Thinking originally is very difficult for people who work in supply chain. This may have something to do with the doctrinal orientation of the education system combined with the severe hierarchy found in so many companies. Therefore, supply chain has a lot of technology, but few original ideas, or original thinkers. There is also a “mill” of trends that hit the industry, which are primarily content free. As a consequence, supply chain management does not improve very much (on average) from year to year.
Lack of Original Thinking
It’s an important fact to face that one’s chosen profession is not filled with people who tend to think “outside the box.” This applies to supply chain management generally, but to 3PLs in particular. It has been several decades since the 3PL concept became popular, and what do we have? Do we have a number of platforms created by logistics companies to enhance the capabilities of their customers? No, we do not.
What Does 3PL Really Mean
What 3PL seems to mean is just moving some of the people from the supply chain execution and monitoring function within shippers, to the same job at an asset based transportation or contract warehouse provider. We call this “simple outsourcing” and it ads very little value, and in fact may subtract value. This is in essence accounting trickery. Short term costs go down (so the executives are happy and can cash in stock options) but long term costs and capabilities are about the same or rise slightly. There has been so much written on the 3PL trend, and what is behind it is so modest that it’s amazing that as many articles have been written about it as have been.
Getting it Right With 4PL
3PLs did not add much value to the process, and did not make supply chains much better. Much like a shell game, a lot of things were simply moved around, so it looked like progress was being made.
There is too much insubstantial innovation going on in both finance and supply chain. Changing things or moving things around is not genuine innovation. In order to use the word “creative” the item should create something new, or at least combine two old things in an innovative way. This faux innovation cuts across industries. Pharmaceutical companies have so changed patent law with lobbying and legal actions that they are getting patents from nothing. They get patents from essentially repainting a law mower a different color. The pharmaceutical industry does clinical trials for chemical compounds actually created at universities using NIH grants. A monkey could manage the clinical trials, and that is all they really do, but Pfizer and Merck like to pose as innovators. It is preposterous.
No to Buzzwords
4PLs offer an opportunity to get it right. However, to do so, companies must not simply use the concept or buzzword to cover up the same old tired offerings, as was done repeatedly with the 3PL craze. 4PLs must actually create platforms and capabilities that did not exist before in order for the term to have any lasting value. No matter what we say, salespeople will use the term 4PL when the business they represent is not one. However, the beautiful thing about web enabled systems, is they can be tested immediately. No one has to hypothesize or guess what working with Amazon.com’s fulfillment system is like. You can sign up and login in 1/2 hour from now. Savvy shippers will say…
“Leave the sales rep at home, let us test the system with our own people at our own pace, and will get back to you.”
Getting Creative
The first order of business is to begin asking how new uses of technologies can be rolled out to improve the transparency of the supply chain. One of the biggest ones is how a universal monitoring system can be built to stitch together different supply chain partners. SAP has a product called Event Management that attempts to do this and has the concept right, but SAP is tough to put in and is cost prohibitive (not the software, the implementation which is a bear) for many companies. They also are lacking the web centric concept. You can read more about this web centric topic here.
http://supplychaininnovation.wordpress.com/2009/05/29/web-enable-supply-chain/
Web enablement is one area that needs to be worked on, but there are many others.
We have our own favorite technology question that should be answered….
Why Isn’t GPS Used More for Pallet Tracking?
GPS can be used for far more than vehicle tracking, and there are many units that are cost effective, very small, and can transmit the location of any item at the frequency of the configurator’s choosing. So the question is — why aren’t these used more to support event management.
To read more about the GPS technologies for supply chain, see this post.
http://gpsforsupplychain.wordpress.com/2009/05/26/gps-for-supply-chain/
To read more about event management and the problem it is attempting to solve, see this post.
Addendum
In the banking industry, outsourcing has been used to simply reduce standards and avoid responsibility. Industries that cannot force tax-payers to pay for their mistakes, should think twice before engaging in non-innovative outsourcing.
Non-innovative outsourcing has not only been a problem for 3PLs, but for a number of industries. Banks essentially got tired of managing mortgages, and outsourced mortgage servicing to specialized companies. The calamity of outsourcing the holding of mortgages (selling mortgages to Wall Street) has been well documented. However, less well understood is how outsourcing mortgage servicing has greatly degraded standards in the industry.
“Automation and outsourcing followed this consolidation, allowing the mega-servicers to process huge numbers of loans without increasing costs. Like the brokers originating the loans, they shoved as many mortgages as possible through their software programs. They outsourced everything from tax processing to call centers. They hired low-skilled workers to do what amounted to data entry, then overburdened them and skimped on training. And it all worked brilliantly. “In good times, the servicing business has been profitable,” a Federal Reserve Board working paper on the industry bluntly concluded last year.” – http://www.thenation.com/doc/20090518/wright/2
Reference
http://counterecon.com/2009/01/12/why-didnt-anyone-want-to-hold-mortgages/
