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Beefing up supply chain capabilities

Beefing up supply chain capabilities

While most logistics executives recognise the importance of green supply chain initiatives for future business success, most are unwilling to step up investments in this area.

The finding came from a collaborative study by Capgemini, Georgia Institute of Technology, Oracle and DHL on some 1,600 logistics executives across continents in mid-2008.

"A green initiative example is improving transport efficiency through effective shipment consolidation, routing and mode selection to cut carbon emissions," said Richard Owens, senior vice president of DHL global customer solutions, Asia Pacific.

Owens said that other examples include managing energy efficient distribution centres and improving transport or dock scheduling to reduce carbon emissions associated with demurrage.

Uncertainty concerns

Most respondents held back from additional investments in green supply chain initiatives due to uncertainty over how to move forward with such projects, according to Owens.

"Due to lack of measuring standards, respondents were uncertain whether such initiatives would result in extra costs or savings, and over who should bear the costs," Owens said.

Owens noted that respondents felt that costs should be shared equitably between third-party logistics providers (3PLs) and 3PL users. "Green initiatives often result in more efficient energy usage and potential cost savings," he said. "Therefore, green initiatives can be cost neutral from an investment standpoint."

Resistance to collaboration

Capgemini observed that there is continued resistance to collaboration on green initiatives between 3PLs and 3PL users. Only 46 per cent of respondents said that environmental impact of supply chain operations was a factor considered when selecting a 3PL. There is also the unspoken assumption that costs will ultimately be borne by the customer.

The company said that 'greening' of the supply chain will have an increasing impact on network design, transport modes used, equipment selection, business processes and balance sheets.

Additionally, companies should form solid relationships with 3PLs using detailed contracts and metrics to achieve significant cost savings, better customer service and improved business efficiency, Capgemini said.

"Without commitment to collaboration between logistics service users and providers, little progress can be made in greening of the supply chain and supply chain security," said John Langley, director of supply chain executive programmes at Georgia Institute of Technology.

Langley observed that more than three quarters of responding 3PL users rated consolidation, routing, and mode selection as the top services 3PLs can contribute to green strategies. "However, only 31 per cent indicated that their 3PLs currently offered these capabilities," he said.

Gap problem

While 76 per cent of respondents called their 3PLs 'secure', the study revealed a gap between users' expectations and existing security capabilities of their 3PLs.

According to Capgemini, technology is also a high priority for 3PL users, who demand web-enabled communications, visibility tools, as well as warehouse and transport management services. However, only 38 per cent of respondents were satisfied with their 3PL providers' IT capabilities.

Sundar Swaminathan, Oracle's senior director, noted that the continued gap is 'extremely worrying'. "IT capabilities are critical to the integration of logistics services provided by 3PLs and the ability to facilitate green supply chains and supply chain security," he said.

"3PLs need to simplify and modernise their applications and infrastructure," said the senior director. "This will enable them to bring new services to market more quickly, increase agility and operational efficiency and deliver service excellence."

The capability gap is reflected by customer problems with 3PL IT-based services, according to Owens, who cited various examples. These include a lack of a common platform for integration across systems, accurate and timely documentation, information visibility and technological capabilities.

Addressing the gap

"3PLs and their customers must be open about expectations and capabilities, if they are to find innovative ways to improve supply chain security and green credentials," said Hans Hickler, CEO of DHL global customer solutions. "Those willing to advance the 3PL-customer relationship beyond today's sticking points stand to be rewarded with supply chain efficiencies that deliver competitive advantage and customer satisfaction."

According to Capgemini, such collaboration can only work if customers put aside fears over loss of control and of being too dependent on a third party service provider. By adopting open standards-based technologies together with 3PLs, companies can increase agility, lower costs and strengthen relationships, Capgemini said.

"3PL providers can minimise customers' hesitation by taking steps to avoid excessive dependency and structure contracts that balance the costs and risks," Owens said. "They should also provide consulting services to help customers customise their supply chain through use of complex supply chain tools."

Owens encouraged 3PL users and providers to work on a joint IT investment model to ensure 'a top notch supply chain through technology'. "However, this is often hard to achieve given the usually short duration of contract."

Logistical issues

Companies across geographies and industries regard logistics and supply chain management as 'intrinsic to successes', according to Owens. "Three-quarters of 3PL users surveyed prefer to look to their 3PL providers for integration of systems and services."

Another issue is security. "As supply chains become longer and more complex, theft prevention is a top concern for 3PL users and 3PLs need to ensure a safe supply chain," Owens said.

Owens noted that logistical security issues vary by industry, but common ones include theft and tampering of physical goods, natural disasters, and intellectual capital theft. "RFID is a potential security solution for high value products like pharmaceutical goods."

To accelerate the reduction of customers' carbon footprints, DHL Neutral Services was established as a carbon consultancy unit, according to Owens. "The unit offers a range of services and solutions including carbon supply chain consulting, emission reduction plans and carbon reduction implementation programmes."

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