When the current financial crisis is behind us we will see that the world is still turning; we may, however, look around and notice that the economic landscape has changed somewhat, but what that may look like is anybody’s guess at the moment. We can, though, get an idea of how the supply chain landscape will change – or perhaps is already changing.
It is reasonable to assume, however, that the credit markets will be a lot tighter and the days of easy money will be something of a memory. Whilst some European countries will experience differing degrees of reduced consumer spending, overall the focus for the vast majority of businesses will be on cost control. But given that the current pain is global, it is not unreasonable to suggest that we currently have a window of opportunity - and that those people and companies who can recognise this and act upon it are going to be very well positioned when demand picks up.Self funded
In view of the pressure on credit, companies are going to have to look much more
closely at how a greater proportion of innovation and growth can be self funded – realised from savings made elsewhere in the business. Without doubt the area, which is most likely to facilitate this, is the management of materials – the supply chain.
It is also likely that a greater proportion of manufacturing and services will be provided by smaller companies (SMEs), which are not encumbered by large unwieldy management structures and overheads. However, SMEs often lack the supply chain management expertise required to identify greater efficiencies and cost savings. In many cases they also find themselves at the bottom of the ‘food chain’, whereby the large multi-nationals in the top tiers inevitably, perhaps not deliberately, pass inefficiencies down the chain, leaving the small companies to pick up the tab. For them, finding the means to strategically or tactically escape from this vicious cycle is not easy, quick or cheap.
Many companies have gone as far as they can in terms of being lean, shaving out all possible costs without actually hacking so far into the business that they undermine its ability to function properly. A growing number of European manufacturers and distributors have duly recognised the cost and environmental benefits of supply chain collaboration; ie, the sharing of resources to reduce waste (transport, storage and tied up cash), improve manufacturing efficiency, reduce carbon footprints and improve not only customer service but also global competitive position. So if collaboration is indeed the answer, why is it not being implemented on a larger scale; more to the point, what exactly does collaboration entail and how is it actually implemented?
Before answering these questions, let us, for the sake of logical progression, give this collaboration a label: fifth party logistics (5PL).Complete independence
One of the reasons 5PL has proved elusive is because it requires a complete independence from assets by the controlling body – the 5PL service provider. 3PLs have revolutionised the way that materials are handled and transported and, over the years, have added significant value to their customer base. The issue is that they ‘own’ assets and are therefore duty-bound to secure a commercial return on such, but ownership of assets implicitly suggests that they are favoured in any supply chain solution design – thus restricting creativity and potentially ignoring many avenues which may yield greater efficiencies, flexibility and cost savings.
Fourth party logistics (4PL), which is a major building block for 5PL, has more than proved its ability to test the independence theory to destruction: 4PL is pure creativity and explores every practical supply chain avenue in the search to meet the customer’s business objectives within given cost parameters. In the process of doing so it also addresses one of the most fearsome elements within any business – risk.
If all possibilities are explored and costed then it follows that risk is qualified and quantified to a much greater extent than it would be under 3PL, and this applies equally to capital investment and incremental operational changes. As a customer’s business changes, the 4PL is positioned to examine ways to support these changes whilst retaining a firm grip on costs and reducing risk and releasing the customer from contractual obligations that hamper the freedom to make quick, easy and cost effective changes. This is very important when designing and calibrating the collaborative networks that are the basis of 5PL.
Thus 5PL is an obvious progression that seeks to capitalise on the advantages of 4PL whilst delivering wider benefits accrued from networks of collaboration. The fundamental requirements for 5PL are independence from assets and the means to make material supplies and demands fully visible at all times. Its beauty is that it can be as simple or as complex as required by the collaborative networks which themselves are able to function on a ‘plug & play’ basis, which means participants can join or leave a network or have different parts of their businesses connected to a number of networks. It sounds almost utopian to enjoy greater long term cost savings without any increase in short term or speculative cost, but as companies join a network it is possible to increase efficiencies and/or economies of scale which can then be passed on to the other participants.
The system works on simultaneous feedforward and feedback loops. Each network member has secure access to the 5PL web portal: an ‘order’ for materials, in terms of calling off from a supplier or storage point, generates a feedforward demand for transport and once this has been allocated by a 5PL controller, a feedback is generated to the customer indicating when and where the load will be delivered.Better service levels
The networks themselves are designed by the 4PL and are based initially on the parameters of cost and known service levels. The 5PL software is configured to be able to measure performance in exactly the same way that 3PLs are subject to KPI measurements – but in this case it is far easier to change a service provider if service levels drop below agreed parameters. A further advantage is that all network participants enjoy service levels based on the highest common denominator, not the lowest.
Some companies have tried to push a 5PL agenda in terms of trying to secure agreement between competing 3PL interests that they will collaborate for the benefit of the customer; whilst current economic conditions suggest this is an obvious course to take in order to trim costs, logic suggests that when the going gets tough or revenues drop as a result of a competitor effectively picking up a haulier’s traffic (even though the customer will benefit) then these agreements will break down as companies try to protect their own interests. Similarly some joint ventures formed with the same objective are likely to deteriorate in the longer term as businesses change and require freedom to change the way they do things.
A 5PL, independent of assets, avoids these scenarios; it offers its customers the benefits and savings of collaboration along with freedom to manoeuvre in line with market conditions – all for the price of a low annual network connection charge.
In our brave new world of collaboration, web enablement, agility – and, perhaps, more manufacturing moving back to Europe from China – coupled with the current need to extract as much value as possible from every part of the supply chain, the 5PL approach shows how the supply chain landscape could change as much as the economic one, and quickly.
5PL Supply Chain Engineering
5PL SCE is a consortium of three companies (Aceona Management Ltd, KlinkhammerLS+ (UK) Ltd and Process Chain Ltd), all with long standing expertise in the fields of supply chain mapping, process engineering, materials handling systems, supply chain visibility systems and fourth party logistics (4PL) operations:.
Each one of these companies has demonstrated over a wide range of business sectors and applications its ability to apply a vast bank of knowledge and experience to the successful delivery of substantial improvements in the supply chain and general business areas.www.5pl-uk.comJeff Screeton
Thirty years in transport encompassing shipping (engineering), third party logistics, logistics systems and consultancy, Jeff co-formed Aceona Management in 2006 following a period in the railway industry developing rail freight initiatives. He is also a member of the East Midlands committee of the Chartered Institute of Logistics & Transport (CILT), and a co-founder of the 5PL SCE alliance in 2008.
As of June 2009, Jeff is chairman of CILT East Midlands.