When Macy's, the giant department store chain, wanted to reduce its lead times for imports from Asia and trim warehouse inventories, it hired a consultant to help it figure out how to do that. The consultant recommended that Macy's implement a high-velocity, fully automated store-level distribution process supported by an electronic data interchange (EDI) platform. Key elements of the solutions included applying bar codes at the origin warehouse to eliminate manual receiving processes; leveraging volumes and equipment to improve utilization; and cross-docking at the destination. These and several other steps slashed cycle time by a two full weeks and made it possible for Macy's to redirect shipments in transit. They also saved the retailer more than $11 million annually in transportation and logistics costs.
What's unusual about this story—aside from the impressive savings—is the type of consultant that Macy's hired. Instead of bringing in a traditional consulting firm, the retailer worked with Maersk Logistics Supply Chain Development, the consulting arm of Maersk Logistics, a third-party logistics service provider (3PL). Unlike traditional consultancies, which typically deal in ideas, this one (along with its parent company) also implemented its recommended solutions and now operates the distribution centers and information systems.
The Macy's-Maersk relationship is not unique. A number of large 3PLs offer supply chain and logistics consulting services. UPS Supply Chain Solutions was among the first; others include Ryder System Inc., DHL Exel Supply Chain, and APL Logistics.
Why are 3PLs getting into the consulting arena? Often it's because customers ask their service providers to redesign the logistics networks they operate. "The longer you perform well for a customer, the more they push you into other areas that may stretch beyond what you can do," says Greg Aimi, director of supply chain research for AMR Research.
Another reason, says Dick Armstrong, chairman of the research and consulting firm Armstrong & Associates, is that a lot of 3PLs would rather implement a solution of their own design than carry out a plan developed by an outside firm. If 3PLs do the consulting project themselves, moreover, they're much more likely to get the operational part of the business. In short, it gives them control over the entire process, from idea through implementation and continuing operations, he says.
Says Clifford F. Lynch, executive vice president of CTSI, a freight payment and technology firm, and author of the book Logistics Outsourcing—A Management Guide: "I think the primary reason [3PLs offer consulting services] is they hope that they'll get the work after they do the analysis. ... It's a vehicle for getting new business."
But hold on—isn't that like putting the fox in charge of the henhouse? Won't a 3PL consultant inevitably design a solution that guarantees business for its parent or sister companies?
There's nothing wrong with getting new business as a result of a consulting assignment, say 3PLs, provided they truly are the best choice to handle those responsibilities. Besides, consultants that steer business to their parent or sister companies at the expense of their clients won't be around for long, says Marc Heeren, senior director of Maersk Logistics Supply Chain Development. "If by favoring your own organization you don't provide advice that really leads to the best efficiency and performance, then you will get very few projects before you have to close up shop," he says. "Credibility is critical."
Which is best?
It's clear why a 3PL would want to offer logistics and supply chain consulting services—although, as Aimi points out, few have been successful at forming profitable consulting organizations whose results can be accurately measured. But why would a shipper choose a 3PL over a traditional consulting firm?
For one thing, there's the appeal of working with a known quantity. "The most prevalent kinds of consulting projects generally are with existing clients, where the 3PLs have already proven themselves," says Aimi. "They have seasoned, competent talent who know the operation as well as or better than the customer, plus they can pull in ideas from their outside experiences with other companies."
There's also the matter of cost. Armstrong notes that much of this type of consulting is done at less than market prices because it creates opportunities that lead to other business. Some 3PLs will carry out a consulting project, and if they are chosen to implement the project and handle subsequent operations, then the shipper pays little or nothing for the analysis. If the shipper does not hire the 3PL, then the shipper pays for the consulting work. That offers some protection for the service provider, too, adds Lynch. It's not unheard of for shippers to gather as much information for free as they can, and then walk away.
For their part, 3PLs say there are two big advantages for shippers. First, the provider will recommend only what it knows can be successfully implemented, says Heeren, whose company offers a "Supply Chain Health Check" assessment and analysis service. And second, the 3PL's consulting arm can tap into deep operational knowledge in specialty areas or, as in his company's case, a broad spectrum of supply chain functions, from order to delivery.
Traditional consultants aspire to deliver the same results. But it takes more time for them to gain access to the organization and data, and more time to determine whether their recommendations can be implemented and succeed than it does for 3PLs that already have established relationships with shippers,Heeren says.
Even so, many times a traditional consulting firm is a better choice, says Lynch. "It depends on what the project is. If you have a transportation project, then you probably don't want to go to a warehouse-oriented [3PL] to get it done. They may have consulting departments and say they can do any kind of supply chain work, but I don't think you're buying from the experts in the field when you do that." When a project crosses several functional lines within a supply chain—for example, a project that involves warehousing, transportation, IT systems, and perhaps purchasing or production— shippers would be better off using a traditional consulting firm with a broad range of experience, he says.
AMR's Aimi, who recently wrote a brief on the subject of 3PL consulting, sees this trend as a natural expansion of a maturing industry that serves a clientele with increasingly complex supply chains. Still, most logistics companies that offer consulting services remain focused on the area where they are most comfortable, such as transportation or warehousing. Only a few are doing more comprehensive, true supply chain consulting, he observes.
While Aimi expects to see more 3PLs offering consulting services, he cautions that success will be elusive unless they also take on the execution of their proposed solutions. And they could soon face some new competition for consulting work: business process outsourcing (BPO) firms. The BPO firms, especially those in India, are very large and very aggressive, and they are already involved with some aspects of supply chain management, he notes. They typically pitch their IT, human resources, and customer support services at the executive level—to CFOs, if not the CEOs, he says. Logistics service providers are not communicating at that high a level, which could put them at a disadvantage, he adds.
Regardless of which type of consultant a company chooses, though, the end result should be the same: a measurable improvement in supply chain performance resulting from a plan that offers the greatest possible benefits to the customer, not to the provider.