This is how the series presents itself:

Ever wondered how long it takes from the time a rose grower cuts the stem in Kenya to when it hits the stalls at your local florist? Or how cocoa from West Africa ends up in Hamburg’s port warehouses, ready for distribution to Europe’s chocolate makers? The Gateway reveals all.

While “reveals” may seem like a promotional exaggeration, after watching the videos I cannot stop marvelling at how logistics and supply chains pervade almost every spot in our modern world, and how what we take for granted as we go about our business would not be possible without some fairly advanced background orchestration.

The Aalsmeer flower market is the world’s largest flower auction and where 60% of the worlds flowers on a daily basis, much of this flown in from Kenya and South America, making Amsterdam Schiphol airport an important hub for flowers coming into Europe.

It’s quite impressive to watch the video and to see the sheer size of the premises, let the alone the array of several hundred traders buying their share of flowers with the push of a button.

The Maschen railyard outside Hamburg is Europe’s largest rail marshalling yard, and perhaps Europe’s most important transport hub for rail containers, processing some 3500 waggons or 150 trains up 700 metres long..each and every day.

Goods containers arrive at Hamburgh port, Europe’s second largest container port, are unloaded from the ships and transported 10kms to Maschen, where an army of some 800 people makes sure that every container is loaded onto the right train for its next destination.

Interestingly, Hamburg has changed from being an import hub to being an export hub, with China today being the EU’s second biggest export market, usurping the likes of Japan and Russia and biting at the heels of the United States — for decades Europe’s biggest customer. Apparently, Germany — whose total exports to developing Asia recently overtook those to the U.S. — has been much more successful at adapting to a world where “there will no longer be a single pole of attraction, but multiple poles.”

A couple of reports are centered on Vladivostok, Russia’s major Pacific port and gateway to Asia, where Tokyo Bejing and Hong Kong are closer in reach than farway Moscow.

For sure, Vladivostok is Russia’s commercial capital, situated as it is at the crossroads of international shipping corridors and only a two-hour drive away from China, imports from China are booming. Unsurprisingly there are perhaps more cars with their steering wheel on the right (i.e. Asia-imported cars) than cars with their steering wheel on the left (i.e. Europe-imported cars).

While I cannot present all the videos, I do recommend you to watch every one of the above and the remaining on The Gateway website, see link below. It’s good stuff and full of hands-on knowledge every supply chain professional can and should learn from.

Link

• cnn.com: The Gateway

Related posts

• husdal.com: Supply chains and pallets

Have business schools lost their way?

Ghoshal (2005) argued that “bad management theories are destroying good management practices“, blaming business schools for the demise and corruption of good business ethics, because it is scientifically easier to teach shareholder value maximization at the expense of everything else than to argue for (let alone calculate the value of) corporate social responsibility as a driving force in business and supply chain management. With that as a backdrop, Fawcett and Waller set out to describe what theory is, what constitutes a valuable theoretical contribution and how theoretical deliberations can produce richer explanations in supply chain research.

What is theory?

Theory, so the authors, comes down to three different types of conversations or dialogues often found in academic journals:

• Description focuses on what we observe or how things are done. Although informative, description by itself is often less than fully satisfying and is seldom enduring. We inherently want to know more.
• Explanation elaborates the whys that underlie the whats and hows we encounter in the world around us. Explanation relates phenomena of interest to create better understanding. Explanation helps managers understand key causal relationships, helping them discern that if they pull lever “A,” outcome “B” will result. Insight into why the world works the way it does has the potential to endure as well as to influence. This is theory.
• Prescription informs what to do when faced with a given challenge or set of circumstances. Importantly, accurate prescription is based on sound understanding—that is, good theory. Absent the understanding created by good theory, our prescriptions will be flawed, leading to either (a) a partial, but incomplete solution to our dilemma or (b) an unexpected and potentially counterproductive result.

These conversation types are not mutually exclusive,  and the authors state that “as business academics, our opportunity, and responsibility, is to help explain the decision-making environment that surrounds managers, by mingling description, explanation, and prescription within a single conversation”.

Mind you,

Our research makes the greatest contributions to knowledge discovery and dissemination when it helps us understand the core phenomena, and their interrelationships, that influence our tumultuous world.

Perhaps akin to what Christopher and Holweg wrote about supply chain turbulence in their article on Supply Chain 2.0?

What constitutes a valuable theoretical contribution?

Fawcett and Waller hit the nail on the head when they argue that “The challenge for authors, editors, and reviewers alike is to determine what justifies a legitimate contribution to an ongoing conversation. Fortunately, no clear, easy-to-define metric exists. If it did, our conversations would become formulaic and stale as authors played the game of getting published, as I wrote about in The Catch 22 of academic publishing.

But how do we distinguish a valuable contribution and how can we evaluate if what we come up with is really valuable?

• When we demonstrate how a new variable changes our understanding of the focal phenomena, theoretical insight often emerges.
• When we find paradoxical inconsistencies in reported findings about a common phenomenon, we should be spurred to additional inquiry. Such questioning may lead us to a completely new way of thinking about our world. We might even start a new conversation.
• We might find it useful to try on a new pair of theoretical lenses from another discipline or field to help us suspend our assumptions about how the world works. New lenses often help us see more clearly.
• We should occasionally challenge the appropriateness of our methodological tools. As we do so, we may realize that the way we collect and analyze data constrains our vision, hiding from view alternative contexts, phenomena, and explanations.
• Today’s decision contexts are dynamic. A careful evaluation may reveal that extant theory no longer adequately explains our decision-making environment. Sometimes “generation gaps” are real and what worked in the past is no longer relevant or valid today.

Ultimately, so Fawcett and Waller, the measure of a valuable theoretical contribution is whether or not it helps us perceive and understand the world more clearly. James Stock wrote about Broader research = better research already in 1997, and I think he was right, and still is.

How can supply chain research become better?

As business academics, we have the opportunity and obligation, say Fawcett and Waller, to consider how our research can identify and delineate paths to value creation, corporate competitiveness, and societal well-being. How can we do that?

• Step 1: Become knowledgeable about real-world problems
  Being conversant in the day-to-day language of business can mitigate the knowledge production gap that emerges when we ask questions that only interest a handful of other academics
• Step 2: Periodically look through a new set of lenses
  To avoid getting overly comfortable and dependent on a limited set of inquiry tools, we must investigate theories and methods from varied disciplines. By examining vexing problems through new lenses, we will see various facets of complex phenomena in a new light.
• Step 3: Learn to communicate via appropriate language
  We can and must do a better job of identifying and communicating the practical implications of our research. It should not be our goal to simply entertain other academic researchers.

Reference

Fawcett, S., & Waller, M. (2011). Making Sense Out of Chaos: Why Theory is Relevant to Supply Chain Research Journal of Business Logistics, 32 (1), 1-5 DOI: 10.1111/j.2158-1592.2011.01000.x

Author link

• linkedin.com: Stanley E Fawcett
• linkedin.com: Matthew A Waller

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• husdal.com: Borrowing our way to a science

Find related books

My point of view

The reason why I came across this initiative is that I was invited to contribute to it, by sharing my thoughts and insights about what I think are most pressing issues in supply chain risk management. In particular I was asked regarding systemic exogenous supply chain risks, their distribution (whether they are acute and concentrated or dispersed and pervasive) and their current state (whether these are emerging or constant risks).

One of the most pressing issues that I see is the consolidation of third party logistics providers (3PLs). As more and more supply chains span the globe, many of them are operated by the same 3PL, using the same equipment or carrier for many supply chains.

If there is a disruption it will only affect one supply chain, but many, and the affected companies will all scramble to find alternative sources, and whoever is the fastest will win, as Nokia did over Ericsson in 2000. The 3PL may also have to prioritize which affected customer that should receive the most help, and probably whoever pays the most will receive the most help here.

The point is that 3PLs have become increasingly important in not only “orchestrating supply chains“, as Zacharia et al. write, they are also orchestrating the risk management of supply chains.

The Supply Chain and Transport Risk Initiative

The reason for establishing the initiative is best explained in their one-page flier:

In our physically and virtually interconnected world, the risk of systemic supply chain and transport disruptions is becoming ever more acute, affecting economic, security and geopolitical interests. The global economy has been built on the free movement and circulation of goods, components and labour.

Vast transportation networks have developed, spanning the globe, while inefficiencies, delays and slack have been eliminated in pursuit of lower cost margins and ever-more efficient supply networks.

But where do we draw the line? In our quest for greater efficiency and greater choice, are we developing robust global transport networks or building a house of cards?

The aim of the initiative is to bring together a range of leading experts from across WEF’s diverse communities to explore the most critical threats facing supply chain and transport networks and to apply new risk response tools that can promote efficient risk management, security and resiliency in our complex global trading environment.

I feel honored and privileged that I was given the opportunity to contribute, although not in a direct meeting with said experts (that would have been something), and only by phone interview with some of the key staff of the project, but nonetheless, I see it as a stamp of quality to the work I have laid down in creating this blog, and for that I am thankful.

Global Risks Meeting

The World Economic Forum’s Risk Response Network (RRN) was launched in Davos in January 2011 to bring together the world’s experts in managing risk from all sectors of society. Just three months later, the inaugural Global Risks Meeting in New York on 6 and 7 April gathered over 80 decision-makers and experts to figure out ways to better manage, respond to, prepare for and capture opportunities associated to global risks.

When reading the online report from the meeting, in particular the chapter on supply chains, my attention was immediately drawn to a figure on page 43 that looked oddly familiar:

Yes, if you are an observant reader of this blog, it is the figure I used in my post on Sheffi’s disruption profile that he used in his book on The Resilient Enterprise. Actually, from the way it is set up, I can see that the figure in the report is taken from a slide in my 2008 lecture on supply chain risk. Well, I cannot claim to be the owner of the figure, as it was drawn by Sheffi originally, but it is nice to see that my adaptation was used. This makes me wonder…did they perhaps use more of my slides at that meeting? I guess I will never know…

Supply Chain Dependencies

The chapter on supply chains is highly recommended reading for anyone interested in supply chain risk. These are the issues that the world’s leading decision-makers and experts are concerned about:

The tendency is to underpredict how vulnerable systems are, especially when they are functioning well or taken by surprise, such as when volcanic ash closed much of the European air space in 2010, almost causing an international supply chain breakdown.

Whether in transportation or cybersystems, weaknesses exist in how to communicate to the public that risk is a shared responsibility. A massive paradigm shift that takes into account a robust bottom-up approach is needed, especially with regard to first responders to a disaster.

Another vulnerability to global systems are the obstacles presented when countries have different laws and regulations governing supply chains and trade; regulators often think nationally, not globally. The challenge is to ensure that governments and regions apply consistent standards so that supply chains run more smoothly and industries can invest without too much cost to customers.

While larger companies have the capacity to monitor an entire supply chain or network, often SMEs have no control, especially when there is a disruption.

Other risks that can undermine supply chains are not just catastrophic events but also non-state actors such as terrorists and organized crime.

I think they are on the right track, and this is indeed a highly commendable follow-up of the Global Risk Report 2008, where supply chain vulnerability was highlighted as an important and perhaps invisible global risk that should no go unattended.

Supply Chain and Transport Risk Issues

What I found most delightful was that the report from the Global Risks Meeting  features “scribes” of the discussions from the meeting session. I think the supply chain and transport scribe is very illustrative, don’t you?

Perhaps not the easiest scribe to follow if you weren’t there, but it works, and brings together all the issues mentioned above. Maybe I should use this figure in my supply chain risk lecture for 2011 and spend the whole three hours dissecting all its details? Unfortunately my students will probably have a lot less to say about the figure than the experts at the meeting, but you never know…

Recommended reading

In conclusion, the website of the Supply Chain and Transport Risk Initiative, along with the Risk Response Network, and especially the report from Global Risks Meeting should absolutely be on your reading list, without any doubt. That said, what do you think supply chain experts and decision-makers should focus on in terms of risk?

Related links

• weforum.org: Supply Chain and Transport Risk Initiative
• weforum.org: Risk Response Network
• weforum.org: Global Risks Meeting Report 2011
• weforum.org: Global Risks

Related posts

• husdal.com: Future Value Chain Trends 2020
• husdal.com: Supply chain risk – an invisible global risk?

It may not be this simple

Although the authors test their model of loyalty formation on the basis of commitment and trust  on  as many as 795 logistics outsourcing relationships in the the US and Germany, they also caution that the results should by no means be generalized or accepted as facts about cultural traits and how business operates in these two countries. Life (and business life) is much more complicated than that. Nonetheless, the article does paint an interesting picture of how business relationships are formed in the US versus in Germany, and which elements that foster loyalty and which elements that don’t.

3PL – a risk manager

Logistics outsourcing is increasing and many companies depend on their 3PLs for managing their logistics risks, because after all, 3PLs are what makes supply chains move. This is reflected in my own on How Norwegian freight carriers handle transportation disruptions, where I found that

• Freight owners do not appear to be overly concerned about transportation disruptions, because both mitigative and contingent measures are handled by the freight carrier.
• Freight carriers are acutely aware of their important role in the overall supply chain.
• Freight owners seek vertical integration of one or several selected freight carriers into their supply chain, and are willing to pay a “risk premium” for securing on-time delivery.
• Freight carriers establish asset-specific and flexible solutions to meet the contingent needs of different freight owners.

Essentially then, it’s the third-party logistics providers who handle and manage supply chain risks and thus become risk orchestrators, as I eluded to in a previous post.

What is logistics outsourcing?

Back to the paper, the authors start out by saying that while logistics outsourcing has been identified as a key topic in contemporary logistics research , one of the difficulties faced by researchers in this area is the assortment of definitions used to describe the concept. In this study, then,

logistics outsourcing involves a relationship between a company and an LSP which, compared with basic logistics services, has more customized offerings, encompasses a broad number of service activities, is characterized by a long-term orientation, and, thus, has a rather strategic nature

As to what kind of services that a third-party logistics provider could offer vis-a-vis potential customers, this post on the flexibility of logistics providers has a very useful list, and although it focuses on service flexibility, this flexibility is integral to customization and long-term orientation.

USA versus Germany

Citing several renown works on national and cultural differences in their literature review, the authors conclude that in contrast to US Americans, Germans …

• … extend trust more readily, especially to in-group members
• … are more accepting of information sharing
• … dread change and innovation
• … adhere to rules and regulations more strictly
• … place higher emphasis on stable relationships
• … are more loyal toward relationships, especially with in-group members
• … seek consensus and try to avoid conflict
• … require personal bonding for maintaining long-term business relationships
• … place lower emphasis on immediate economic benefits
• … are rather long-term oriented

Having grown up in Germany, and sort of semi-German in my heart and soul, and having spent some time in the US, I would agree to some of the points above, but certainly not all. FYI, a more detailed comparison can be found in my post on How loyalty is formed in business in my blog at the Kinaxis Supply Chain Expert Community.

The model

The theory behind this article is that there are two dimensions to loyalty:  retention and referrals, acting together as presumed below.

The questions to be investigated are how do trust and commitment influence the two dimensions of loyalty. On a related note, Trust, Risk and Control in Strategic Alliances is an interesting side topic.

The result

The results show a very diverging formation of loyalty in the US versus Germany. Commitment assumes a key role in the United States. While trust has no significant direct effect on retention and referrals, commitment has a strong direct effect on both dimensions of loyalty. In Germany, the effect of commitment on loyalty is substantial, yet significantly weaker than in the United States, while trust in Germany has a strong and significant direct effect on both loyalty dimensions. Interestingly, so the authors,

Germans seem to focus more on frictionless long-term relationships fostered by trust, because business relationships in Germany often are accompanied by personal relationships and mutual admittance of relationship partners to the respective in-groups. Americans, on the other hand, are comparatively impersonal in the business world and rather calculative. Therefore, trust as an expression of the quality of the interpersonal relationship between buyer and seller is usually able to stimulate loyalty in Germany, while it has no direct effect in the United States. Here, instead, trust has to create commitment before it fosters loyalty behavior.

So, now you know it, Germans and Americans are very different when it comes to forging business relationships. Really?

Reference

Wallenburg, C., Cahill, D., Michael Knemeyer, A., & Goldsby, T. (2011). Commitment and Trust as Drivers of Loyalty in Logistics Outsourcing Relationships: Cultural Differences Between the United States and Germany Journal of Business Logistics, 32 (1), 83-98 DOI: 10.1111/j.2158-1592.2011.01008.x

Author links

• wikipedia.de: Carl Marcus Wallenburg
• indigopearl.eu: David L Cahill
• osu.edu: A Michael Knemeyer
• uky.edu: Thomas J Goldsby

Related links

• community.kinaxis.com: How loyalty is formed in business – USA versus Germany

Related Posts

• husdal.com: Challenges in 3PL
• husdal.com: Cooperative Strategy

3PL – more than logistics

Orchestration can be defined as the activity of managing, coordinating, and focusing the value-creating network, and as entities that connect members of the supply chain, 3PLs serve a critical role responsible for achieving effective logistics integration.  3PLs have become the linchpin of the orchestration of supply chains, and they have become the glue that ties the individual supply chain actors together. In fact, 3PLs and the services they provide are perhaps the key ingredient in any supply chain, they are managers of the supply chain and they are eliminators of  uncertainty in the supply chain.

Why outsource?

Contrary to my last post and the paper that simply lists the benefits of outsourcing,without further discussion or reasoning,  this paper uses no less than three theoretical approaches as to determine the reason for why firms would outsource their logistics activities: Transaction cost economics (TCE), Resource-based theory (RBT) and Network theory (NT).

TCE theory states that a firm’s ownership decision is based on minimizing the sum of its transaction and production costs.

According to the RBT perspective, as a bundle of resources that are heterogeneously distributed across firms, with differences between them that persist over time.

In the NT perspective, outsourcing enables the firm to manage its supply chain as a single entity through the application of relationship building and network coordination.

This leads to the following three reasons for why firms would want to outsource and what they expect from it:

I think that merging these three frameworks does provide a rich backdrop for investigating the different roles a 3PL can assume in a supply chain. This is the first theoretical foundation of the article.

How outsource?

The second theoretical foundation used to describe logistics outsourcing looks at the scope and the criticality of the tasks outsourced. Scope can be defined as the breadth or degree of responsibility assigned to the 3PL. Criticality then is the importance of the outsourced task or function to the firm.

Depending on the range of the scope or the degree of the criticality, four types of relationships emerge, along with their associated logistics services:

Out-tasking, which involves outsourcing a specific task, such as inventory management, i.e. Non-strategic Transactions.

Co-managed services, which involves assigning a larger (and usual important) scope of the task or function to the 3PL, i.e. Partnerships.

Managed Services, where the 3PL designs, implements, and manages an end-to-end solution for a complete function, i.e. Contractual Relationships.

Full Outsourcing, where the 3PL is assigned total responsibility for the design, implementation, management, and often the strategic direction of the function, operation, or process being outsourced, i.e. Strategic Relationship.

Successful supply chains need successful logistics, and it is no surprise then that the contemporary role of the 3PL has moved from simple out-tasking to full outsourcing, or from the lower-left quadrant to the top-right quadrant of the figure above. That is the new role of 3PL providers. 3PLs are not just supply chain service providers, they are now supply chain strategy providers, taking charge where the individual supply chain stakeholder is not taking (enough) charge.

Why orchestrate?

The concept of orchestration implies that successful supply chains, or supply networks, are governed by an aggregate player—a ‘‘hub’’ firm—whose role is to provide the required services and assume control of a part of the supply network, and consequently, there is

an undeniable trend that 3PLs have become brokers organizing supply chain networks. Through this process of organizing networks, sharing information, managing assets, and reducing inventory, 3PLs facilitate SCM best practices and become an orchestrator.

Not companies, but supply chains compete, said Martin Christopher, but in order to compete, one needs a good 3PL, obviously, and a 3PL that can provide flexibility, as described in Naim et al. (2010).

How orchestrate?

What defines an orchestrator? Well, four things, according to the authors:

As 3PLs work simultaneously with multiple supply chain partners, they can standardize data and processes across firms and provide supply chain visibility beyond the individual firm. In addition to providing standardization and visibility, they can be neutral arbitrators between entities because they are typically unbiased third-parties. 3PLs can serve as change agents, especially in the case of full outsourcing. Finally, because 3PLs can see opportunities for improvement through standardization and visibility and pursue them without being perceived as driving their own agenda, they can often facilitate collaboration much more effectively than a customer, supplier, or competitor within the supply chain.

Therefore, what makes a 3PL an orchestrator is the degree to which he can assist a company with standardization, visibility, neutral arbitration, and collaboration. The model is formulated in the figure below:

Based on their model, the authors develop seven propositions as to how the 3PL can fill the role as orchestrator:

Proposition 1: The higher the degree of standardization provided by the 3PL, the greater the value creation orchestrated by the 3PL.

Why? Because standardized processes enable smooth hand-off and flow of goods among all members of the supply chain.

Proposition 2: Standardization will positively impact visibility of the 3PL.

Why? Because without standardization, visibility would not be possible, since standard data and processes enable visibility to opportunities for load consolidation, improved asset utilization

Proposition 3: The higher the degree of visibility provided by the 3PL, the greater the value creation orchestrated by the 3PL.

Why? Because 3PL firms have the ability to see across multiple firms and echelons of the supply chain and orchestrate them as a whole for the good of all.

Proposition 4: Visibility will positively impact neutral arbitration by the 3PL.

Why? Because by having full visibility of the chain 3PL firms can see conflicting issues and barriers from the outside and instigate changes without being perceived as pursuing their own or some competitor’s agenda.

Proposition 5: The greater the degree of neutral arbitration provided by the 3PL, the greater the value creation orchestrated by the 3PL.

Why? Because companies may be more willing to listen to the advice of a neutral 3PL who has a wide range of experience and provides a clear benchmark in their particular industry.

Proposition 6: Neutral arbitration will positively impact collaboration of the 3PL.

Why? As a neutral arbitrator with visibility of information from multiple parties in the supply chain, 3PL companies can play a unique facilitating role in collaboration, similar to proposition 4.

Proposition 7: The greater the degree of collaboration provided by the 3PL, the greater the value creation orchestrated by the 3PL.

Why? Because 3PLs are uniquely positioned to find opportunities where they can encourage firms to share resources and combine knowledge, skills, and physical assets to create strategic advantage and enhance profits.

Conclusion

This paper is solid academic craftmanship, albeit “craftmanship” is perhaps the wrong word here. It is interesting to see how the mundane side of day-to-day supply chain operations, aka 3PL, is gaining attention as a crucial contributor to the overall value creation. There haven’t been too many papers on this, albeit some have lamented the unfortunate separation of supply chain management and logistics. The role of 3PLs is undoubtedly becoming increasingly important, not only as a supply chain facilitator, but also as a supply chain risk mitigator, something I have barely begun to research myself, and which this paper has inspired me to continue investigating. Perhaps logistics is what drives supply chains, and it is logistics that we should focus on, and not the other way around, where supply chain management overshadows logistics?

Reference

Zacharia, Z., Sanders, N., & Nix, N. (2011). The Emerging Role of the Third-Party Logistics Provider (3PL) as an Orchestrator Journal of Business Logistics, 32 (1), 40-54 DOI: 10.1111/j.2158-1592.2011.01004.x

Author links

• lehigh.edu: Zach Zacharia
• lehigh.edu: Nada R Sanders
• neeley.edu: Nancy W Nix

Related posts

• husdal.com: 3PL Outsourcing – Challenges and benefits
• husdal.com: Transportation – the forgotten staple
• husdal.com: Logistics – the new SCM science

Shippers and carriers – the missing link

Transport providers and carriers play an important role in supply chain operations, but having said that, Supply Chain Management often neglects the mundane side of physical distribution and transportation, and forgets that these activities form the backbone of SCM, as Helen Peck wrote in 2006, and many other papers have also highlighted the role of logistics in supply chain management, with the shipper-carrier-customer triad developed by Bask (2001) being one of my favorite models that describes this issue.

One of the best descriptions linking the risks and uncertainties within supply chains with risks and uncertainties in logistics is what I found in a German book on risk management in logistics, from which the above figure is adapted.

Benefits

Shippers use 3PL providers to improve operational efficiency and effectiveness, to reduce freight costs and to the quality of service, and to enhance flexibility in terms of delivery speed and customer service. Based on a survey of 126 shippers, the authors list the following major benefits:

• Fixed assets
  • Reduction inutilization of fixed assets
  • Reduction in information technology infrastructure
  • Improvement in financial performance
  • Increase in asset turnover
• Inventory investment
  • Reduction in inventory investment
  • Reduction in “cash to cash” cycle
  • Improvement in inventory visibility
  • Increase in inventory turnover rate
• Logistics costs
  • Reduction in logistics costs
  • Enhanced access to carriers and fleets
  • Leveraged cost savings across SCM
• Shipper service
  • Increased shipper logistics services
  • Reduced cycle time
  • Increased fill rates
• Information technology
  • Improved access to timely and accurate information
  • Access to skilled personnel
  • Elimination of inefficiency
  • Increased customer flexibility

Unfortunately, these benefits and their implications are not described any further, which perhaps was not the purpose of the paper in the first place. After studying the paper, I also think it is wrong to call this the “major” benefits, since they all appear as choices in the survey questionnaire, where the shippers are asked to label them as “Not important”, “Important” and “Most important”, and I would assume that some shippers marked some items as “Not important”, hence disqualifying them form being the included in the list of “major” benefits. Maybe I’m just playing devil’s advocate here…

Challenges

Having frowned at the list of benefits, what I think the authors did get right is the list of challenges. Albeit on a much smaller scale, it reflects what I myself found in my research on How Norwegian freight carriers handle disruptions:

Logistics represents the interface between outgoing and incoming flows, and logistics provision approaches the supply chain from two sides. On side are the transportation infrastructure and the transportation mode, the prerequisite for logistics. On the other side are the transportation means used within each mode, the operational side of logistics.

Finding the right 3PL isn’t easy, and failures, so the authors say, can more often than not be related to these top four issues:

1. the incapability to meet the shipper’s specific logistics requirements
2. the incompatibility of information systems between shipper and 3PL
3. the failure of 3PL to meet a shipper’s future growth needs
4. the lack of control and security at the 3PL.

Again, as the case with the “major” benefits, the “top four” challenges are the four choices available in the survey, which sort of defeats the notion of really selecting the four most important out of many possible challenges.

Recommendations

To address these challenges, shippers need to develop the appropriate metrics that can measure and capture the 3PL’s  capabilities as to operations, finance and information systems.

• Operations
  • Inventory management
  • Transportation services
    • adaptability to accommodate changes the shipper needs
    • efficiency in providing services
    • effectiveness in providing services
    • flexibility in handling contingency plans
    • agility – how fast they can respond to changes
  • Warehousing facilities
    • infrastructure that can meet future expectations
    • availability of state-of-the-art technology at receiving and shipping locations
    • maintaining a high level of inventory accuracy
    • accuracy of orders processed
    • on-time shipping
    • cost savings and other factors
• Finance
• Information systems

Interestingly, transportation and warehousing is extremely well covered and detailed, while the other recommendations are only cursory treated in the paper.

Conclusion

In my opinion and to my knowledge, the paper correctly describes some of  the benefits and challenges in outsourcing logistics to third party providers. However, while the survey population seems sufficient, the survey itself could have been better designed with more questions or variables that would have clearly defined the top top top benefits and challenges

Reference

Ansari, Al, & Modarress, Batoul (2010). Challenges of outsourcing logistics to third-party providers International Journal of Logistics Systems and Management, 7 (2), 198-218 DOI: 10.1504/IJLSM.2010.034426

Author links

• seattleu.edu: Al Ansari
• zu.ac.ae: Batoul Modarress

Related posts

• husdal.com: Logistics risks in Germany
• husdal.com: Logistics risks in the Netherlands

Supply Chain Flexibility

Today’s article builds on the previous work by Naim, Potter and associates, who employ a triad (supplier – carrier customer) perspective on the supply chain, contrary to the more popular dyad (supplier – customer) perspective. Personally, I am compelled to agree with the triad being the more correct view, particularly when addressing flexibility:

While much of the research on flexibility has focused on the product delivery process, within and between businesses in the supply chain, little attention has been paid to the role of transport, a key operational function enabling the flow of materials and resources between suppliers and customers. Also there is limited research on transport flexibility as an enabler for supply chain flexibility. And yet there is an underlying premise in the supply chain that logistics providers will respond to changes in demand and be willing to accommodate uncertainties.

The latter is a notion that I have come across myself, in my own research on how Norwegian freight carriers handle transportation disruptions:

Transportation disruptions do not seem to be a major concern for transportation-dependent  businesses, because both mitigative and contingent measures are sufficiently handled by the freight carrier. The freight carriers carry the risk of transportation disruptions, not the businesses or manufacturers.

Unfortunately, while transport flexibility is what creates much of supply chain flexibility, the role that transportation providers play in supply chains is often underestimated or not estimated at all.

Case study

Using their previous model of internal and external flexibility, the case study in the paper is a steel supply chain consisting of a steel producer, a steel tube manufacturer and a logistics provider. The case shows how the interplay of these three, or perhaps rather the lack of interplay, causes supply disruptions, i.e. late deliveries:

Conclusion

It is only recently that I came across the work of Naim and his fellow researchers, and this article truly highlights the importance that transportation and logistics have in improving supply chain performance and supply chain flexibility. Unlike their previouswork, this article does not break new ground so to speak, but I found many references on manufacturing and transportation flexibility I hadn’t heard of before, and I look forward to reviewing more of their research in future blog posts, since we seem to have similar research interests.

Reference

Naim, M., Aryee, G., & Potter, A. (2010). Determining a logistics provider’s flexibility capability International Journal of Production Economics, 127 (1), 39-45 DOI: 10.1016/j.ijpe.2010.04.011

Author links

• cardiff.ac.uk: Mohamed Naim
• linkedin.com: Gilbert Aryee
• cardiff.ac.uk: Andrew Potter

Related posts

• husdal.com: Flexing your SCM muscles
• husdal.com: How Norwegian freight carriers handle disruptions

Point Merge

The best way to illustrate Point Merge is to use these figures I found on the Avinor (Norwegian Aviation Authority) website. This is how the approach paths to Oslo airport (OSL) look like in a normal situation:

This is how the are supposed to look like with Point Merge in place:

I does look much better, and it makes me wonder why they haven’t done this all along. The idea is that the planes line up along a sequencing leg, where they at the right moment (to keep the aircraft separated) are told by air traffic control to turn into the path envelope, where they continue towards Point Merge, from where the final approach is flown. This way, so the system promises, aircraft not only make orderly directed turns towards the airport, but can also descend in a continuous manner towards the airport, not stepwise as was the case before, thus saving fuel, time and money.

Just-in-Time

Coming to think of it, is Point Merge really that revolutionary? Or is is just putting Just-in-Time to practice? Effectively, to me, that’s what it is.

Related links

• eurocontrol.int: Point Merge
• avinor.no: Point Merge (in Norwegian only, but nice graphics)

Related posts

• husdal.com: Happy Holidelays!
• husdal.com: A-maze-ing discoveries

Acknowledgement

First off I have to admit that sometimes the ideas for my own blog posts come from other blogs and the inspiration for this particular post came from risczar’s Watch Risk Management, with a similar yet unrelated topic.

The Swiss Railways Clock

The late Hans Filfiker had to solve the problem that all trains are subject to: How can you make sure that the trains leave at the exact time from all train stations across entire Switzerland? Supposedly, the story goes like this:

Back in the 1940s when the Swiss Federal Railways (SBB) was looking for a way to take advantage of their name for punctuality and incorporate this theme into their national image, they asked Hans Hilfiker, an SBB employee, engineer and prolific inventor, to come up with a highly visible clock that would not only form the basis of their later corporate identity, but it would help to guarantee on time departures as well. Hilfiker, an exponent of products that were both functional and well designed, created the Railways’ masterpiece in 1944. The copyrighted design, with its clear and easily read face, mimics the smooth running of the trains and incorporates clever features that demonstrate punctuality in a highly visible fashion.

What he came up with has been popularized as the “stop-to-go” movement: The second hand completes a minute in just 58.5 seconds, then stops, and at a one-minute interval an electric impulse is sent to all clocks which notches the minute hand forward one minute while at the same time starting the second hand again:

A station clock owes its technology to the particular requirements of operating a railway. On the one hand, railway timetables don’t list any seconds; trains always leave the station on the minute. On the other, all the clocks at a railway station have to run synchronously in order to indicate a reliable time for both passengers and railway personnel anywhere on or around the station premises. That’s why station clocks are slave minute-stepper clocks which receive an electrical impulse from a central master clock at each full minute, allowing the minute hand to electromechanically advance one minute further. The second hand is driven by an electrical motor independent of the master clock. It requires only about 58.5 seconds to circle the face once, then the hand pauses briefly at the 60 second position. It starts a new rotation as soon as it receives the next minute impulse from the master clock. This so-called ‘stop to go’ second hand was designed in 1955 by Hans Hilfiker, a Swiss engineer, together with Mobatime, a clock manufacturer.

If your browser supports Flash, you can see the “stop to go” movement in action below, every time the second hand passes the full minute or “12″ hour marker:

This ensures that all trains leave the station at the exact time, to the minute exact, so there can be no complaining of the train leaving too soon or too late.

Simple yet effective

The Swiss Railways Clock truly is a  Swiss design classic:

The clock face is simple and strong. There are no figures: the minutes are denoted by black lines on the white face. The hour and minute hands are also black. Against this black and white background the red second hand stands out. It was nicknamed the “rote Kelle” or “red signal” because of the red disc at the end of it, mimicking the hand-held signal which the station manager used to wave to tell the driver the train could leave.

Despite having no numbers, the clock is readable at a glance. Its striking red second hand is a small replica of the station manager’s hand-held departure signal and can be seen from great distances allowing passengers to know exactly how much time is left before the minute is up and the train will depart. This second hand has become a symbol of Swiss punctuality. Historically Swiss trains were, and still are, timed to the second and depart on the full minute. As the second hand on the station clock reached the 12, the station manager waved his distinctively shaped, hand-held signal to the conductor to indicate the train’s departure.

These clocks are now found not only in Switzerland, but in fact, around the world at train stations, airport terminals, offices and homes. They are even sold as watches, under the brand name Mondaine.

A passion or a hobby?

The Mondaine watches don’t come cheap, and many are collectors’ items and investment objects to say the least. My chosen model, the Sports Gents Night Vision, retails at $355 on amazon.com and here in Norway it sells at a price much above that.  Is it really worth it? And why does anyone need such an expensive watch anyway? A valid question. However, in end what convinced me was that what may look like just an expensive hobby on the outside, is actually a passion investment in fine art or fine goods, as I wrote about in an earlier post on how to hedge risk effectively.

Saying goodbye to a favorite?

It’s quite a step up from my previous favorite wristwatch, the Casio F91W, another design classic, and retailing at less than $12 on amazon.com. I’ve worn out a couple of these over the years, and I still enjoy wearing it. I don’t know why I like the Casio so much,  perhaps because it reminds me of the first watch I bought for the first money I ever earned. Just for the record, the F91W was introduced in 1991, and I started earning money in 1980, so I must have bought an earlier and similar model, but it’s that long ago that I can’t remember the exact model, only how it looked like.

A watch for supply chain managers?

Speaking to the (only) Norwegian importer of Mondaine watches from whom I bought my watch, he told me that this is not the most wanted watch brand in Norway, and only beginning to gain popularity. However, he said,  it is very sought after in academic and engineering circles. Being an engineer myself, I can understand that the simplicity of the clock appeals to designers and engineers, and considering how important time is in logistics,  and the history of the clock, perhaps this is also the ultimate watch for supply chain managers? To me it is.

On time or not on time – important?

Time is important, even in the Maersk Slow Steaming project and every time I look at my watch I am reminded of how precious time is, first, when considering the price of my watch, obviously, and second, when considering the role that on-time shipments play in logistics and supply chain management. Time is precious, indeed.

What about you, how important is time to you and what watch do you have?

Links

• wikipedia.org: Hans Hilfiker
• mondaine.com: Mondaine Watches official website
• heyday.no: Mondaine Watches (Norwegian retailer)
• risczar.com: Watch Risk Management

Downloads

• swiss-miss.com: Swiss Railway Clock as iPhone App
• sbb.ch: Swiss Railway Clock as screen saver for the desktop

Related posts

• husdal.com: Railway logistics in WWII Germany

Firstly; their associated costs.

In any industry, associated costs are always passed on down the chain. Therefore associated savings can also be passed on. So what are the associated costs of pallets?

The costs of pallets can cover the purchase of the pallets, the maintenance of the pallets, the replacement of the pallets and transportation of the pallets. The higher these are, the more expensive the handling of goods will be. So where can savings be made?

The first savings made can be on the material used for the pallets. Traditionally they have been made from timber, which although cheap in the beginning, they can be costly in the long term. This is because timber pallets have a very short shelf life, and often need replacing, representing a constant cost to the transport company. By switching to plastic pallets, although a more expensive outlay, they require less replacement in the future as they’re stronger. These savings can be passed on once they initial investment has been covered.

The second saving that can be made is for companies to switch from owning their own fleet of pallets to using a pallet pooling service. These are services that rent out pallets on a short or long term basis. They also handle the maintenance and management of the pallet fleet. By using a company like this, transport companies can make savings. They don’t need to cover the costs associated with maintaining and managing their own pallet fleets, or pay to expand there own pallet fleet to match a big order, only to have the extras lying redundant for the rest of the year.

Secondly; their safety and hygiene.

The mass transit of goods will always lead to damages or accidents, to both goods and people, which ultimately have a cost. However, the role that pallets play in this can be reduced.

The simple truth is that timber pallets can be dangerous. The wood can splinter and the nails can protrude. Goods and flesh can be cut. Timber pallets can also harbour germs, as they cannot very easily be hygienically cleaned.

However, a switch to plastic pallets can significantly reduce this risk. The plastic does not splinter (or certainly does not splinter so readily as wood), and they don’t require nails in their production, so that risk is removed altogether. Plastic is also very easy to disinfect, making them very hygienic, especially for the transportation of foods or medicines.

Thirdly; their ease of use.

Due to the low price and ease to build timber pallets, it has been very hard to standardise their size and dimensions, which can lead to complications in their handling and transportation. And disruptions and problems cost money.

However, with plastic pallets this problem can be removed. Because they require specialist production, they can be easily monitored and regulated in regards to their size and dimensions. By standardising this across the industry, it makes them less problematic, and thus ultimately cheaper to work with.

Fourthly; their environmental impact.

The last way that pallet management can benefit the whole supply chain is environmentally, which is increasingly an issue for the transport industry. By addressing both the materials used in their creation, and how they are managed, savings can be made.

By switching from timber pallets to plastic pallets, less pallets will need to be made overall. This is because plastic pallets last a much longer time and do not require replacing at such a rate as timber. Plus, when a plastic pallet needs replacing, it can be recycled, whereas a timber pallet often is beyond use and just gets burnt.

By switching to plastic pallets, fuel bills can also be cut along the supply chain. This is because plastic pallets, although as strong, are not as heavy as timber pallets. The lighter the load, the lower the fuel bill, so the greater the savings.

The environmental savings can be pushed further by companies switching from owning their own pallet fleets to renting pallets. This is because often companies need certain amounts of pallets at certain times of the year, which then lay dormant for the rest of the year. Multiply this by many companies and it leads to a big surplus of unused pallets. By renting pallets instead in the future, companies don’t incur this wasteful cost as they instead draw them from a reusable rental fleet. The pallets left over from one company’s down time can then be used by another company during their busy time.

The bigger the environmental savings that can be created at the source, the bigger the environmental changes that can be passed throughout the transport and shipping industry.

Although pallets seem a small by-product of the shipping industry, their sheer number means that they have a big impact on the costs of shipping. But, by transport companies examining what sort of pallets they use, and how they manage their fleet, they can help themselves make big cost savings, which can be then passed along the chain, all the way to the retailer and the end customer.

Related link:

• ppsequipment.co.uk: Pallet and crate systems

Related posts:

• husdal.com: Occupational hazards in supply chains
• husdal.com: Supply chains and barcodes

Disclosure: The information for this post was provided by www.ppsequipment.co.uk the pallet pooling and crate hire specialists.