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The differences between supply chain management, integrated logistics management and fourth-party logisticsSupply chain management (SCM), it is said, is perhaps the last frontier for the provision of a competitive advantage for discerning importers and exporters in these extremely challenging times. It is also being referred to in some quarters as being a business process survival strategy.
The application of SCM is as beneficially important in declining or recessionary economic environments as it is in mature booming economies and perhaps due to the current global economic meltdown, the discipline is receiving more attention now than would normally have been the case.
Robert Fonteijn, an internationally renowned business skills facilitator, has stated that for companies to succeed in the competitive business arena today, supplier organisations must acquire two key consulting skills:
• The ability to analyse and understand the customer’s complete business problems; and
• The ability to offer some kind of solution.
Companies who try to conduct the ‘business as usual’ strategy will find that their prospects for success in today’s extremely competitive marketplace are declining rapidly, as the rules of competition are now significantly different from those that prevailed in the past.
There exists also an element of nervousness regarding the implementation of the SCM and integrated logistics strategy into businesses.
Due to there being many buzzwords associated with these perceived new business process disciplines as well as an extensive glossary of three-letter acronyms (enough to cause absolute confusion to most), the applications are not going to be adopted easily into organisations without some help from business process re-engineering practitioners and consultants referred to as fourth-party logistics (4PL) or lead logistics partnering (LLP) individuals or companies.
These 4PL operatives do have the required intellectual capital to understand business integration strategy, have access to the modern logistics tools such as the Framework Evaluation Methodology used to accurately assess current supply chain performance activity, and are able to propose and implement alternate business processes and supply chain designs in order to achieve a lowering of the total logistics costs and to provide an improvement in customer service delivery with a much desired elevation of the company’s competitive position in general.
SCM solution entries submitted to the Logistics Achiever Association (LAA) competition in recent years have most certainly shown a clear indication of the extended integrated supply chain partners working together with their 4PL or LLP and being lauded for excellence in respect of business process improvement for their customers’ generally.
Until recently, SCM was viewed as not appreciably different from the concept of logistics management as defined by the Council of Logistics Management (CLM).
The SCM vision is being referred to today as the key to achieving an integrated flow of product and information throughout the supply chain in order to create a focused customer interface, a focused supplier interface, and an integrated, process-oriented supply chain.
A further objective of SCM is to maximise the competitiveness and profitability for a company as well as the whole supply chain network, including the end customer.
It aims to boost total process efficiency and effectiveness across all members of the supply chain.
Logistics, on the other hand, is generally seen to be a functional silo within organisations and also deals with the management of material and information flows across the supply chain.
Logistics is a system network made up of many sub-processes and related activities, with the primary purpose of managing the orderly flow of materials and personnel within the firm and supply chain.
Logistics (in reality) is often a fragmented and uncoordinated set of activities spread throughout various organisational functions.
The integrated logistics management concept refers to administering the various logistics activities within the supply chain and comes as a result of an effective collaboration between all of the supply chain members.
It is normal to have such transformation facilitated by a 4PL or LLP organisation.
4PL differs from third-party logistics (3PL) in the following ways:
• A 4PL organisation is often a separate entity established as a joint venture or long-term contract between a primary client and one or more partners;
• A 4PL organisation acts as a single interface between the client and multiple logistics service providers;
• All aspects (ideally) of the clients’ supply chain are managed by the 4PL organisation; and
• It is possible for a major 3PL service provider to form a 4PL organisation within its existing structure.
Barry Saxton, a leading practitioner of SCM and integrated logistics in South Africa, has provided several key lessons for those business managers who are considering the adopting of the new process disciplines for transforming their businesses, some of which are:
•The CEO and board of the company need to understand the role of the supply chain in the business and be prepared to champion its transformation.
•Supply chain transformation is not a quick win in one area of the business. It is not an event, but a journey that involves every aspect of the business from raw material sourcing to manufacture, distribution and consumption.
•Supply chain and logistics management is not brain surgery. It is a process that involves much common sense and an open mind about new ways of doing things to achieve what is best for the business.
•A key goal to achieve is to make the organisation agile, flexible and responsive to customer needs. Keep this goal in sight always.
•Integration and collaboration drive competitiveness in new supply chain networks.
•Transformation of the organisation requires careful change management, particularly of people.
The recently completed State of Logistics Surveys in South Africa have most certainly indicated a greater need for collaboration between all members and stakeholders within the supply chains in order to produce the desired economies of scale and to improve the business competitive position of the country as a whole.
There has also been significant and most encouraging mention as to the proposed implementation of supply chain integration by government and parastatal organisations in order to produce an improvement in terms of service delivery and competitive position.
From where I sit on the board of the South African Association of Freight Forwarders (SAAFF), it is important that our membership is continually well informed as to the changing demands of customers who are in pursuit of business process ‘solutions’ as a result of the new integrated logistics service provision design now being offered.
Their current position within the existing supply chain of their customers should be known in terms of specifically which alternate service providers are also presently involved in service provision in order to present an opportunity for both forward and backward integration applications within the supply chain as a whole.
SAAFF has commenced with the presentation of awareness sessions to its members nationally to include their customers where required, and an appropriate training programme to include all aspects of integration is currently being developed which will enable the traditional clearing and forwarding agent to effectively become an integrated logistic service partner in the supply chains of its customers.
Sources:
“Strategic Logistics Management” (Fourth Edition). James R. Stock and Douglas M. Lambert. (McGraw-Hill International Series).
“Rock the Boat: Why Leaders need to make Waves to Succeed in the Era of Globalisation”. Barry M. Saxton. (TerraNova).
Keith J. Horn, director of Supply Chain Management – South African Association of Freight Forwarders
Keith is also general manager of Aerospace Logistics – Kintetsu World Express South Africa; and a panel judge for the Logistics Achiever Awards Association.
He may be contacted on 083 407 4156.
