Friday, November 18, 2011

Dream 3PL Checklist for Farming Out Your Supply Chain

In the old days, an automotive service-parts third party logistics (3PL) provider looked a lot like public warehousing that the rest of the world was using. They provided a network of bricks n’ mortar warehouses with labor. Your suppliers shipped to them and they shipped to your customers. The business case compared your bricks n’ mortar to theirs and your labor costs to theirs. If they saved you enough money, well, then you might “outsource.” Some companies have specialized in outbound transportation, where they have great DDS route-building algorithms. They have site managers who take on the day-to-day carrier coordination. They have teams who negotiate carrier rates and break-bulk costs. Lately these companies have been offering collaborative savings to multiple OEMs. Other 3PLs offer IT solutions and process control solutions. Kit building, receiving inspection and consolidation, small parcel management are a bunch of other add-on solutions.

The landscape is very 1950’s. Lots of players, lots of redundancy, lots of bits and pieces to manage. It is very sub-optimal. So were those 8 mpg gas-guzzlers in the 1960s. 3PLs must evolve, and when they do there are some serious costs to be saved by all their customers. Here’s my evolutionary checklist:
  1. Not My IT. Putting in new enterprise supply chain systems costs tens of millions of dollars and takes years. You do a comprehensive requirements definition and supplier selection process and then buy an SAP variant that doesn’t work very well and costs a fortune more than the fortune you budgeted to integrate it all. Why not use a 3PL that bought that Cadillac SAP system for all their customers to use? Why not use it on their mainframe? Why not use mostly their people to run it? Why not use our own people just for the mission critical stuff like lifecycle planning and forecast parameter setting? Why not depend on the 3PL to hire the integrators – on the cheap – to build the interfaces to the sources of our data? There’s a 20% return on sales business here for the integrators that smells a heck of a lot better to the OEMs than typical software value-creation pricing policies.
  2. Not My Lean. Who cares about process classification when it’s really all about cost and quality? Too many do, who shouldn’t. Lean really is all about lean costs and robust quality. So, I really don’t care about those process control boards, Taekwondo cards, and “no fear” existential slogans. Why can’t I just go out and buy this stuff and harvest the benefits in less than a lifetime.
  3. Not My Depot. Who cares about dedicated warehouses and dedicated bins for “my” parts? If Vintage Parts can be world class with hundreds of thousands of commingled part numbers, then so can a mainstream 3PL. We need to focus on cost and quality rather than the accouterments of where each part dwells. Damage, cycle time, fill rates, and cost as a percent of sales.
  4. Not My Carrier. Who cares if DDS routes have multiple OEMs on them? When I go to my Chevy dealer for service I could care less about the truck that showed up at 2AM to drop off fresh parts. Nobody cares. Collaborated, consolidated, customer delivery is not a nice-to-have, it should be a basic requirement. The same goes for inbound. By the way, who really cares about logos on trucks? Get rid of them.
  5. Not My Break-Bulk. Who cares if these collaborated consolidated customer deliveries originate from a collaborative and consolidated break-bulk facility? Nobody. These facilities should, also, be receiving consolidated supplier drop-ship orders for the DDS routes, as well as referrals … and small parcel orders for criticals where we can still make the OTD work.
  6. Not My Returns Processing. Who cares if everybody’s dirty warranty returns and obsolescence returns share the same aisle? Nobody should.
  7. Not My Follow-up and Expediting. If we can use a third party to process our invoices and charge our suppliers a ridiculous line-item charge for this, well, why can’t we farm out all of our post-ordering activities to make sure the stuff arrives in time for the customer order?
  8. Not My Export Packing and Freight Forwarding. The best we’ve seen here is Volvo out of Sweden. However, this is an area where few others shine. Why can’t 3PLs offer a blanket supply chain service that wraps around some areas of distinctive incompetence? Why is this an afterthought?
  9. Not My Reman. Why can’t 3PLs offer an integrated service for all the stuff that aftersales is supposed to be doing well. Why can’t we get a 3PL to understand that reman is big money and represents low-hanging fruit? Why haven’t we seen a credible “LRP” – Lead Reman Provider – come in and knock our socks off?
  10. Yes, My Metrics! Why do 3PLs constantly play 3-card Monte with the metrics? Why can’t they simply adopt NAPB metrics and report their performance in the universal language of motor vehicle supply chain? Why not use a consistent report card that spans all players in the market?

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