WHAT NEXT FOR 3PLS?

We have all heard about collaboration in the supply chain and there has been much written on this topic, but combined distribution networks or CDNs is something that goes one step further. A proprietary concept first mooted some years back, CDNs involve companies collaborating with their rivals.

There have been some successful implementations of this concept but many of them, such as the Global Shippers Association that was formed by a number of large shippers in the chemical industry some time ago, have either been abandoned or fallen by the wayside.

Still, in a recent survey conducted by IFW, the majority of respondents said they would consider collaborating with a direct competitor in today’s challenging business environment. In the poll, 66 percent of respondents said they would launch joint projects with rivals, despite the possible conflict that may come with it. This is a far cry to a similar survey conducted just two years ago.

And in another survey conducted by Transport Intelligence (TI), 64 percent of respondents cited the need to reduce cost, 25 percent cited efficiency, and just 8.7 percent said having a greener operation was the main factor in collaboration. The survey also revealed that 43 percent of respondents had been involved in a collaboration with another company in the past and that 94 percent would consider collaborating – although they would prefer it not to be with a competitor.

GO BETWEEN

The mechanics and technicalities of integration and implementation aside, the biggest stumbling block to effective collaboration has always been a mental one.

In a CDN, where we will be working with our rivals, executives have to get over that mental hurdle of putting their companies’ products on the same vessel, be it a truck, aircraft or container, as their competitors for fear that the competing company will have access to confidential information or that they will be given less priority, or be open to some form of industrial sabotage.

However, in most supply chains, not only our competitors but the “market” already has in-depth knowledge of significant portions of what we do or how we get our products to our plants or customers.

The use of CDNs does not advocate making all information available or collaborating at all levels. What it does encourage is for companies to think outside the scope of what is considered normal business practice and look at an alternative way to effective and more efficient supply chain management.

This is where the 3PL comes in. In the same Transport Intelligence survey, respondents said that if they were to collaborate with a rival, 90 percent of respondents would only do so if a neutral party – such as a 3PL – managed the relationship with strict confidentiality policies in place.

Many 3PLs do already have some form of this “4PL type” approach to the market in place. One major freight forwarder, for example, aggregates the annual full container requirements of more than 50 of its chemical customers, and signs service contracts with main line operators based on this combined volume of more than 300,000 TEUs per year.

This results in significantly better rates, which the 3PL then passes on as more attractive rates to their customers. This in turn, helps them be more competitive in the market and enables them to garner more business as they provide tangible benefits to their customers’ bottom lines.

BIG THING

The opportunities that exist for CDNs and for 3PLs to leverage further off this concept are numerous. It could and perhaps should, be the “next big thing” for the industry. Cash benefits and contributions to the bottom line aside, benefits in other areas mean that simple or complex CDNs should be explored on a more concerted scale.

For instance, globally, freight is responsible for some 30 percent of transport emissions, and if the industry can work with government to deliver meaningful and sustainable results and if the all-important bottom line benefits in the process, we will see many organizations start paying more attention to CDNs.

Prof Raymon Krishnan is the President of the Logistics & Supply Chain Management Society (LSCMS).