The cost, complexity and expertise required to enact strategic supply chain changes can pose big challenges for companies, particularly with constrained staff and budgetary resources. At the same time, competitive pressures make realizing them essential. These realities are fueling the move to more strategic approaches to supply chain management, including the next-gen LLP model.
What exactly does the term LLP mean? “LLP (lead logistics provider) arrangements used to be primarily focused on transportation and product movement, with a little procurement management added in,” says Dave Rumler, VP, Operations, Americas DHL Supply Chain. “The goal was to get the best service at the least cost. It was a pretty simple approach overall”.
The LLP model of today, however, provides far more robust capabilities, thanks largely to advances in lean practices, systemized processes, IT visibility and analytics tools. Under these arrangements, the next-gen LLP:
- Assembles and controls supply chain resources, capabilities and technologies, both internal and external, including other logistics providers
- Assumes accountability for the management, performance, cost and development of all supply chain functions, transactions, systems and suppliers within an agreed scope
- Assesses the current level of risk and recommends and implements risk management strategies
- Performs commercial services such as front-end order management
- Provides an innovation stream to continuously push supply chain transformation in support of the overall business.
“Next-gen LLPs have learned the nuances of each industry sector,” explains Soeren Bauer, VP and Lead Logistics Partner, APMEA for DHL. “They are a lot more educated in how to support and provide commercial models that align better with what the customer needs. The beauty of an LLP is that as a customer you can make the solution work for you in terms of what you want,” elaborates Bauer. “If you have a strong cost agenda, then the LLP can align the commercial structure to take cost out. The job of the LLP is to connect all the dots for the best-fit solution.”
These expanded capabilities are fueling a significant increase in the use of LLPs across a broader range of businesses and industry sectors. According to the 2014 Third-Party Logistics Study, 15 percent of companies have engaged an LLP, up from eight percent the previous year.
From a resiliency perspective, the LLP puts in place the people, processes and technology needed to enable proactive management of change, exceptions and volatility. In complex manufacturing, for example, companies typically have visibility into their bill of materials and can see inventory within the manufacturing plant’s four walls.
With its technology solutions, the LLP has visibility into inventory across the entire enterprise and all the way back through the supply base. This is critical, especially for just-in-time production environments in which the company may only carry three to five days of stock and the supply base extends to another continent.
If there is disruption in the supply chain, the LLP sees it immediately and can resolve it quickly, before it endangers the business. For example, when the earthquake-tsunami disaster in Japan shut down one major car maker’s suppliers in the affected area, its LLP was able to look across the company’s global inventory and see that the part numbers needed by the manufacturing plant in Michigan were available at the Mexico plant. The LLP quickly redesigned the supply base in terms of shipping points to move the required components from Mexico to Michigan.
Arguably, the car maker could have done this itself, but the company did not have a process in place to handle it. The LLP, on the other hand, had the people, processes and technology to handle the exception right away. The Michigan plant did not miss a beat. To manage risk and build resiliency in the supply chain, the LLP may design a plan for every component part of a finished product. That plan stipulates the primary routing for that part. It also maps out contingency responses to manage potential risks for every move the part makes as it travels through the supply chain from origin to destination.
Proactive alerting systems notify the LLP if a supply chain milestone is missed or is in jeopardy. The LLP analyzes the potential impact, explores the response options and takes action to address the issue before it becomes a major problem. “People like heroes,” Rumler observes. “But if we are a hero, it means a situation got to the point where it needed a hero. If we’re doing our job managing exceptions proactively every day, there’s no need for heroes.”
“As LLPs broaden their services with customers,” says Parry, “they need to help them figure out even more strategic decisions such as what regions they should be in and where they should establish their manufacturing base. This goes far beyond just providing a distribution solution. The LLP becomes a strategic partner to the business.” Of course, execution will always be important. But companies are finding that the combination of execution plus design and orchestration generates greater impact than either does alone.
“We found that if you don’t physically manage the spending and activity, the design ideas and the strategy get watered down,” explains Jim Hartshorne, Vice President – Head of Sales Europe LLP, DHL Supply Chain. “If you just operate the supply chain, then you’re really a 3PL service. You need to do both control tower and supply chain coordination – design and operate – to deliver real value, expand scope, create agility and generate influence.”
The concept of next-gen LLP, therefore, is the supply chain equivalent of ‘using more of your brain,’ one supply chain executive comments. The evolved LLP model manages the tactical as well as the strategic aspects of a global supply chain, serving as lead operator and primary tactician. Equipped with people, processes and technology, the LLP ensures smooth day-to-day operations while protecting against the risks and disruptions inherent in a global supply chain. Beyond that, a fully realized LLP solution supports innovation that leads to advantage.
“There are so many components to a supply chain to explore for cost reductions, service or other improvements,” Parry concludes. “We put them all on a whiteboard and look at how we can improve on every component. That’s where you get strategic. That’s where you get real value creation.”
This article was excerpted from a study (Next-generation LLP: Driving new business value in an unpredictable world) sponsored by DHL and authored by Lisa Harrington, a senior research fellow of the supply chain management center and lecturer in supply chain management at the Robert H. Smith School of Business, University of Maryland. Harrington is also president of Lharrington Group LLC, a provider of strategic supply chain consulting services.