LLP business model
Business Model 3y Trevor Barrows I Executive Summary A or third-party logistics provider iS defined as a company that provides logistics services for its clients and customers, where as a 4PL or fourth-party logistics provider is defined as a company that provides logistics services that manages a group of logistics providers that perform 3PL operations, including value add services. Driven by supply chain forces 3PLS are consolidating into 4PL service providers more commonly called Lead Logistics Provider (LLP).
Given increasing pressures for speed, flexibility and global reach, the LLP role provides greater functional ntegratlon, and assumes more operational responsibility. Increasingly compames must collaborate in engaging an enterprise logistics system that Integrates to manufacturing. enterprise- requirements planning. and warehouse management systems to optimise the entire supply chain. not just transportation, for imprwed supply chain performance and cornpetit. ve advantage. To gain the speed and global reach of today’s supply chain, it is necessary to create ew ways to source capabilities.
It is necessary to collaborate rather than purchase. It is necessary to share authority rather than direct outcomes. It is necessary to integrate the supply chain functions more broadly, To do this requires know-ho. ” and resources beyond the capabilities of a single organisation(s). Trevor 3arrows has found that assisting companies in creating a distinct LLP organisation is a path to greater competitive advantage. A LLP organisation brings focus to the supply chain in which all parties share sourcing because the successful LLP organisation is founded On principles of shared risk and shared reward.
The scope Of todays business requires greater functional integration Of the supply chain. This integration iS critical to achieving speed, precisely described service and optimal It iS no longer sufficient to Outsource discrete functions. Each Of the disciplines Of the supply chain must be evaluated If one Of the disciplines is not best of breed, then a way must be found to align, source, acquire or venture with a best of breed capability. After all, a supply chain Is only as strong as its weakest link. Then, having established well defined objectives and associated metrics, gives the LLP entity the authority to act.
In developing LLP capability better enables member entitles to: o Develop agile supply chain practices o Collaborate in ‘Factory Gate Pricing’ Initiatives with major distribution channels o Provide track and trace audits tor legislation conformance such as o Compliance with future customer supply chain requirements such as Serial Shipping Container Codes (SSCC) and RFID Tagging o Address growing demand for customer sustainability strategies for shared orporate social responsibility (CSR) and legislation regarding greenhouse gas emissions o Leverage overall supply chain assets in reducing cost and improving customer service In summary tnere nas Deen mucn aeoate In Industry aoout tne lack of logistics innovation. By industry and companies collaborating in LLP business models leverages the optimal utilisation of existing logistics assets into cohesive demand driven supply chains. Trevor Barrows February 2009 2 LLP Model 2. 3PL Outsourcing benefits, Issues and Success Factors Outsourcing can be defined as converting core activities from cost centres into profit entres, the benefits, issues and success factors for which consider the following: Benefits: Rationalisation and reduction in assets Cost reduction from better use of assets An improved management focus on core competencies Improved working practices Improved control systems Economies of scale providing lower overheads Customer service improvement Issues: Make decisions from not identifying and balancing all issues Scope and responsibility 0T 3PL not correctly aeTlnea Poor construction of contracts Unstructured pricing mechanism High tender pricing due to ignorance of customer market
No clearly defined KPI’s or realistic KPI’s Failure to establish working relationship with all parties Lack of communication Loss of key staff in new arrangements Failure to address HR & union issues Success factors: o Ensure all overhead costs are considered o Ensure contract has mutual benefits for all parties o Establish correct pricing mechanism o Specify all tasks and responsibilities of all parties o Handle HR and union with care and attain early ‘buy in’ o Embrace staff o Establish and agree mutual KPI’s o Ensure all parties share in the risk and reward equally 2. Core Competency and Capability in Outsourcing Core competency can be defined as the combination of individual technologies and supply chain skills that underlie a company’s myriad of supply chain processes, including production and logistics. Capability can be defined as a company’s time to market in delivery of the value derived from its core competencies. Competency and capability represent two different but complimentary dimensions of emerging corporate business strategies that should be considered.
Both concepts emphasise behavioural aspects of business strategy in contrast to traditional tructural models. However where as core competency emphasises technology and SCM processes at points along the value chain, capabilities are more broadly based encompassing the entire supply chain, including outsourcing partners. In this respect capabilities can be achieved by ensuring core competencies are maintained or improved upon. 2 Core logistics supply chain competency improvements that are discussed in associated white papers are as follows: Deman Planning Transportation Planning including: o Multi-modal transportation order aggregation, splitting and pooling (cross docking) o Load Optimisation
Advanced Warehouse Management including: o Voice Picking o Radio Frequency Tag Devices The basic principle is gaining competitive advantage via improved capabilities that should consider the following: The building blocks of corporate strategy are not products & markets but business processes Competitive success depends on transforming key business processes into strategic capabilities that consistently provide value to the end customer A company(s) should create these capabilities by making strategic investments in a Lead Logistics Player (LLP) support infrastructure that links together and transcends Strategic Business Unit (SBU) functions The capabilities put in place should be cross functional, the champion of a capabilities based strategy being the CEO.
By developing core competency and investing in a LLP capabilities infrastructure will enable improvements in market scalability and flexibility as follows: o Speed Consistency Anticipation Agility Innovation – ability to respond quickly to market demand – ability to meet customer expectations – ability to predict the competitive environment – ability to adapt to changing business processes – ability to create new ideas and hence ongoing value . 3 Lead Logistics Player (LLP) Business Model A Lead Logistics Player (LLP) may be defined as an organization that manages a full scope 0T loglstlcs servlces Tor a company Dy aggregating ana coorolnatlng tne services of multiple logistics service providers. The LLP serves as the single point of contact between its client(s) and the array of logistics and information service providers executing the client’s supply chain.