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Supply Chain Management: Best Practices for Small and Medium Companies

August 14, 2008

Third Party Logistics

A third-party logistics provider (3PL) is an asset-based or non-asset-based company that manages one or more logistics processes or operations (typically, transportation or warehousing) for another company.

Most companies (80 percent within North America and at least 70 percent in other industrial regions of the world) are already using an outsourcer for at least one key supply chain task. These outsourcers, known in supply chain circles as 3PLs, have grown within the past decade to become a domestic market worth nearly $100 billion in 2005, according to market research firm Armstrong & Associates.

The services most frequently outsourced to a 3PL, according to a study conducted by Northeastern University and consulting firm Accenture, are:

  • Direct transportation services (67 percent of responding companies)

  • Customs brokerage (58 percent)

  • Freight payment services (54 percent)

  • Freight forwarding (46 percent)

  • Warehouse management (46 percent)

  • Shipment consolidation (42 percent

Separating Supply Chain Core Needs from Secondary Wants

Much of the motivation behind this trend is that companies are increasingly being challenged to focus on their core competencies. The question constantly being put to them is: How good are you at what you do, in every aspect of your business? Many companies are best-in-class at designing products, for instance, but are strictly average in the actual building of them. In previous generations, that might have been a black mark against the company, but today the ability to accurately assess your strengths and weaknesses is itself a best practice. Many of the noncore tasks that manufacturers once routinely performed just because that’s the way things got done are now being outsourced to companies that specialize in offering a narrow niche of services

All of the activities a typical manufacturing company has to perform can be broken down into four categories of essential and nonessential tasks:

  1. Primary core tasks: Things that differentiate you in the marketplace (e.g., production, product design, production planning, and scheduling)

  2. Secondary core tasks: Things that need to be done well but are not visible to the customer (e.g., procurement, logistics, human resources, maintenance)

  3. Primary noncore tasks: Things that if not done well can have a negative impact on your customer relationships (e.g., information technology, finance and accounting, sales and marketing)

  4. Secondary noncore tasks: Things that need to be done but do not have a significant impact on the success of your business (e.g., real estate, food service, landscaping

Outpacing The Competition

Outsourcing a supply chain process can help a company achieve several benefits, particularly by enabling them to focus on their core business. As top, consultants with Cap Gemini Ernst & Young, point out, a third-party outsourcer can also help a company:

  • Tap into unrealized cost savings by leveraging spend across the enterprise.

  • Accelerate the achievement of results.

  • Provide better tracking of key operational functions.

  • Add value by converting operations from overhead to competitive strength.

  • Decrease supplier costs through leverage of volume discounts, objectivity, and reduced cycle times.

  • Improve adherence to policies.

  • Improve inventory performance through sophisticated statistical techniques.

  • Outpace competition through use of leading-edge technology and best practices methodologie

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