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News Release from: Frost and Sullivan
Edited by the Manufacturingtalk Editorial
Team on 30 September 2005
Need to focus on core competencies for
best IT
80% cent of customers surveyed across a range of industries in a recent end user study thought it essential to outsource key areas of the logistic function to an external partner.
Currently long distance supply chain management has become crucial to remain competitive in the globalised economy Not surprisingly, 80% cent of customers surveyed across a range of industries in a recent Frost and Sullivan end user study considered it essential to outsource key areas of the logistic function to an external partner such as a 4PL provider
This article was originally published on Manufacturingtalk on 28 Apr 2004 at 8.00am (UK)
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Operational cost reduction in logistics activities, increasing globalisation, a single point of accountability and focus on the core competence were listed as the key drivers across all industry sectors in entering a 4PL partnership.
"There is a risk for modern day extended supply chains not being able to respond to demand as would be the case with local sourcing or control, causing opportunity costs of lost sale," explains Frost and Sullivan Industry Analyst Sharat Satyanarayana.
"Since the 4PL concept is oriented towards risk transfer in terms of owning and managing the logistics assets, the parent company can concentrate on its core competency." However, there are still challenges while engaging in a 4PL partnership in terms of generating optimal collaborations, developing suitable performance measurement schemes, maintaining 4PL neutrality in offering services, and forming suitable teaming and change structures for the human resource.
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"4PL partners are expected to have an already established network in the client's area of operations in order to ensure a smooth transition to the 4PL form of supply chain management," says Satyanarayana.
"Another key criterion for selecting a 4PL partner is the scale of global/pan-European presence and a level of technical expertise commensurate with the client requirements." While some respondents preferred third party logistics (3PL) service providers for easy integration into a 4PL partnership due to the existing relationships between the two parties, others are evaluating options with lead logistics providers (LLPs) for certain business units or geographic areas A high degree of trust, developed through prior business experience with the prospective partners is also considered highly important along with a clear understanding of the respective work ethics and cultures of the customer.
There is also demand for a more comprehensive 4PL portfolio that includes transport/freight management, warehousing management, distribution management, and procurement of raw materials.
IT management is expected to include provision for visibility/event management across the supply chain, network design, freight audit processing, customer relationship management systems, and warehousing systems.
"Customers, on average across all industry sectors, prefer to retain a majority control over key decisions such as the overall supply chain strategy, integrating the partners with certain key upstream processes, allocating the change agents and managing the 4PL alliance," notes Satyanarayana.
The automotive and FMCG sectors are shown to be the key adopters of a 4PL engagement with a number of companies in these sectors evaluating a 4PL relationship with one of their preferred third party suppliers.
In the automotive sector, the 4PL partner(s), in addition to the standard and expected operational/tactical perspective, needs to make recommendations at a strategic level.
Suggestions regarding the optimisation of transportation, IT infrastructure and synchronisation of the overall operations, according to market developments, are also considered important for any 4PL arrangement in this sector.
In the FMCG sector, although logistics is not considered a core differentiating strength, it plays a significantly important role to impact bottom-lines.
The customers are actively pursuing the 4PL concept with preferred 3PL suppliers, with highest priority being given to the human/resource management services.
"On their part, potential 4PL partners need to assess the client company prior to approaching and suggesting either a business unit-wide or geographical region-specific 4PL trial engagement," says Satyanarayana.
"It would also be advantageous for service providers to equip themselves with knowledge regarding new EU regulations, tariffs and safety norms to assist customer companies in building and maintaining their market bases." About Frost and Sullivan - a global growth consulting company, Frost and Sullivan has been partnering with clients to support the development of innovative strategies for more than 40 years.
The company's industry expertise integrates growth consulting, growth partnership services and corporate management training to identify and develop opportunities.
Frost and Sullivan serves an extensive clientele that includes Global 1000 companies, emerging companies, and the investment community, by providing comprehensive industry coverage that reflects a unique global perspective and combines ongoing analysis of markets, technologies, econometrics, and demographics.
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