Internet Enabled 4PL A Case Study

Padraic Allen

Two Trends Facing Supply Chain Managers Today

eCommerce – – the internet can offer the internet can offer true integration – the Cornerstone of true integration – the Cornerstone of Supply Chain ManagementSupply Chain Management

Outsourcing – organisations – organisations are are outsourcoutsourcinging non-core competencies non-core competencies

Manufacturer

Supplier Distributor Merchant

Partners with small IS staffs

Legacy systems

Incompatible information formatsNeed for real tim

e information

Security concerns

Cumbersome communicationsHigh costs

Too much stock

Outdated pricing

Long turn around time

Largesupport

staff

CustomerserviceIssues

The Supply Chain Challenge

eBusiness & Supply Chain Management

One area where the payback from e-Business can be substantial is in the integration of the supply chain

“The B2B Frenzy is all about the Supply Chain” AMR Research

Outsourcing

Listed by Harvard Business Review as one of the most important management concepts of the past 75 Years

Means of increasing performance of non-core supply chain activities

Fourth Party Logistics is the evolution of supply chain outsourcing

The key benefit of 4PL is that of increasing shareholder value

-Benefits of 4PL–

• 4PL provider maintains primary accountability and quality within the arrangement

• 4PL has the overarching responsibility for supply chain performance

• 4PL should be able to impact the entire supply chain – increasing revenue, lowering costs, reducing working capital and fixed capital

4PL Operating Models

The 4PL environment has three primary operating models:

The Synergy Plus Model The Solution Integrator Model The Industry Integrator Model

Note: 4PL is a trademark of Accenture

4PL Operating Models

The Synergy Plus Model - relies on a working relationship between the 4PL Organisation and a 3PL Company. Both the 4PL and the 3PL partner to market supply chain solutions which capitalise on the capabilities and market reach of both. The 4PL offers a broad range of services to the Third Party Logistics Provider including; technology, supply chain strategy skills and program management.

4PL Operating Models

The Solution Integrator Model - focuses on the strength of the 4PL as an individual organisation which manages a comprehensive supply chain solution for a single client. This arrangement encompasses the resources of the 4PL with a selection of complementary service providers, chosen by the 4PL, to establish a “best fit” integrated solution for the client company.

4PL Operating Models

The Industry Innovator Model - is the most complex operating model within the 4PL environment but also the most rewarding. Within this model,a 4PL organisation develops and runs a supply chain solution for multiple industry players with a focus on synchronization and collaboration.

What is the Industry Innovator Model?

The Industry Innovator is an integrated eCommerce based range of outsourced supply chain functions that act as a highly efficient path for enabling the transfer of product from suppliers to buyers.

An individual company in each industry will have slightly different supply chain needs, but there should be similarities within an individual industry.

Although the model looks similar to a marketplace, it could in fact be a series of one-to-many relationships pushed through one Market site on the web.

Typical Supply Chains

Inefficient and Clogged with inventory!

Supply Chain Re-engineering for a Single Company

Supply Chain Re-engineering for an Entire Industry

Internet Enabled 4PL – A Case Study

iTooling.com

iTooling.com was conceptualised as an ‘Industry Innovator’ 4PL. It was developed for the industrial tooling sector with an initial focus on cutting tools.

Brief Profile of the Industry

Customers – Aerospace, Automotive, Job Shops, etc.

$19Bn Worldwide Market (Roughly 1/3 in each region US, Europe & Asia)

Small form factor Relatively high value Consumable – Frequent repeat buying Many suppliers – Very fragmented

Background The industrial tools market is one of the most fragmented

and agency locked markets in the world today. The route from manufacturer to customer is characterised

by the involvement of many intermediaries, several hand-offs and multiple inventory holding points.

The belief was that there is minimal value added by these intermediaries and the consequence of their involvement is additional touches, increased customer cost and an erosion of manufacturer’s margin.

It was felt that there was an outstanding opportunity to totally simplify the supply chain and in doing so reduce the cost and significantly improve the buying experience for the customer.

Supply Chain

Global Manufacturers

Typical Supply Chain

RegionalDistributor

CountryWholesaler

Local AgentCustomer

+ +

Supply Chain Future

Global Manufacturers

Global Manufacturers

RegionalDistributorRegional

DistributorCountry

WholesalerCountry

Wholesaler

Local AgentLocal AgentCustomerCustomer

iTO

OL

ING

.com

Strategy

Partner with quality brand manufacturers of selected industrial tools.

Create a multi brand carrying internet site to allow customers a full catalog view of the selected products and pricing.

Manage the customer relationship and the fulfillment process and this would become a core competence of the company.

Partner with strategically positioned logistics providers capable of meeting or exceeding customer’s response expectations.

Strategy (Continued)

Hub inventory at the logistics sites calculated to achieve a defined customer fill rate

Take ownership of the product only when it is being picked for a customer order and aggressively manage the cash conversion cycle

Primarily trade on-line and actively encourage customers to do so but this will be supplemented by call center support

Work on an agreed service fee calculated to cover iTOOLING.com’s costs and achieve target profit

itoolexp4.exe

Hubbing Animation…

•Real Time Demand Information

•Online without being in direct competition with existing channels

•Forecasting Data Available

•Distribution Coverage

•Product Feedback

•Improved Manufacturers Margin

•Product Choice & Comparison

•Best Price Available

•Improved Purchasing Experience

•Simple / Transactional Cost Savings

•Improved Customer Service

•Technical Support available 24/7

•One Stop Shop for Industry

Benefits- Win, Win

Manufacturer Customer

iTOOLING.com ProfitiTOOLING.com Profit

Existing Distribution Existing Distribution Network ModelNetwork Model

Price

Manufacturer Selling PriceManufacturer Selling Price

Geographic Agent MarginGeographic Agent Margin

National Distributor MarginNational Distributor Margin

Local Distributor MarginLocal Distributor Margin

End User PriceEnd User Price

Sheffield Recommended Sheffield Recommended Retail Price ModelRetail Price Model

iTOOLING.com ModeliTOOLING.com Model

iTOOLING.com iTOOLING.com Service ChargeService Charge

Discountvs R.R.P.

Saving

““Sheffield” MarginSheffield” Margin

But…. Industry was not ready for radical change Manufacturers feared increased

competition and even less opportunity for differentiation

Intermediaries proved to be more valuable than anticipated and in fact held a lot of power in the chain

These lessons were not unique to the Tooling industry!

Where to next?

How Could We ? Continue to engage the Intermediaries Overcome the Manufacturers fears And Still Achieve Supply Chain

Efficiencies

Conclusion: By moving From Revolution to Evolution

A.S.P. Charge

Dist A :Business as usual with reduced inventory

Dist B : On-line presence & reduced inventory

Dist C : Added value sales agent. On line presence, sources product & provides technical support

No Dist : Manufacturer Website or Large Customer

Exchange, MRO or other marketplace (Covisint?)

Mfg A Mfg B Mfg B Mfg C Mfg D Mfg E

Supply & Inventory ManagementSupply & Inventory Management

On-line Web PresenceOn-line Web Presence

Order FulfilmentOrder Fulfilment

Invoicing & BillingInvoicing & Billing

Sell DirectSell Direct

eMarketseMarkets

Manufacturer(s)Manufacturer(s) IndustryIndustryMasterMaster

Channel Channel Partner Partner CatalogCatalog

Touch Touch PointsPoints

End-User End-User Custom Custom CatalogsCatalogs

4PL Management4PL Management

Integrated M3 Cataloging Technology & 4PL Mgmt.

The Information Conduit

ManufacturerManufacturerManufacturerManufacturer

ManufacturerManufacturerManufacturerManufacturer

ManufacturerManufacturerManufacturerManufacturer

ManufacturerManufacturerManufacturerManufacturer

iTooling.comiTooling.comiTooling.comiTooling.comChannel Type BChannel Type BChannel Type BChannel Type B

Channel Type CChannel Type CChannel Type CChannel Type C

Channel Type DChannel Type DChannel Type DChannel Type D

Channel Type AChannel Type AChannel Type AChannel Type A

iTooling.com Value PropositioniTooling.com Value Proposition

Design & Manage Design & Manage ProcessesProcesses

Design & Manage Design & Manage ProcessesProcesses

3PL Partners: Tracking, Delivery, Inbound3PL Partners: Tracking, Delivery, Inbound Manage Hubs, Reports, Manage Hubs, Reports,

3PL Partners: Tracking, Delivery, Inbound3PL Partners: Tracking, Delivery, Inbound Manage Hubs, Reports, Manage Hubs, Reports,

Software Partner: Catalogs, ASP, Back Office, Software Partner: Catalogs, ASP, Back Office, eCommerce PlatformeCommerce Platform

Software Partner: Catalogs, ASP, Back Office, Software Partner: Catalogs, ASP, Back Office, eCommerce PlatformeCommerce Platform

Technical & Technical & Business Business

ImplementationImplementation

Technical & Technical & Business Business

ImplementationImplementation

Partner Partner Relationship Relationship ManagementManagement

Partner Partner Relationship Relationship ManagementManagement

ASP £ Model

Variable £ Model

Communicate & Communicate & ConsultConsult

Communicate & Communicate & ConsultConsult

Cost + Mgmt. Fee

Fee % Based

Standard Software Interface to 3PL PartnersStandard Software Interface to 3PL Partners Standard Software Interface to 3PL PartnersStandard Software Interface to 3PL Partners

Conclusions The story continues… There are still tremendous

efficiencies to be achieved in Supply Chains

Despite the bad press, eBusiness is happening now and is a major force in achieving these savings

The path will be more an evolution than a revolution as first expected