What This Article Covers

• Why outsourced supply chain planning? 
• Why large and influential companies with loads of marketing muscle, industry connection, and compliant media (like eWeek) had problems selling this service.
• Why is outsourced supply chain planning a valid concept?
• What are some of the important criteria which an outsourced supply chain planning company must be good at doing?

Background

In a previous article I described the fact that IBM, i2 and Accenture failed at creating outsourced supply chain planning and why it would be difficult for these companies to ever have been successful at this offering. A few of these reasons are:

1. For vendors like IBM and i2, providing outsourced supply chain planning would have meant a battle between the outsourcing group and the software product management / sales group, with sales wanting to control the solution architecture, substituting experimental or weak products into the mix.
2. For large consulting companies like Accenture, the compensation for outsourced supply chain planning would not be anywhere close to what they receive from their overpriced IT implementations. Therefore the concept would meet resistance from the consulting partners. Plus, Accenture / Deloitte / IBM etc… always have the benefit of being able to blame the client for their implementation failures. However if they had to “operate” something for which they would be held responsible, they would not have such an easy out. Certainly some in these companies know is not their business model. The major consulting companies repeatedly leave their clients with barely functional planning implementations, and happily move on to the next company. I know this because I often come in after the fact to see their handiwork, but this information also becomes available for cases where the major consulting companies are sued. Analyzing these cases provides a treasure trove of information that is public information. For every company that does sue, many more would like to sue, but litigating means publicly admitting failure in vendor management. This is because the management is culpable. This typically only happens when the implementation is catastrophic, such as with Marin Country when they could not process payroll because of defective work performed by Deloitte.
3. Neither IBM nor any of the vendors are expert in actually performing planning. They are expert at either creating software (i2 was, but IBM buys its software) or performing “consulting,” which is not the same thing as actually planning. However, this would have been a less restrictive than the first two items on the list. IBM did such a “great job” at planning, that their PC division was losing money when they sold it to Lenovo. IBM wants to be in the position of providing advice, not actually “doing.”

Is Outsourced Supply Chain Planning a Valid Concept? 

The concept of outsourced supply chain planning is sound. This is for the following reasons:

1. Most companies are overwhelmed with the capabilities in supply chain planning applications and are not able to consistently get the desired functionality to work properly. If companies that had installed planning applications (particularly the planning products from the major vendors) were audited to determine how much actual functionality they had operational, the overall results would be highly embarrassing for both the implementing companies and SAP, Oracle and IBM. As a matter of fact, many IT departments spend a good deal of time explaining why bad results in both planning and analytics are “acceptable” and why the business should lower their expectations, even for relatively basic planning and analytic tasks. This brings up the increasingly concerning topic of how the major vendors remotely control IT departments.
2. Most companies do a job of poor software selection, and end up buying non-best of breed vendors. However, a major brand makes the IT department happy and they receive some illusory integration benefit (See the problems with SAP’s CIF for how much of an illusion this ends up being.). The business then ends up with weak functionality and high maintenance solution and later blamed for not taking to the application.
3. Large consulting companies generally do a poor-to-incompetent job implementing planning software. Increasingly the large consulting companies specialize in staffing technical resources with no real practical planning knowledge. They simply assume that assumptions made by large vendors (who themselves lack the deep planning expertise of the best of breed vendors), is true and correct. If I made a list of the ridiculous things that have been said to me by Deloitte/IBM/Accenture consultants on the topic of planning, it would be its own article.
4. The duration of planning implementations if generally known would be unacceptable to most companies. It is also greatly under reported. The reported duration is when the application is “live.” However, it can be many months to years after the official go-live before the solution is tuned and working acceptably, which is what I refer to as fake go lives. They are very common with SAP APO, but are also found with other applications. However, a major reason for this is that such complex software is selected. This means that even the low-level of functionality that is accessed by the companies takes a long time to come online, and after the large consulting companies departs the client, there is typically very little solution socialization, and the company’s planners have typically not been properly educated as to how to run the application. The consulting company then typically blames this on the users themselves. The users were simply not ready for change. SAP has developed a response tailored for the executives at their clients that any users who do not quickly uptake a system are at fault as  SAP software contains all best practices that exist. This is a ridiculous proposal even without knowing the software, made even more ridiculous the more experience one has in SAP’s products.
5. Exceedingly few companies perform scientific testing or even document the results of their simulation. Most simply are unaware that his is necessary and don’t want to put in the necessary effort. They want the results of better planning, but do not want to allocate the time and training to enable them to perform the testing they need to make planning system improvements. Therefore, their solutions tend not to improve over time. With outsourced planning, they don’t have to.
6. Exceedingly few companies know how to run a content management system which can properly archive testing / simulation results. Most are using Microsoft SharePoint. The content management skills inside of the major consulting companies is no better.
7. Many smaller companies would like to access better planning capabilities, but don’t have the money to be hired and be ripped off by large vendors and large consulting companies. In fact they may not be able to afford a traditional implementation even if they were to somehow find a good smaller consulting company. They also don’t have the funding to support continual upgrades, troubleshooting, etc.. Some smaller companies that have implemented planning software often find they don’t have the stomach to continually maintain the system, and the system generally falls into disrepair, with the planners increasingly relying upon spreadsheets. These are perfect candidates to have their planning outsourced.

Questions? 

Do you have any questions about the article? How about counterpoints? If so, please comment below. 

What This Article Covers

• A bit about the history of the term 4PL
• Other types of Supply Chain Outsourcing
• A review of a ridiculous article by eWeek where eWeek allows IBM to use it as a marketing outlet.

Background

In comments on this blog, I have been asked to provide an example of a 4PL. I usually say I can’t come up with a real company because every company which adopts the phrase 4PL has assets. This has forced me to bring up companies like Amazon, however, real 4PL does not have any assets, and Amazon runs warehouses. A true 4PL must be non-asset based. Some transportation entities such as freight brokers don’t have any assets, but they don’t do anything except a very narrow function, so they do not qualify. A 4PL is supposed to act as a shipper’s outsourced supply chain department, but they would work for multiple shippers, gaining some economies of scale in this activity. 4PL brings up the topic of outsourcing related not only to shipping, but to other types of coordination and analysis such as supply chain planning. If a 4PL were more extensively manage are some budding examples of companies that take all of the shipping coordination responsibilities. However, while that is where 3PLs concentrate, there is no reason to limit the discussions of 4PL to only shipping. Other areas of supply chain management can also be managed, and if the entity does not have assets, then they would be considered a 4PL. If we analyze the term 4PL, it was really simply a concept developed in a paper by Accenture, probably as a way of being considered thought leaders (which they are not, but they came up with a good idea here). In fact, the 4PL concept was developed as part of a concerted marketing effort on the part of Accenture (Accenture never releases any white paper or “research” that is not directed towards selling something) to raise awareness of a new market they wanted to get into, which was outsourced supply chain planning. This was back in 2005, and several companies had the same idea, including IBM. Some of IBM’s quotes from an article in eWeek are listed below.

However, some quotes are listed below:

Competing against consulting giant Accenture as well as some smaller players, IBMs new SCM (supply-chain management) outsourcing business unit will be part of its Business Process Transformation arm, said Bill Ciemny, who will lead the SCM unit.

I am not sure what Bill Ciemny is doing now, but it’s not leading supply chain planning outsourcing. There was no competing against Accenture or smaller players, because none of the consulting companies ever did this, at least up to this point, which is 7 years later.

Targeting a “supply-chain transformation services” market estimated by IBM at $23.5 billion, the new unit will bring together IBMs existing 8,500 supply-chain consultants with another 15,000 IBM employees who have worked on building IBMs own internal supply chain.

IBM had already sold its PC division to Lenovo in 2004 because they were losing money in it, so it’s not clear if this service was an attempt to reposition these employees to managing other company’s supply chains.

“We traditionally go in and talk to customers about what [supply chain] strategies are available to them. Now, well [also] be able to actually take over [supply chain] business processes and optimize and run them for customers,” Ciemny said in an interview with Ziff Davis Internet.

IBM primarily rips off companies with overpriced IT implementations and over charging for inexpensive resources (many of them on recent H1-B visa applications), attempting to take over their IT strategy to maximize the number of IBM products that the client buys. IBM consultants specializing in implementing overpriced and poorly selected applications that maximize the revenues of IBM. IBM consultants are highly mind controlled into thinking that whatever applications they are working in are the best. IBM consultants could not develop a cost effective, best of breed supply chain planning solution design if their life depended on it, and even if they could, no partner would allow such a cost effective combination of applications to be used, as its not profit maximizing to IBM.

It’s hard to see how anyone would have then, or now want IBM to manage their supply chain. IBM actually has few people knowledgeable in supply chain and primarily employs IT consultants how have a very hard time understanding business requirements. This has led to what I have dubbed the IBM implementation methodology. The quote continues with Bill Ceimny laying out the future, and apparently the world is IBM’s oyster. Anything IBM wants to do, clients will be accepting of, and in fact doing back flips over. Of course every aspects of IBM’s plan will be brilliantly executed with all employees acting as “one big team.”

“Some customers might want to start out with just consulting,” Ciemny said. In terms of verticals, IBM is initially eyeing electronics and high-tech; government; and the consumer products and retail distribution sectors. “But over time, well broaden out from there.”

Looks like companies just wanted to start and stop at IBM’s consulting services. Bill Ciemny seems to have been wrong on that one.

Aside from Accenture, she said, IBM faces rivalry from companies such as Prescient Systems, Chainalytics and i2, which recently started its own services program.

No they didn’t. Again none of these companies successfully created outsourced supply chain planning businesses. I worked at i2 myself, and I can say, I would never have wanted i2 to manage my supply chain planning. i2, like many software companies is all about selling software. They would have a major conflict of interest in managing outsourced planning because the product management would want to push more and more products into use, in order to list them as a reference account on future traditional software sales.

“But [another] clear differentiator for us is the ability to leverage the 15,000 people in our [internal] integrated supply chain. Weve hardened these assets, and we’ve eaten our own cooking,” Ciemny said.

IBM’s was not known as having a particularly good supply chain. They had a large number of people in supply chain prior to selling Lenovo, however IBM seems to be quite fixated on quoting numbers, and confusing that number with being good. I don’t know what “hardening assets,” means, so I looked it up, an it is related to increasing the security of hardware or software. So according to Bill Ciemny, who is talking about the 15,000 people, these people have been hardened? So there has been increased security applied to the people what work in IBM supply chain? Why? Its quite possible there is some marketing hyperbole at work here. Maybe the eWeek journalist should have asked Bill what he was talking about.

It’s important to note that none of these quotes became a reality. Neither IBM nor Accenture nor i2 ever developed outsourced supply chain planning services.

Conclusion

In this eWeek article, they allowed themselves to be used as basically a press release machine for IBM. eWeek uncritically allowed Bill Ciemny to essentially tell/sell a story about how IBM was going to do this or that, which never happened. eWeek could have analyzed the institutional structure of IBM to evaluate if they were actually a good candidate to offer this service. Again, IBM would have had the same problem as i2, in that there would have been an enormous conflict between the product division and the outsourcing division on which one of IBM’s applications to use. The solution would have had to have used 100% IBM products, greatly limiting the solution that IBM could have provided as they lack many pieces of a complete planning suite, and all of IBMs products fall into disrepair after their initial acquisition (IBM can’t develop software in-house anymore but buys established vendors, but use monopoly profits to buy innovation.) This is why companies like IBM have no incentive to innovate.

The point is that neither software vendors nor consulting companies are good candidates to provide outsourced supply chain planning services. IBM decreases a company’s capabilities by overcharging them for IT implementations and providing them with the wrong solutions. That can be afforded by a large company which puts of strong profits. However, if IBM were to take over operations for a company, that company would have serious problems due to reasons listed above. IBM is simply not a trustworthy company.

The article is so one-sided, it brings up the question of whether eWeek wrote a puff piece in order to cozy up to an advertiser. The style of the eWeek article is concerning, because it simple seems to assume that statements made by sales personel from IBM will take place. The lack of critical thinking applied by eWeek is reminiscent of an old CIO article on forecasting at Nike, and makes one wonder about advertiser independence. If you are a large company, outlets where you buy advertising sure seem to be willing to publish insubstantial quotes on your behalf.

References 

http://www.eweek.com/c/a/IT-Management/IBM-to-Offer-Outsourcing-of-SupplyChain-Management/

http://www.engadget.com/2005/01/01/why-ibm-sold-its-pc-business-to-lenovo/

What This Article Covers

• A bit about the history of the term 4PL
• The development of outsourced shipping with Amazon and Lightning Source

Background

Since the term 4PL was developed, it has been adopted as a term by 3PLs, (also a misnomer as most 3PLs are nothing more than transportation  companies with a lot of marketing and repeated use of fancy terms like 3PL or 4PL).

Looking Outside of the Logistics Industry for 4PLs

If we look outside the traditional supply chain companies, there are some companies that take things like fulfillment off of a company’s hands. Publishers very rarely print their own books, so in fact even the largest publishers outsource everything after the electronic manuscript, and cover are complete. Just a few printers print books for the entire publishing industry. Lightning Source, which we will discuss, is simply a specialized arm of Ingram Books, the largest book distributor in the world.

Some small publishers sell through Amazon have fulfillment performed by Amazon. In some cases, Amazon has the publisher keep copies at an Amazon warehouse which can be stocked by a printer like Lightning Source. In other cases, Amazon’s keeps no stock on hand, but their shipping and ordering system is integrated with a Lightning Source which has the ability to print one book at a time, so called Print on Demand (POD). Lightning Source then publishes the book only when an order is received from Amazon.  I quote from Lightning Source’s website below.

Using the distribution strength of our parent company, Ingram Book Company, your book always appears in stock and available to all Ingram customers. With over 30,000 wholesalers, retailers and booksellers in over 100 countries your titles will gain the maximum exposure in the market today. With print to order, your book is printed and ready for shipment in 12 hours or less.

This is of couse build to order, but the build to order lead-time is so short that it is close to emulating build to stock, the ultimate goal of any manufacturing company. With build to order, a tremendous amount of waste is reduced. In essence Lightning Source is practicing “Lean” principles, however they did it the right way by adjusting their manufacturing process to support zero finished goods inventory (they of course have raw material inventory, but that raw material can make thousands of different books). This is opposed to how Lean is often rolled out, where all the constraints stay the same, but inventory is simply reduced.

Why Did This Approach Develop for Books?

These types of services are pretty recent developments and not coincidentally they tend to be more common in easy to ship items, such as books, DVDs, etc, and items which can be converted to extremely short and highly automated production runs. This would not be possible without technology developments in printing production and the ability to use websites for interaction rather than person to person interaction. Websites allow companies like Amazon and Lightening Source to service small accounts with very little use of labor, as the setup work is performed by the customer themselves. Books and DVDs have the added benefit of having a wide variety, Lightning Source can serve as a single point of manufacturing and sourcing. This allows them to service a large number of customers from a very limited manufacturing processes. Of course not all products are like this, and that should be considered before Deloitte or Booze Allen Hamilton write some nonsensical white paper about how this is the “future.” However, the web capabilities that are on display by Amazon, none of companies that work in traditional supply chain management have come close to replicating. This, and the ability to execute, is why Amazon, and companies that have taken their lead from Amazon like Lightning Source have a potential to expand into the management of supply chain activities in other areas as well. Interestingly, two of the most innovative companies in supply chain, Amazon and Netflix are not generally associated with supply chain. However, their supply chain savy supports their excellent web presence. One does not exist without the other.

How Book Fulfillment Has Changed

At one time book publishing was a very wasteful area of production and distribution. Because production runs were long, a new book meant considerable risk, and this mean that publishers were more of a gatekeeper for what would be published. Books were sold through bookstores, which meant a commitment of inventory, which increased the risk and costs of each book. This risk meant that publishers had a strong incentive to publish conventional books from established authors which they could rely upon a high probability of sales. This also meant the the titles that were published were much more limited than what we have today. Also, even taking the safe route, publishing companies invariably had forecast error, and very large number of books were destroyed, and in fact are still destroyed in areas such as textbook publishing which still uses long production runs. This is a cost that is built into the price of all books.

The first change was the arrival of very large bookstores like Barnes & Noble and Borders, which carried may more titles than bookstores like B.Dalton’s (purveyor of a large number of copies of Garfield books, a store which once had close to 800 stores, but close completely in 2010). This greatly enlarged the pallet of readers who were previously used to much less selection. However, while Barnes & Noble and Borders were dominant for a while, Borders which at one time had close to 600 stores, has closed all of their stores, which is a testament to the power of electronic books and to Amazon.com. Electronic books are not only superior in terms of the user experience (highlighting, searching, portability, cost) but in the massive reduction that they mean to the supply chain. Electronic books are simply a much lower risk proposition than paper books because they cost so much less to produce. Of course, the entire book industry is not electronic….not yet.

Now paper books are a lower risk proposition and the overall industry is much less wasteful. Introducing a new book is much less risk than before, and this means more selection for consumers. Publishers are still powerful, but are losing their control of what is published. Publishers always took too much of the revenues in the book market (most often giving only around 12% to the authors) as did book retailers (often taking 1/2 the price of the book). Because of technology, the book market has simply gotten much more efficient, and the lower value added entities, like the book seller and publisher are going to have to shrink and reorganize themselves.

Conclusion

Amazon and Lightning Source together perform outsourced manufacturing and supply chain management for large and small publishers alike. In some important ways Amazon and Lighting Source meet the criteria of a 4PL, but in other important ways, as they own assets, they don’t technically meet the definition.

When I first began this blog, I focused on the illusive 4PL concept. The 4PL practice is based upon technology, creating technology platforms which improve the coordination of asset oriented logistics providers. I am still asked who are 4PL companies. I answer “no one.” There is no one who meets the actual criteria of 4PL. However, there are loads of 3PL providers. This is because 3PL requires little to no innovation and seems to be increasingly based upon labor exploitation. 3PL is a growing industry, but its clear now that very few people that work in 3PL do well economically. This is brought home is several articles that describe were recently published. I have listed quotes from these articles below:

Since June, I’ve been ruining my friends’ online-shopping lives. Back then, I reported on a vast warehouse in Ohio where goods bought from online retailers are sorted, boxed, and shipped to consumers. Unsurprisingly, this job does not pay well. A little more surprisingly, this job seems designed to crush employees’ spirits. During my visit, two people got fired within 10 minutes, one for talking to someone while he was working—”Where are you from?” was the offending comment—and one for going to the bathroom too much. - Mac McClellan, Mother Jones

Other retailers directly perpetrate the oppression. Amazon.com made headlines earlier this year when 20 current and former employees of its Breinigville, Pennsylvania, warehouse told the local Morning Call that workers were fainting in stifling heat and getting yelled at for not meeting ridiculously high productivity goals and generally being “treated like a piece of crap.” Employees who were sent home with heat exhaustion were disciplined; a local ER doc eventually called OSHA and reported “an unsafe environment.” - Mac McClellan, Mother Jones

That way, workers can’t unionize or be legally entitled to decent benefits. That way, the online retailer can give them outlandish productivity goals, like hundreds of orders and thousands of items per day apiece—and when workers burn out, just replace them with the next temp, who can join the rest of the ranks living in fear that they won’t make their numbers and might be incessantly berated for it, or simply fired. Even if you meet the outlandish goals, don’t necessarily expect to be rewarded by say, a real job. As with so many in the industry, the warehouse in Ohio are mostly “temps”—even though some of them have been working in the same place for more than a year.- Mac McClellan, Mother Jones

This is a constant issue, that the workers simply have no recourse.

But many bottom-rung workers like Dickerson don’t work for the big corporations whose products are in the warehouses, or even the logistics companies that run them. They go to work for labor agencies that supply workers like Dickerson. Last year, she found work as a temp through one of the myriad staffing agencies that serve big-box retailers and their contractors. Thanks largely to the warehousing boom, Will County has developed one of the highest concentrations of temp agencies in the Midwest. - David Jamison, Huffington Post

For a while, Dickerson worked according to “piece rate” — she was paid not by the hour but by the trailer — a stressful pay scheme meant to encourage her and her colleagues to work faster and faster, and one that the labor movement worked hard to abolish in many industries in the 20th century. Each paycheck was different than the last, and most of them were disappointingly low, she says. In her year at the warehouse, Dickerson says she never had health benefits, sick days or vacation days. If she didn’t unload containers, she didn’t get paid. – David Jamison, Huffington Post

Earlier this year, temporary workers at a Pennsylvania plant packing Hershey products staged a mass walkout over what they described as abusive working conditions. The workers, who were students from Asia and Eastern Europe here on J-1 guest visas for the summer, said they were required to lift 50-pound boxes throughout the day and were threatened with deportation if they couldn’t keep up. - David Jamison, Huffington Post

As manufacturing jobs continue to head overseas, Americans need new sectors that can provide good, middle-class work for millions of people. Driven as it is by the consumer economy, the retail supply chain should be one of those sectors. But plenty of workers who are lucky enough to have jobs in the industry find themselves earning poverty wages. - David Jamison, Huffington Post

Despite the economic downturn, the Inland Empire is still in the midst of a long-term warehousing boom. Some of the first arrived in the 1990s, when retailers and developers took notice of the area’s relatively affordable land and lax regulatory atmosphere. Walmart, Target, Home Depot, and Lowe’s all picked up warehouse space in the area. They continue to sprout up today, creeping further eastward, some of them with footprints covering more than a million square feet. - David Jamison, Huffington Post

John Husing says they have. An economist who’s consulted to local governments dealing with the logistics industry, Husing says, “for blue collar workers, the decline in manufacturing shut off their access through that sector to the middle class. In Southern California in particular, logistics has become an alternative to get to the same place.” – David Jamison, Huffington Post

No doubt John Husing makes a good living consulting to the logistics industry and is therefore going to be a big booster for it, no matter how badly people are treated. However, it is very easy to bu people’s opinions. One wonders how John Husing would feel about his daughter working one of these jobs.

Others are less boosterish, including Juan De Lara, an assistant professor at the University of Southern California who’s studied the logistics industry in the region. “It’s been good to many workers who get paid decent wages for higher-skilled jobs as direct employees,” says De Lara. “But it’s also been pretty terrible for the workers that work for these temporary agencies.” - David Jamison, Huffington Post

(Husing dismisses the group’s numbers: “The people who throw that stuff around are ideologues. They don’t want that sector to survive because they consider it to be dirty.”) – David Jamison, Huffington Post

There is no question whether the “industry” will survive. Things have to be moved. The question is the terms and conditions under which they will be moved. Obviously, Husing is not particularly principled about bringing forward false arguments. Its also interesting that Husing considers those who have numbers that are different than his to be “ideologues.” Husing is himself paid off to polish up the reputation of the industry. One could easily question his objectivity.

The workers claim it was never made clear how their pay was supposed to break down — an allegation apparently bolstered by the state’s investigation. They claim that when they complained about their confusing paychecks, their supervisors responded by sending them home without pay or refusing to give them work the following day. The lumpers were working on a temp basis. According to the lawsuit, the majority of workers were direct hires as recently as 2006; now, three out of every four workers are temps. – David Jamison, Huffington Post

“There was a lot of fanfare about goods movement being the economic engine of the future,” says Newman. “We’ve discovered that these are not the kinds of jobs anyone should have under the conditions they’re facing. … They’re temp jobs and they’re low-paying and the conditions are bad.”

“The money is made by others,” Newman says. – David Jamison, Huffington Post

This is one of the problems with focusing on job creation only. These are not only dead end jobs, they are “no end jobs,” because they are unsustainable. They eventually lead to burned out and broken individuals who more likely than not will end up on some type of government assistance. That is other people will have to pay for them to work these jobs as these jobs to not pay enough in taxes to cover when the individuals go on long term disability.

The quality and sustainability of jobs is important. The need for federal labor laws is that without them employers will create unsustainable jobs and even jobs that eventually leave the worker either incapacitated or at a much lower capacity. Opening up a sweatshop brings jobs to an area, but not the type of jobs needed and jobs that enrich the employer at the expense of the workers. This is the excuse often offered by multinationals that open terrible sweatshops in the third world that “it is better than nothing.” It is a highly self centered argument. One important issue in considering wage levels is what the employer can affort to pay, which turns out to be quite a bit actually. They could easily affort to pay many times more than they do as the quote below attests:

“Despite the fact that these workers are paid poverty-level wages, we estimate that about a trillion dollars comes through Chicago on an annual basis,” says Meinster. “That’s about $6 million per warehouse worker. Each worker is responsible for moving $6 million worth of goods through that supply chain. These are the workers who, collectively, if they don’t show up for a day, these companies would stand to lose a lot of money. - David Jamison, Huffington Post

$6 million processes per worker annually? And they worker only receives poverty wages? How is that right?

These quotes should make clear, these distribution centers are sweat shops which violate numerous labor laws. These violations are a disgrace and are not the standards of a first world country.

Statistical Implications

The fact that so many people that work in 3PL are temps (but working full time) mean that it is very hard to obtain accurate compensation or tenure statistics on the industry. The industry enjoys this because it makes the industry look more sustainable than it actually is.

The Joy of Degrading Workers

The constant drive to eliminate worker benefits is unrelenting. I can recall working as a consultant for Sears in the late 1990s. Even back then, Sears was a serious dated store that had run out of ideas probably a few decades earlier. I worked out of a retail group in KPMG. We worked on a store efficiency improvement project. The final presentation was in Sears HQ in Schaumburg, IL. We showed time studies (I say “we” but I was a new consultant at the time and mostly responsible for maintaining the calculations we performed, not the overall recommendations — however, KPMG routinely recommended these types of things. ), but the real kicker was when we recommended a way for cutting employee costs, mostly by performing some tricks to screw over people that were folding clothes and maintaining the store. I thought the Sears executives were going to start performing back-flips they were so happy. Sears, the store without ideas, had executives that began to lather up when thinking about cutting worker benefits. The Sears executives were not only happy making great money, they received a special satisfaction in lower the standards of living their workers. Now people that fold clothes often work two 20 hours shifts at different stores in the same mall. This is to eliminate the Federal requirement of Sears and other retailers to pay benefits that are required with a full time job. This was well known by anyone that worked in retail, and the Department of Labor did nothing about it.

Who are Involved?

All the major names, Schneider Logistics, Ryder, etc.. All use temp agencies to perform work in their warehouses. Their shiny websites with pictures of computers and transportation equipment go hand in hand with labor abuses in their warehouse facilities, labor abuses for which they are not technically responsible, for as they say, the subcontractor is responsible for the treatment of their temps, not Schneider Logistics. This is why the temp agencies are so important, to act as a legal buffer against any responsibility.

In one case, Williams discovered that there were four companies separating Walmart from the workers who were handling Walmart goods at the warehouse.

“I believe Walmart is experimenting,” Williams says. Of the area’s warehouses generally, he adds, “You’ll see temp agencies that supervise temp agencies that deal with temp agencies. It just adds another level of distance.” – David Jamison, Huffington Post

This is of course of the most important features of this con game, that the actual employer is isolated from the temp agency, which is itself a disposable shell. A temp agency has no real assets and if sued, can easily shut down operations and start again anew.

That’s one of the many benefits to an employment arrangement based on outsourcing and subcontracting: The corporation at the top indemnifies itself from any unpleasantness at the bottom, thanks to the smaller corporate players in the middle. Many American companies have woken up to this fact, with broad implications for the future of blue-collar work. - David Jamison, Huffington Post

Schneider and Ryder, etc.. point to the demands of retailers like Wal Mart that demand lower distribution costs every year, or else the business goes to another 3PL. The 3PLs claim no responsibility, that they are just part of the system. However, 3PLs and the major retailers fight changes to the system such as providing more funding for enforcing labor regulations. Regulation sets the constraints on the system. Business does not simply passively operate within a system but seeks to shape it and control it. Secondly, many of their activities such as requiring unsafe work activities and hiring illegal aliens is already illegal, but since there is little enforcement the 3PLs enjoy taking advantage of this. If the temp agencies underpay the temps, its not Schneider or Wal-Mart’s problem.

Conclusion

For those reading this article who are surprised by its tone, I can understand. Its important to have a steady diet of articles which are slavish to the large companies that we work with. Luckily, there are plenty of those, like the one below…

http://www.supplychaindigital.com/outsourcing/top-10-reasons-to-outsource

Publications like this simple take the company’s view on the benefits of outsourcing. However, there is a worker’s side to the equation as well. My understanding of the US system and the first world system in general is that things are not simply done that benefit companies, that we value the workers as well. However, if you want some companies to advertize in your magazine, you never bring up the other side of outsourcing.

I know for some questioning what these companies are doing, how they are undermining labor standards and breaking labor laws (its an interesting question, if a corporation breaks a law, was a law actually broken?) is a real downer. Its also not something that will make one popular at 3PL conferences. However, at some point it should be discussed that 3PLs are part of a process which is degrading the standards of living of hard working people. 3PLs are low grade operations, and the industry is quite a distance from how it thinks of itself. Its hard to look away from what 3PL has come to mean.

Post Script

There are great comments at the Huffington Post artice which provide even more context.

References

http://motherjones.com/politics/2011/12/slave-elves-online-shipping

http://www.huffingtonpost.com/2011/12/20/new-blue-collar-temp-warehouses_n_1158490.html

What This Article is About

• What is the relationship between 4Pls and service parts?
• Why are they a natural fit for one another?
• How common are 4PL’s for service parts in reality?

Why 4PL?

A fourth party logistics providers is a company that holds no physical logistics assets, but coordinates the supply chain though its access to monitoring data and IT. You can read more about this intermediary structure here.

4PLs apply for both finished goods and service parts, however, in this post we will focus on 4PLs for service parts.

4PL for Service Parts

This is a very natural combination for the following reasons:

• Service parts are often held at locations that are owned by different firms that do not pool inventory
• Large companies do a very poor job at implementing service parts systems. This is a bit of a conundrum in the industry and has to do, at least partially, with the fact that service organizations are very under-emphasized by corporations. This means they are lower on the priority list and get far less investment than the finished goods side of the business.
• While big companies generally lack the motivation, the small companies in the service chain – the dealers, lack a web-centric focus, and are too small to develop integrated service based IT systems
• Finished goods forecasting and inventory systems do not work very well for service parts because their forecasting is different, and because service parts systems must habitually reposition inventory to reduce obsolescence.

Because of these factors, service parts IT spending and capability greatly lags the investments made in the finished goods parts of corporations. Because so many companies are generally disinterested in investing in service parts, the net result is that service parts habitually suffers from poor supply chain management. However, what this means, is that the market offers a very good opportunity for 4PLs.

Given the opportunity, one would think 4PLs would have already set their sights on this market. Not so. Performing a search for fourth party logistics providers and service or spare parts brings few results. We found remarkably little published and remarkably little focus on the part of companies attempting to build this market. So whatever the opportunity, it is not anything close to an industry trend as of yet.

It seems pretty obvious that 4PLs and service parts go together, however, a search on Google for “service parts” and “fourth party logistics providers” brings up our blog on 4PLs for the first 4 results. Many of the other results below don’t really cover the issue and are false matches. Why aren’t more companies focused on this?

In the article on auto service parts networks, we describe the problems that plague these networks, and discuss how these networks could be made more efficient. A software vendor saw our article and contacted us to talk about it. After we spoke with John Snow at Enigma (a software firm focused on service part content management and decision support), we learned that he also came up with a similar concept years ago. We have since adopted Enigma’s term which is the “Part Hub” to describe this network design where inventory from non-associated dealers is pooled and co-managed. We won’t go into the description and design in this post, because it is fully explained in the link below.

There is a continuum on which possible solutions for 4PLs focusing on service parts networks would rest.

For instance on one extreme would be a SAP SCM solution combining Service Parts Planning (SPP) + Event Management (EM) + a web front end. However, while a favorite of big companies, we think this solution would be a bit expensive, complex and overall too “heavy” for a small nimble 4PL. On the other side of the continuum would be the Amazon.com solution. The process flow looks like this:

• Dealers would submit their inventory to Amazon by web, or flat file
• Orders are placed on the Amazon.com site and electronically forwarded to dealers
• The package is shipped by UPS or DHL or other and the vendor, taking advantage of Amazon.com’s interface to these carriers, and Amazon displays the transit progress through its website to end customers (as with any normal Amazon.com order).

However, this solution, which is available to use right now by any dealer network interested in doing so, simply by signing up to sell on Amazon.com, is missing some desired functionality. How to Add What is Missing What is missing from the scenario above is forecasting and order management – which accounts for things like supersession / interchangeability. For this, other systems would have to be incorporated that would provide this. However, a 4PL could use the Amazon.com front end and tracking capability – which is free – with a forecasting package and order management decision support system.

The Intermediate Design

On Demand and Web Centric Throughout

Note to readers. A more updated version of this article will be kept here…

http://www.scmfocus.com/fourthpartylogistics/2010/02/7pl-is-a-deliberatey-false-concept/

What is 7PL?

7PL is a concept that combines the 3PLs with 4PLs to make what they refer to as 7PLs. The advantages of this concept are the following:

One service provider can now provide a client with both 3PL and 4PL services with a complete 7PL solution to clients and can undertake turnkey projects for its clients where all services and activities are provided for under one roof. - http://www.chillibreeze.com/articles/logistics-management.asp

The Failure of 3PLs

There is a major problem with this concept, it simply co-opts the concept of 4PL, which was originally envisioned to intermediate between different 3PLs and different carriers, and places it back with the 3PL. This entirely negates the concept of an asset independent 4PL before the idea has even had a chance in the market.

And what can customers expect from this “new” concept. Clearly, nothing more than they were getting from their 3PL.

Its important to understand the history of the 3PL market. 3PLs promised shippers that they were going to receive all types of benefits through having 3PLs manage their freight and in many cases their warehouses. The 3PLs were going to invest in all types of information technology that would keep their shippers up to date. What did shippers actually get? They got a glorified carrier or low cost outsource shipping department. Many more 3PL arrangements were motivated by reducing the headcount at the shipper than any 3PL would like to admit. 3PLs dropped the ball on their information systems implementation, on their integration with carriers and on their ability to provide “a seamlessly integrated freight network.”

Currently, the only 3PL that even meets the original definition of a 3PL is UPS. For this reason it makes sense for the 3PL concept to go away and be replaced by something else. By doing this its important to properly interpret what undercut the 3PL concept. My view is that 3PLs were really just a marketing term that carriers and outsourced warehouses used to increase the cache of their services. They simply were not interested in building the information system platforms to ever be true 3PLs, and they were unable to interoperate with other carriers and warehousing firms because the industry is overly focused on getting freight to move through their proprietary network.

The Promise of 4PLs

4PLs have much more conceptual logic to them than 3PLs as non asset based firms, such as software firms do have the ability to build platforms and do have the ability work with various carriers and warehouses in order to stitch together integrated supply chains. However, I doubt it will be consulting companies that will ever be competent in this market, and this was an original idea why Accenture introduced the concept. Generally, Accenture can barely implement large systems at clients, much less build a platform and take the entrepreneurial leap to create this market. (Accenture does not do much of anything but grow fat off of large IT projects and rich off of low cost offshore labor.) 4PL is a good idea, but Accenture will never have anything to do with it.

What is the 7PL Concept

The 7PL concept is not a real concept at all, but simply propaganda disseminated by 3PLs that think they are best positioned to build virtual supply networks. The problem is that they are not, and they have had ample opportunity to prove themselves, and have failed to make a go of the 3PL concept. 3PLs have been hostile to the concept of 3PLs from the beginning. However, creating a false concept is not the way to address the idea of the 4PL.

http://www.scmfocus.com/fourthpartylogistics/2009/08/a-good-reason-why-sap-scm-cant-penetrate-3pls/

SAP SCM has very few 3PLs as customers. Why is this? SAP SCM offers a modules which address:

• Transportation Planning and Vehicle Scheduling (TP/VS)
• Event Management (EM)
• Extended Warehouse Management (EWM)

One reason 3PLs do not select SCM no doubt has to do with its cost (both implementation and maintenance as well as software). However, another is that TP/VS lacks the ability to meet many 3PL requirements and was designed with shippers in mind. However, how difficult would it be for SAP to add functionality that would enable TP/VS for 3PL? As for EM and EWM, they can be used now for 3PLs.

Why Can’t SAP SCM Can Provide an Innovative and Applicable Solution for the 3PL and 4PL industry?

This solution could provide EM as a monitoring service for clients, and interact with a company’s SAP ERP solution. There are still many companies that have not implemented SAP SCM, and will not. A third party logistics company that implemented this solution design (when it is ready) would have a very significant advantage both in terms of the internal improvements offered through the modules. Additionally the ability to easily integrate with many of its shippers that use SAP to manage their supply chain could be a significant differentiator in the market.

http://www.scmfocus.com/fourthpartylogistics/2009/07/is-the-idea-of-consulting-based-4pls-believable/

Book on 4PL

We have recently been reading Fourth Party Logistics: The Future of Fourth Party Logistics: The Future of Supply Chain Outsourcing? by Serafettin Kutlu.

Serafettin sets up the scenario with the following:

1994 Andersen Consulting survey of 250 organizations in the UR round that two-thirds of respondents actually felt that their initial expectations of 3PLs were not being met. While many 3PL providers could deliver warehousing, transportation and fleet management services, few were able to cover the full range of supply chain requirements that included services such as logistics IT development and order processing. This shortfall in service means organization needs to assemble a combination of outsourced and in-house service components to manage its supply chain effectively.

Moreover, a 4PL vendor is free to find the best breed for each category. Large companies frequently hire consultants to review proposals from 3PLs, handle bids, select vendors, and align business processes with supply chain plans to put the best breed together, then the question becomes: Who needs to be in control of the supply chain, and who can manage it better.

4PL or RFP Development?

We think Serafettin is combining two different issues into one. One is that consulting companies help shippers develop RFPs for logistics services. The second issue is what a 4PL actually is. The definition that we adhere to is that a 4PL is an information integrator of both 3PLs and transportation and or warehouse companies. That they develop platforms to support this integration. Now creating RFPs might be a part of what 4PLs do, although we are not sure that is necessary, but it certainly should not be the majority of what they do. Serafettin’s approach is comingingly the two types of work, and in our mind papering over the limiting capabilities of consulting companies. Consulting companies make their money charging other companies to perform services. In systems this breaks into system implementation and outsourced management (things like data centers). There is a clear division between software companies and consulting companies, and for good reason. Consulting companies know how to place people on accounts and bill. That is the model all of the partners are used to. The partners are not used to, and not particularly interested in building anything. Good evidence of this is taken from the mediocre infrastructure of the major consulting companies. Even finding documents on their intranets is a challenge, and most of the software instances they do maintain (such as SAP training boxes) are typically held together on a shoestring. (again, investment is seen as cutting into partner comp).

Thus Serafettin’s statements regarding the inability of 3PLs to really integrate the supply chain rings true to us. At the end of the day, a 3PL is a glorified transportation and warehousing company. However, we disagree that consulting companies can fill this void.

On the final point, if you are a shipper, and you need to bring in help to put together RFPs, you need to hire more people. There are agency issues involved with having outside parties perform selection for you. I worked for a major consulting company and was approached by a company that wanted my firm to put together an RFP for an SAP SCM consulting project. The request was explicit, only help in developing the RFP. As soon as I communicated this back to my firm, I was called by 3 different partners at the firm, all of whom proposed that we get the client’s trust, pretend to put together the RFP, but then get them to drop the RFP and simply use our firm for the implementation. Another strategy the partners wanted to employ was to rig the criteria so we would win if the RFP was put out to bid. I seriously felt like taking a shower after several of these encounters. Thus, RFP capabitity must reside within the company that buying the service. Bringing in a person will be far less expensive than bringing in a consulting firm and will bring far fewer agency issues.

Looking for a Platform

Rather than looking to outsource the management of the outsourced logistics, why not search the internet looking for a firm that can provide you with a platform so that your company can empower itself . We will perform some searching ourselves and report back on what we find.

Note to readers. A more updated version of this article will be kept here…

http://www.scmfocus.com/fourthpartylogistics/2009/06/tendering-and-freight-marketplaces/

What Happened to the Technology Initiated Freight Revolution?

Lets take a walk down memory lane back to 1998-1999. i2 Technologies was the number one supply chain vendor and their management had seen fit to come out with a new concept based upon information sharing and the web called TradeMatrix. To explain all of what TradeMatrix was would take more than one article, however the basic concept was that i2 was going to create a number of marketplaces where supply chain information was to be exchanged, allowing a more integrated system of supply chain management to result. i2 introduced FreightMatrix, which was directed towards the transportation, warehousing and third party logistics areas of the supply chain. Of all the TradeMatrixes, FreightMatrix is one of the few to survive, and its website can be found at http://www.freightmatrix.com.

Brochureware

What you will notice about the site is although it talks a lot about advanced supply chain topics and software as a service, the site is nothing more than brochureware, and had no way to open an account or experience the service offering. Once you begin to look under the surface, it is simply a front end for i2′s legacy transportation management product called TM, along with probably a few other products that add minimal functionality. The problem with i2′s vision of TradeMatrix in general and FreightMatrix is they, as with all the major supply chain vendors, never really got the web. Their approach was to simply use the web to entice customers to sign on for the same old corporate software model. Anyone who doubts this, simply head over the Amazon.com and see how easy it is for anyone to open a fulfillment account and begin experiencing the Amazon servicing immediately. The entire implementation of these marketplaces was so ineptly done, with so many self styled ‘visionary” directors fighting with one another, that it seriously degraded i2′s position as a though leader — a position it had rightly earned for its previous work on factory and supply chain planning.

Tendering in SAP SCM

SAP’s TPVS – transportation planning and vehicle scheduling has functionality that supports freight tendering, however, it simply interacts individually with different carriers allowing them to respond, and is not a marketplace offering.

TPVS

To read more about TPVS see this post

http://www.scmfocus.com/sapplanning/2008/01/05/tpvs-transportation-planning-and-vehicle-scheduling/

The transportation tendering functionality is not broadly used, at least one reason being that setting up these one to one integrations is expensive and time-consuming. It is also discriminates against smaller transportation providers who may not be able to invest in the systems that the larger carriers can afford to due to their scale economies. This effectively reduces the choice of providers available to the transportation customer. This is part of a broader problem with enterprise software in that it does not allow for incremental pricing, so smaller users are priced out of the market. This is one of the reasons we beat the drum on this blog for vendors to release truly web enabled solutions that have incremental pricing.

The Need for Tendering Marketplaces

The need for marketplaces is real. However, instead of being implemented as a closed system as proposed by i2, the marketplaces need to be open and allow a variety of buyers and sellers to participate. FreightTender is one such company / site. Below the screenshot shows how easy it is to sign up. We created a dummy account ourselves.

It is easy to see the freight advertisements.

A Low Volume Solution

What became apparent immediately is how few listings there were. FreightTender’s website is easy to use and well done, so why the lack of volume? We also did a search for freight tending software, and did not find very many companies offering this software. So the question we have is “why not?” This is an obvious excellent use of information technology, yet the industry is not caught on to the idea.

For medium to higher volume shippers, MercuryGate is the leader in providing independent integrated TMS and freight tendering.

A Higher Volume Solution

A website that is not integrated into the tendering system may be effective for small freight volumes, but it not going to the efficient for large volumes. For this we contacted the leader in integrated freight management systems with freight tendering. This company is called MercuryGate. They sit at the crossroads of shippers, brokers and 3PLs, and their transportation management solution is already connected to their freight tendering system which has large number of transportation companies already integrated to the system. This allows a new customer to be brought up and integrated with the carrier systems in a just a few weeks from the initial request to add the shipper to the system. Moving to a system like this allows for far less manual intervention in the process of putting freight out to bid. This allows a tender to be sent to a very large number of carriers, and this is a move to process orders electronically. Furthermore, this adds transparency to the transportation system. Carriers have fought this because they think it will reduce their profits. However, transportation has been lacking transparency for decades, and still has very low margins, thus it can not be transparency that is causing the low margins. Furthermore, transparency, combined with metrics regarding transportation quality allows for shippers to compare carriers on a wide variety of characteristics, price is only one.

The Carrier Dedicated Solution

Another  way that carriers fit into this solution, a number of them offer integrated TMS and freight tendering systems that are branded and essentially sold as part of the transportation services relationship with a shipper. One example of these is Yellow Meridian IQ. However, Yellow is not a software company, so they essentially offer this service by taking  the software from a software company called Meridian IQ and branding it Yellow, and then only connecting it to the Yellow system.

The problems with this approach should be fairly obvious. If a shipper has multiple carriers, then they must login to multiple systems. Secondly, having a dedicated system to just one carrier, promotes using more of that carrier’s services simply as matter of convenience. This is moving against transparency and is obviously an attempt to locking a shipper to a particular carrier. Over the past several decades, the Sherman Anti Trust legislations, which the vast majority of Americans do not understand, have come  to no longer be enforced. Thus arrangements like this, as well as anti-competitive agreements in cellular service have also been allowed to flourish. Suffice to say, our view is that the TMS solution should be carrier independent, and we would not be particularly interested in having a dedicated carrier TMS-freight tendering system in our transportation department.

In addition to MeridianIQ, Yellow, as other carriers, have a nice rate searching, tracking, and many other shipment functions on their website. Below we have performed a search.

One the next page we receive the rate response.

However, while this is good for evaluating individual moves, clearly, an integrated TMS-freight tendering solution is desirable for serious transportation volumes.

Conclusion

10 years after FreightMatrix was introduced by i2, we still don’t have freight marketplaces, and we don’t even have large freight tendering websites. However, we do appear to have an integrated TMS to freight tendering system with MercuryGate that is proven and implemented at a number of companies. We also have anti-competitive carrier dedicated solutions that work against carrier transparency and attempt to lock shippers into sending more freight their way, without competing for this freight. We can’t help but feel progress should be increasing more rapidly in this field. It is especially disappointing when juxtaposed against mountain of marketing literature and executive predictions and promises that were promoted in that decade period.

http://www.scmfocus.com/fourthpartylogistics/2009/06/sap-design-for-3pl-and-4pl/

SAP SCM

The SAP SCM suite has a number of modules that provide functionality for advanced planning and execution. This suite has many installations in finished goods manufacturers. SAP has made a number of enhancements in the past several years which address the transportation, warehousing and supply chain monitoring areas of the suite that have been marketed to the traditional SAP SCM base (finished goods manufacturers). However, different areas of the suite can be installed at different companies, and very few if any companies install the entire suite. The transportation, warehousing and supply chain monitoring areas of the suite, while previously lagging the manufacturing and demand planning areas of the suite are now up to the point that they can be considered by at least 3PLs. (There are extremely few 4PLs currently) A combination of the following modules would be appropriate for a 3PL.

TPVS – Transportation Planning and Vehicle Scheduling

EWM – Extended Warehouse Management

EM – Event Management

Trade-Offs

SAP is expensive to implement and complex. However, it has the advantage of being consistent with the the software that many finished goods manufacturers have or are currently implementing. A 3PL that had a operational implementation of TPVS-EWM-EM, would be very attractive to companies which were running either SAP ERP, but especially the other modules of SAP SCM such as DP, SNP and GATP. This is because it would allow for easier integration (both technical and terminology and operating philosophy) between the finished goods manufacturer and 3PL systems.

To find out more about TPVS, EWM and EM see our articles below.

TPVS

http://sapplanning.wordpress.com/2008/01/05/tpvs-transportation-planning-and-vehicle-scheduling/

EMW

http://sapplanning.wordpress.com/2008/05/30/extended-warehouse-management/

EM

http://sapplanning.wordpress.com/2009/05/22/event-management/