Often they are more concerned with putting out tactical fires than sparking strategic initiatives–which is why busi- nesses turn to 3PLs in the first place. “Outsourcing has traditionally served as a means for companies to unload a non-core activity, managing a commod- ity-type service–for example, reducing freight spend or inventory carrying costs,” says Tom Craig, president of LTD Supply Chain, a Glenmoore, Pa.-based logistics solutions provider that special- izes in 4PL services. Not all outsourced logistics part- nerships are alike, of course. Some are purely tactical, relying on asset-based resources; others are more strategic, requiring a thorough and systematic consultative approach. Partnerships
in mind. “Typically they need specific solutions,” says Ritchie of YRC. While some logistics providers try to be all things to all customers–a diffi- cult, perhaps impossible, task in today’s increasingly diversified 3PL mix–pro- viders create greater value by offering the best possible solution. Sometimes this solution requires a collaborative approach among multiple service pro- viders – this process is what evolves into the 4PL dynamic, says Ritchie. But not all logistics providers are capable of taking a step back and see- ing the forest (the outsourcing market) for the trees (customer needs). In the 3PL industry at large, some logistics providers become caught up in driving continuous improvement in day-to-
logistics providers are truly capable of accomplishing, Craig suggests. “Reducing freight costs by 10 per- cent is not a value proposition, or at best is a weak one. Improving inven- tory turns by 30 percent or increasing market share by three points are strong value propositions,” he says. The 4PL process, therefore, thrives on taking businesses to the next level of supply chain complexity, or even to emerging offshore logistics mar- kets. Eaton’s 4PL network design has served to accomplish both. While the industrial manufacturer outlined spe- cific roles and expectations for its LLPs, it has similarly let them take the lead where appropriate and necessary. For example, leveraging CEVA’s resources helped Eaton generate syn- ergies between existing operations within Asia, and facilitate further growth in the region–which is expo- nentially more difficult in countries such as China that present considerable cultural and business differences. “A lead logistics provider with local experience knows how to find the right providers and deal with customs requirements,” says Tap. Targeting Growth Opportunities Eaton’s partnership with CEVA also facilitates developing connections with the 3PL’s partners in Asia, which enables Eaton to more easily target, then inte- grate, business growth opportunities. “We are just getting started by gath- ering data in Asia. We want to build our Asian network correctly from the outset,” says Hegewald. “Assimilation has been easier because we work with partners. More importantly, we find effi- ciencies that help us meet our business acquisition strategy when we connect our LLPs with new acquisitions.” CEVA’s resources and capabilities in Asia – predominantly in China – were important considerations during Eaton’s due diligence process. So was CEVA’s ability to create end-to-end visibil- ity through its Matrix IT system and related control tower functionality in Singapore, which serves as the nerve center for CEVA’s operations. Companies often seek a 4PL
The idea of using a 4PL was slow gaining traction. Now, as a result of globalization, 4PLs are fast gaining momentum.
generally fall somewhere in between. But as businesses migrate toward more complex levels of outsourcing, the scope and detail of their supply chain has to change, Craig notes. As such, supply chain initiatives require a different approach. “A 4PL’s job is not merely to move freight inbound into the United States, for example; it’s to manage offshore suppliers and make sure they meet appropriate targets. Providers serve a more strategic purpose,” he says. These types of challenges are exac- erbated as businesses grow globally, making it more difficult to drive visibil- ity across disparate supply chain links. “When companies lack supply chain vis- ibility, excess safety stock and the need for expedited shipments are inevitable. An LLP can help overcome these issues by creating total visibility, thus allowing the shipper to optimize flows by consoli- dating shipments,” says CEVA’s Tap. When companies consult logistics providers for assistance, it is rare that they have a specific 4PL requirement
day operations, Ritchie concedes, and do not address strategic ways to prop- erly meet clients’ changing needs. “The value of a 4PL relationship is that it allows for more strategic angling,” he explains. “4PLs aim to create a strategic value proposition–they reinvent the wheel, they don’t only provide a commodity service,” says LTD’s Craig. “Companies have tactical problems and 4PLs offer strategic solutions.” One company LTD works with, for example, wanted to build a large ware- house to meet distribution needs. After analyzing its network, LTD showed the company that by better managing its supplier base and reducing inventory it could scale back the size of the facil- ity, thereby saving money on capital expenditure while also building more efficiency into the supply chain. This example further exposes a com- mon misconception about 4PLs: that they simply manage 3PL providers. While this is often true, such contrived definitions fail to address what lead
86 Inbound Logistics • July 2007
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