Tim Fawkes, MD of 3T Logistics explains the benefits of effective collaboration.
We may be experiencing a more lively economy of late, but margins remain tight for manufacturers and hauliers, which means that companies need to continue looking for ways of managing their supply chain cost effectively. One proven strategy for keeping costs down without detracting from customer service is collaboration, which also has the added benefit of helping to address environmental targets.
However, in my experience of working with companies from across a range of industries, few organisations have achieved true collaboration so far. Why not? Well, if it was easy, we would all be doing it. Successful collaboration is a complex process which often requires a radical shift in thinking.
The benefits of collaboration in logistics
The desire to increase efficiency and reduce cost is a key driver in the world of FMCG. The end customer is demanding increased choice, lower prices and immediate availability, with the quest for sales driving behaviour through the supply chain in terms of:
- Shorter lead times
- Smaller, more frequent deliveries
- Reduced cost
- Greater value added initiatives, including consignment stock
If the multiples are to deliver these objectives, the supply chain needs to become much more flexible. The onus is very much on suppliers to provide solutions to these problems – usually at their own expense.
This trend runs throughout the market, from the multiples to their suppliers and from the “tier1” suppliers to their suppliers – and right on through the supply chain. So, if companies are to find realistic solutions to these opposing requirements, they will need to think more creatively. If suppliers can find a way to collaborate, they will be able to share elements of cost for their mutual benefit. Collaborating on transport processes can be particularly beneficial, offsetting the impact of the reduction in lead times and delivery sizes.
Sharing the load – and the cost
To give an example of collaboration in practice: if two suppliers (supplier A and B), based in the same city, are delivering a full load to the same customer twice a week, shifting to four half loads a week and combining deliveries would largely offset the impact of any cost increase whilst achieving the consignee’s objective. Although the carrier has the additional cost of collecting each consignment from two collection points, much of the potential cost increase can be avoided. Multiply this scenario across A and B’s customer base and consider the impact of the “trend” – the problem becomes more complicated, but still theoretically possible.
Reasons for resistance
It sounds such a simple solution that it can be puzzling as to why more companies don’t collaborate. However, organisations often have a whole range of reasons for their resistance – some more valid than others.
- Looking inwards – few companies think beyond their customers, themselves and possibly their most serious competitors. Furthermore, identifying potential collaborative partners isn’t always easy. In fact, the end customer is often best placed to advise suppliers who might be a good fit in terms of geography and product compatibility.
- Product compatibility – for example, an ambient supplier would be incompatible with a chilled supplier in terms of transport processes. Equally, there are many types and specification of trailer which can make collaboration difficult
- Ordering patterns and order visibility – the trend towards smaller deliveries with a greater lead time also affects the variability in the size of the order. The approach of having what you want when you want it inevitably goes against the desire to smooth out volumes and increase supply chain visibility, reducing the amount of time available to react to and identify opportunities as they occur.
- Delivery frequency and schedule – each supplier will have their own particular demands and requirements to meet, including those of their suppliers. Multiples rarely take these into account, whilst suppliers are unlikely to question or request a change in delivery date and time that could make these opportunities possible.
- Objectives and culture – even slight variances in culture may result in a different approach to situations. Every company has a different view of customer service as well as longer and shorter term strategies. If the overriding objective is not aligned, collaboration is destined to fail.
- Trust – essential to any successful relationship, companies have to be able to trust each other; that the partnership is advantageous to all involved and that they are able to deliver the same service without putting each other’s business at risk.
- Fair shares – the commercial arrangement for any division of savings must be mutually understood and agreed in advance. A saving for one company should not result in a cost increase to another. The baseline needs to be agreed, as well as a mechanism for fairly measuring and apportioning savings.
There are so many potential pitfalls that companies who try and organise collaboration without the input of an independent 3rd party are unlikely to succeed.
The role of a 3rd party logistics company
Many 3rd party logistics companies already combine customer volume to take advantage of the savings that can be achieved through collaboration. Shared user networks and local carriers that offer part load services combine traffic from local suppliers to end customers and charge a rate based on the space taken up in the vehicle. This works well for many companies and is a structured way of dealing with their customers’ changing demands. However, it can be more expensive for customers because the carrier is building the risk of not filling vehicles into their rate card. Many businesses do not fully understand that this happens and that logistics companies are making the most of client synergies.
The 4PL solution
As a 4PL, our entire business is based on collaborative solutions. A true 4PL doesn’t mark-up freight rates or build profit into a tariff structure. The benefits of efficiency are passed onto the customer and the fee is taken out of the overall benefit. Therefore, it is in the 4PL’s best interest to collaborate as much as possible. A 4PL’s transport management system (TMS) can deal with the complexity of multiple carriers and multiple shipping lanes, allocating cost fairly to each party. The TMS not only provides an acceptable allocation of cost, but it significantly automates the administration tasks involved in transport management for customers, its own staff and the carrier, enabling more time to be focused on continuous improvement activity. The 4PL will act as an independent mediator to ensure that profits are shared fairly and that any disputes are objectively resolved.
The marketplace is based on competition, so it can be difficult to accept that this also includes collaboration. However, as experts in transport management we know from personal experience that it can work to the benefit of everyone involved – if set up and managed correctly.
If you would like advice on achieving successful collaboration in your business, call us 01162 824 111.