A supply chain ‘prenup’

Martijn150x150Are collaborating companies sufficiently aware of each other’s strategies? I posed that question while leading a seminar a couple of years ago. A supply chain director from a retail company said that he preferred to hold minimal stock in the outsourced warehouse, while his logistics service provider who was sitting next to him wanted the warehouse to be as full as possible. I responded that the two partners had the wrong type of volume contract with one another: “Draw  up a new agreement based on the movement of goods as soon as you can, otherwise your collaboration will only end in tears,” I advised them during the session.

A logistics service provider needs to have a good understanding of the business strategy of the shipper (manufacturer, wholesaler or retailer) who is looking to outsource their logistics. The problem is that supply chain managers often do not know that companies must choose one clear strategy for a particular product/market combination, as identified by thought leaders and authors Michael Treacy and Fred Wiersema: Product Leadership (best product, like Apple), Operational Excellence (best total costs, like Walmart) or Customer Intimacy (best total solution, like Cisco). By asking probing questions, the logistics service  provider can succeed in unearthing the shipper’s key performance indicators in order to discover the company strategy.

Conversely, shippers should ask themselves whether it actually makes sense to outsource their logistics (inbound transport, warehousing or outbound transport). Together with consultancy Districon, logistics service provider DSV Solutions and Nyenrode Business University, we have developed a free, online self-assessment (www.supplychainsatellite.com) which helps shippers to consider this question. The answer depends on the complexity of the shipper’s supply chain and the extent to which it adds value. These factors are used to determine how the shipper should approach the purchase of logistics services. Getting to know one another sufficiently beforehand is an important prerequisite for a long and successful collaboration – just like in a marriage.

Martijn Lofvers, Publishing Director & Editor-in-Chief
Supply Chain Movement
martijn.lofvers@supplychainmedia.nl