Supply Chain Leaders Tap into Flexible, Asset-Light Alternatives to Unlock New Agility
The time for incremental change has passed — what’s needed now is a wholesale transformation of supply chains.
Logistics used to be a fairly straightforward affair. Supply chain managers had to think about just two flows of traffic: the sourcing of raw materials for manufacture on the inflow and the delivery of finished goods on the outflow. Simple.
Today, things are no longer this simple. For one, strong consumer spending and steady economic growth has led to extremely high demand for goods. On its own, this is a question of scale that is fairly easy to solve. But it has come at a time when, thanks to the e-commerce explosion, the number of distribution channels has multiplied, and order types and quantities have proliferated.
What’s more, customers are more demanding than ever. According to a survey of supply chain leaders, customers increasingly demand a wider selection (71 percent) of customized (76 percent), reliable (73 percent) and sustainable (69 percent) products delivered as rapidly as possible (76 percent). This is demand like we’ve never seen it.
The Transformation Imperative
The challenge facing supply chain managers today is that legacy networks, developed for a “two-flow,” brick-and-mortar world, are struggling to adapt to the constant demand characteristic of today’s multichannel digital world. The time for incremental change has passed — what’s needed now is a wholesale transformation of supply chains to make them fit-for-purpose.
Transformation of this scale will not be easy. Currently, supply chain processes lack meaningful integration. Organizational silos and technology limitations make it nearly impossible for managers to have insight and visibility into their operations, particularly in real-time. Meanwhile, there’s a punishing skills shortage that makes it hard for supply chain managers to drive the required change.
Customers expect convenient, personalized and rapid delivery of the goods they order. But until supply chain managers address their challenges, these expectations will fail to be met. Further, costs will continue to shoot upwards, driven by process inefficiencies.
Enter the Asset-Light Network
So, what’s the answer? According to 79 percent of the supply chain leaders we spoke to, the way forward is tapping into flexible, asset-light alternatives to unlock new agility.
In an asset-light model, a shipper retains its fundamental capability to service core customers, but also uses shared assets, partners and digital tools to dynamically respond to incremental demand. The asset-light approach accelerates business and drives significant efficiencies by enabling firms to add innovative supply chain capabilities — last-mile delivery, reverse delivery or warehousing, for example — as required. Essentially, it’s a business ecosystem approach applied to the supply chain.
The asset-light business is not just theory — many companies are already benefitting from ecosystem-based plays. One example is Breakthrough, which has transformed how shippers approach fuel surcharges. Breakthrough’s technology helps shippers calculate a surcharge based on real-time fuel prices in the cities between which they’re shipping, rather than on the average of fuel prices nationally.
Carriers still get reimbursed for fuel-cost variability, but shippers avoid overcompensating carriers based on an inflated national average. The resulting fuel savings have been significant, amounting to as much as 30 percent for some companies.
In the short- to mid-term, there are two actions supply chain managers need to take to start putting similar ecosystems in place. First, consider hybrid options that include both traditional 3PLs and a wide range of alternative transportation options. Second, watch emerging vendors with promising new technologies and capabilities that can be used to further improve logistic network efficiency and responsiveness.
Fewer Assets, More Control
Finding the right partners is important, but it isn’t enough. Equally critical is the ability to ensure complete visibility of the supply chain as it ebbs and flows to meet demand dynamically. Here, organizations need to invest in intelligent operations technologies, such as AI and analytics, that allow them to see crucial information such as worldwide supply, demand and transportation capacity at any given moment.
Intelligent operations technologies enable businesses to accomplish a range of critical objectives relating to good supply chain management. First, they provide the insights needed to avoid unexpected cost increases. Second, they help improve operations on an ongoing basis to strengthen cost management and overall performance. Finally, they enable managers to proactively plan to avoid costly disruptions to the network.
Breaking it down, there are three distinct elements of intelligent operations that help enable asset-light models and that will solve the challenges legacy networks have failed to address:
- Robust enterprise data housed in a unified data repository to break down operational silos and give companies full line-of-sight from manufacturing origin through the operational supply chain to the point of sale;
- Applied intelligence, including advanced analytics, automation technologies and blockchain that enhance decision-making and extend human reasoning; and
- Talent developed through innovative and creative thinkers who are able to take advantage of data and applied intelligence to solve business problems.
A New Operational Mindset
A final key component in building an asset-light model is a new operational mindset that we call “XPL.” This is the next step beyond 3PL, with the “X” reflecting the fact that this is change on an exponential scale — change that will support the broader company’s reinvention.
XPL connects the dots across the disparate, interconnected logistics networks that come with an asset-light model, putting in place an orchestrated, end-to-end platform for uniting partners and capabilities around customer needs. This is the foundation on which shippers can build and manage their new, demand-ready supply chain ecosystems.
With XPL, shippers can keep logistics costs in check, continually improve logistics performance and avoid network disruptions. And by choosing to work with an XPL services provider, shippers can start benefiting from XPL right away without having to invest the time and money building XPL capabilities themselves.
XPL, intelligent operations and smart partnerships are the future for global supply chains. If your company is still operating legacy networks, it may be time to rethink your approach.
Chris Karney is managing director of supply chain business process services for Accenture Operations.