SupplyChainNetwork.com

In my last post, I likened sourcing complex categories to solving a Rubik’s Cube, making the case that not all sourcing events are alike and that only by first understanding the unique starting point, i.e., the problem to be solved, can companies learn to collaborate with suppliers for the best possible solution.

Logistics represents a perfect case for exploring how a collaborative approach to complex sourcing can deliver better outcomes for all parties and ultimately improve supply chain performance.

In this 3-part series, we will:

• look at the typical logistics sourcing model, and what it costs companies today

• define what’s required to take a more collaborative approach and the benefits

• speak to current and future technology innovation that accelerates the time-to-value of collaboration

What Logistics Sourcing Looks Like Today

In most cases today, logistics sourcing can best be described as a “winner-take-all” model. I believe that the “fuel cost crisis” of 2008 served as a brief wake-up call to suppliers and customers alike that something had to give. After all, consider what happens when shippers and carriers take an adversarial approach to contracts:

• Shippers discard or weaken important relationships, putting service levels at risk

• Parties neglect agreed upon contract terms, credibility is lost, making it increasingly difficult to negotiate effectively

• Shippers drive carriers toward unsustainably low rates, finding themselves unable to cover loads when capacity tightens back up

There are signs that market leaders have heeded the warning and taken steps to put an end to costly trade-offs and created solutions that benefit both parties. Together with suppliers, these companies have thrown out the old hard-ball rules where the only end game is lowest cost. Instead:

• Carriers honor volume and load acceptance commitments to preserve customer relationships even if it means forgoing opportunistic volumes elsewhere.

• Shippers honor the principals of contracts and preserve the relationships even if some volume re-optimization is required to correct for the dynamism of the collective market.

• When the market has excess capacity, shippers and carriers work to realign relationships to gain efficiencies.

Embracing a more collaborative approach as illustrated below, shippers and carriers achieve greater network efficiency: higher equipment utilization, reduced waste (fuel and dwell), and fewer empty miles, all adding up to significant – and sustainable – cost

In my next post, we’ll look at how collaboration works in logistics sourcing – and what’s required from both sides of the table to make it effective.

Paul Martyn

Want to learn more about how BravoSolution can help your organization source collaboratively? Check out BravoSolution’s collaborative sourcing tool here.

This entry was posted on Tuesday, August 31st, 2010 at 10:49 am and is filed under Definitions, Emerging Trends, Information Technology, Inventory, PaulMartyn, Supply Chain Management. You can follow any responses to this entry through the RSS 2.0 feed.