that many players mitigate the risk of failure. If one part of the supply chain falters, the rest will hum along.

This logic is faulty. The supply chain is not a linear function with independent modules of activity, but rather a network of interwoven functions. On-time order delivery is not established solely by transportation carriers; it is also dependent on customs brokers, available inventory, and IT systems.

Companies looking to optimize supply chain performance and guarantee reliable customer service must synchronize these activities. But as long as the tasks are spread among a variety of vendors, accountability is fragmented.

An Integrated Approach

Using an Integrated Logistics Provider (ILP) is one way to collectively transfer the responsibility for rate and carrier management, on-time performance, order and inventory management, and IT connectivity. Ideally, an ILP provides the entire scope of supply chain activities, not just transportation but warehousing, order fulfillment, returns management, order taking, and vendor quality inspections.

In other words, if a single logistics company manages your entire supply from suppliers through to customers there is only "one throat to choke" when the supply chain misbehaves.

Beyond accountability, a single-source provider also has insight into supply chain flaws such as data inaccuracy, volume fluctuations, erratic customer order patterns, vendor failures, and geographic "black holes." This information is invaluable when looking to improve customer service, reduce costs, minimize capital requirements, and speed up cash-to-cash cycles. It similarly provides an unbiased, holistic view of supply chain performance based on the balance sheet of the client.

Additionally, since ILPs are inherently exposed to best practices across industries, they may be able to suggest business processes and evaluation techniques that can provide a competitive edge in the marketplace.

Taking the Plunge

The leap to single-source logistics requires planning in order to ensure success. First and foremost, it requires trust that the provider will be able to manage a global network and meet customer needs. In the case of expansive and complex supply chains, the one-stop provider also needs to be financially astute, with the cash flow and financial strength to purchase transportation, design and manage multiple distribution centers, and handle international transactions on your behalf. It also must have a strong continuous investment in IT to connect all your supply chain partners.

Both parties similarly need to have a clear view of the priorities of the change: Is it lowering capital requirements or enhancing customer service? Is it to match service offered by competitors, or is it simply to cut cost? Each requires a different supply chain design. Performance metrics and change processes should also be established and articulated early so that both parties are held accountable.

Ensuring Success

To achieve optimal performance, both the ILP and the customer have to commit to the process of change—a process that takes senior management "buy-off" and change management support throughout the organization. Both parties must also be committed to the time required to make significant change, as the process may take years. This means finding an ILP with staying power and market strength.

Is it worth the investment? The right ILP and the right plan can provide financial, customer, and operational improvements that are often unattainable through internal reengineering. The right ILP is good for today but even better for the future.