Cert Octavian

European Supply Chain Management – 3PL

6th August 2008

As the ‘credit crunch' climate continues to take hold, the need to forge strong partnerships based on flexibility, agility and expertise is paramount.  Our ever-changing industry demands adaptability and pace - two elements that are not easily adopted by some of the large and cumbersome organisations. 

As economists forecast continued downturn and possible recession, outsourcing third party logistics remains popular as companies look to effectively manage their cost base.  Logistics is still viewed as a function that is ‘non core' with very high fixed costs; a distraction and headache for many companies who need the time to focus on their main operations.  It's a sensible philosophy.  If, for example, you have a warehouse that is not fully utilised all year round due to seasonality, it makes sense to translate this fixed cost into a variable cost by storing pallets with a third party.  You are then paying only for the number of pallets being stored at any one time, rather than an entire site, immediately stripping unnecessary overheads.  Many companies are also using 3PLS to capitalise on specialist supply chain expertise in a specific sector, helping them to gain competitive advantage based on improved service, and increased efficiencies- attractive at any time, but especially during turbulent market conditions where consolidation is rife.

Market consolidation continues to gather pace, as global logistics players get even bigger in order to satisfy concerned shareholders and to increase the range of services they offer.  However, a recent forum of logistics directors concluded that there is some doubt as to whether customers are really seeing the benefit of logistics globalisation.  At the other end of the spectrum, smaller companies are finding it difficult to survive.  Predominantly on the back of rising fuel prices, unforgiving contracts that do not allow for additional costs to be passed on, as well as a government that does not have the ability or financial resource to help out. 

It seems clear that opportunity and competitive advantage is derived not from striving to become the 'biggest' but looking to become a specialist - for example, Cert Octavian has specialist expertise in the fine wine trade and has translated the skills it needs to operate in this market (how to handle premium products and high value brands) across a number of sectors in which it operates.

Ultimately, operational excellence is a 'given', and 3PLS must prove their difference by demonstrating a strategic understanding of their customers' markets; the issues and challenges that they face, and how effective management of their logistics operations can make a difference to their bottom line and the overall performance of their enterprise.   To achieve this 3PLS must be able to operate on a consultative basis, providing strategic counsel and an understanding of the wider context of business and the role that logistics plays within it.

One of the biggest issues that all businesses face and where logistics operators play an important role is the environment.  Sustainability and environmental responsibility is now playing a fundamental role in corporate strategy and its importance will only increase, as more people and organisations from both an institutional and retail perspective want to invest in companies with quality environmental credentials.  The 'environment' is therefore driving up the value of business, and presents real opportunities for 3PLS that can demonstrate the importance of an effective logistics solution in conjunction with a corporate sustainability strategy.

Cutting carbon footprint and increasing economic efficiency is one way to make a difference, and there are a multitude of different contributions that 3PL providers can introduce to achieve this.  However, a long-term, company wide environmental policy is essential, underpinned by short-term wins.  To be truly effective, this requires a joined up approach from the 3PL, the haulier, the client and the retailer; a vertical environmental policy that spans the supply chain surrounding the logistics provider.

Partnership initiatives that automatically help retailers and suppliers to reduce their carbon footprint include operating sites optimally placed for end deliveries, ensuring that the correct vehicle appropriate to the size of drop is used, and helping customers to take advantage of delivery consolidation.  Looking ahead, exploring timed deliveries for small orders, flexibility of booking times at rdcs and setting delivery dates for certain post codes, off peak deliveries in London and electronic payment systems all present great opportunities.  But the most important element to successfully implementing any of the above is creating a dialogue and understanding your customers' business, to comprehend how your actions impact upon others in the supply chain.

From an operational as well as strategic standpoint, the pressure on margins being exerted on customers currently increases the need for improved service at lower cost.  3PLS therefore need to improve the quality of their processes to better manage productivity, through targeted investment as opposed to blindly stripping out costs.  Developing staff, fuelling their motivation and ensuring that they are in line with the company's mission and mantra are all critical to improved productivity.

All of these elements demonstrate how the role of a 3PL provider is changing.  Traditionally, warehousing and transport were the areas that were contracted out, however over the past few years this has dramatically changed.  Back office functions such as order processing, credit control and even printing are being offset under the guise of Business Process Outsourcing (BPO).  And while cost is a factor, it is being predominantly driven by a desire to increase efficiencies, streamline supply chains and to fundamentally improve business performance.  This is the market that 3PLS now operate in, where the language of trucks and sheds has been replaced by a more sophisticated and consultative language of business and solutions.

As companies have capitalised on the back of globalisation, supply chains have been extended like never before.  And as we hurtle further into the abyss of the downturn and potential recession, organisations are looking to their supply chains as one area where they can eke out every last bit of profitability to increase their margins.  3PLS will need to work even more closely with customers and become intrinsically linked into the whole supply chain planning process so that they can fully and effectively support it.  Effective relationships and true partnerships will be more important now than in a buoyant market.

For the smaller, more specialist firms like Cert Octavian, offering big firm efficiencies with small firm choice through consolidated deliveries is an initiative that should be embraced where possible.  Working with retailers is an area where this is already feasible, however looking to other sectors that are more fragmented represent additional areas of opportunity.  For example, Cert Octavian is currently exploring initiatives in the HoReCa sector - although it's currently a fragmented marketplace, the potential to proactively improve service through drinks suppliers, their customers and the logistics provider agreeing collaborative order cycles is exciting.

Ultimately, we are all operating in an increasingly challenging marketplace and we must come together to discuss how we can all achieve greater efficiencies.  3PL providers represent a key resource that, with a joined up approach from all parts of the supply chain, can help you to exploit the opportunities that remain in the market.