Internet Enabled 4PL A Case Study Padraic Allen

Two Trends Facing Supply Chain Managers Today – the internet can offer true integration – the Cornerstone of Supply Chain Management eCommerce – the internet can offer true integration – the Cornerstone of Supply Chain Management – organisations are outsourcing non-core competencies Outsourcing – organisations are outsourcing non-core competencies

Manufacturer SupplierDistributorMerchant Partners with small IS staffs Legacy systems Incompatible information formats Need for real time information Security concerns Cumbersome communications High costs Too much stock Outdated pricing Long turn around time Large support staff Customer service Issues The Supply Chain Challenge

eBusiness & Supply Chain Management One area where the payback from e-Business can be substantial is in the integration of the supply chain “The B2B Frenzy is all about the Supply Chain” AMR Research

Outsourcing Listed by Harvard Business Review as one of the most important management concepts of the past 75 Years Means of increasing performance of non-core supply chain activities Fourth Party Logistics is the evolution of supply chain outsourcing

The key benefit of 4PL is that of increasing shareholder value -Benefits of 4PL– 4PL provider maintains primary accountability and quality within the arrangement 4PL has the overarching responsibility for supply chain performance 4PL should be able to impact the entire supply chain – increasing revenue, lowering costs, reducing working capital and fixed capital

4PL Operating Models The 4PL environment has three primary operating models: The Synergy Plus Model The Solution Integrator Model The Industry Integrator Model Note: 4PL is a trademark of Accenture

4PL Operating Models The Synergy Plus Model - relies on a working relationship between the 4PL Organisation and a 3PL Company. Both the 4PL and the 3PL partner to market supply chain solutions which capitalise on the capabilities and market reach of both. The 4PL offers a broad range of services to the Third Party Logistics Provider including; technology, supply chain strategy skills and program management.

4PL Operating Models The Solution Integrator Model - focuses on the strength of the 4PL as an individual organisation which manages a comprehensive supply chain solution for a single client. This arrangement encompasses the resources of the 4PL with a selection of complementary service providers, chosen by the 4PL, to establish a “best fit” integrated solution for the client company.

4PL Operating Models The Industry Innovator Model - is the most complex operating model within the 4PL environment but also the most rewarding. Within this model,a 4PL organisation develops and runs a supply chain solution for multiple industry players with a focus on synchronization and collaboration.

What is the Industry Innovator Model? The Industry Innovator is an integrated eCommerce based range of outsourced supply chain functions that act as a highly efficient path for enabling the transfer of product from suppliers to buyers. An individual company in each industry will have slightly different supply chain needs, but there should be similarities within an individual industry. Although the model looks similar to a marketplace, it could in fact be a series of one-to-many relationships pushed through one Market site on the web.

Typical Supply Chains

Inefficient and Clogged with inventory!

Supply Chain Re-engineering for a Single Company

Supply Chain Re-engineering for an Entire Industry

Internet Enabled 4PL – A Case Study

iTooling.com iTooling.com was conceptualised as an ‘Industry Innovator’ 4PL. It was developed for the industrial tooling sector with an initial focus on cutting tools.

Brief Profile of the Industry Customers – Aerospace, Automotive, Job Shops, etc. $19Bn Worldwide Market (Roughly 1/3 in each region US, Europe & Asia) Small form factor Relatively high value Consumable – Frequent repeat buying Many suppliers – Very fragmented

Background The industrial tools market is one of the most fragmented and agency locked markets in the world today. The route from manufacturer to customer is characterised by the involvement of many intermediaries, several hand- offs and multiple inventory holding points. The belief was that there is minimal value added by these intermediaries and the consequence of their involvement is additional touches, increased customer cost and an erosion of manufacturer’s margin. It was felt that there was an outstanding opportunity to totally simplify the supply chain and in doing so reduce the cost and significantly improve the buying experience for the customer.

Supply Chain Global Manufacturers Typical Supply Chain Regional Distributor Country Wholesaler Local Agent Customer + +

Supply Chain Future Global Manufacturers Global Manufacturers Regional Distributor Regional Distributor Country Wholesaler Country Wholesaler Local Agent Local Agent Customer iTOOLING.com

Strategy Partner with quality brand manufacturers of selected industrial tools.  Create a multi brand carrying internet site to allow customers a full catalog view of the selected products and pricing.  Manage the customer relationship and the fulfillment process and this would become a core competence of the company.  Partner with strategically positioned logistics providers capable of meeting or exceeding customer’s response expectations.

Strategy (Continued)  Hub inventory at the logistics sites calculated to achieve a defined customer fill rate  Take ownership of the product only when it is being picked for a customer order and aggressively manage the cash conversion cycle  Primarily trade on-line and actively encourage customers to do so but this will be supplemented by call center support  Work on an agreed service fee calculated to cover iTOOLING.com’s costs and achieve target profit

Hubbing Animation…

Real Time Demand Information Online without being in direct competition with existing channels Forecasting Data Available Distribution Coverage Product Feedback Improved Manufacturers Margin Product Choice & Comparison Best Price Available Improved Purchasing Experience Simple / Transactional Cost Savings Improved Customer Service Technical Support available 24/7 One Stop Shop for Industry Benefits- Win, Win ManufacturerCustomer

iTOOLING.com Profit Existing Distribution Network Model Price Manufacturer Selling Price Geographic Agent Margin National Distributor Margin Local Distributor Margin End User Price Sheffield Recommended Retail Price Model iTOOLING.com Model iTOOLING.com Service Charge Discount vs R.R.P. Saving “Sheffield” Margin

But…. Industry was not ready for radical change Manufacturers feared increased competition and even less opportunity for differentiation Intermediaries proved to be more valuable than anticipated and in fact held a lot of power in the chain These lessons were not unique to the Tooling industry!

Where to next? How Could We ? Continue to engage the Intermediaries Overcome the Manufacturers fears And Still Achieve Supply Chain Efficiencies Conclusion: By moving From Revolution to Evolution

A.S.P. Charge Dist A :Business as usual with reduced inventory Dist B : On-line presence & reduced inventory Dist C : Added value sales agent. On line presence, sources product & provides technical support No Dist : Manufacturer Website or Large Customer Exchange, MRO or other marketplace (Covisint?) Mfg AMfg B Mfg CMfg DMfg E Supply & Inventory Management On-line Web Presence Order Fulfilment Invoicing & Billing Sell Direct eMarkets

Manufacturer(s)IndustryMaster Channel Partner Catalog Touch Points End-User Custom Catalogs 4PL Management Integrated M 3 Cataloging Technology & 4PL Mgmt. The Information Conduit

ManufacturerManufacturer ManufacturerManufacturer ManufacturerManufacturer ManufacturerManufacturer iTooling.comiTooling.com Channel Type B Channel Type C Channel Type D Channel Type A iTooling.com Value Proposition Design & Manage Processes 3PL Partners: Tracking, Delivery, Inbound Manage Hubs, Reports, Manage Hubs, Reports, 3PL Partners: Tracking, Delivery, Inbound Manage Hubs, Reports, Manage Hubs, Reports, Software Partner: Catalogs, ASP, Back Office, eCommerce Platform eCommerce Platform Software Partner: Catalogs, ASP, Back Office, eCommerce Platform eCommerce Platform Technical & Business Implementation Partner Relationship Management ASP £ Model Variable £ Model Communicate & Consult Cost + Mgmt. Fee Fee % Based Standard Software Interface to 3PL Partners Standard Software Interface to 3PL Partners

Conclusions The story continues… There are still tremendous efficiencies to be achieved in Supply Chains Despite the bad press, eBusiness is happening now and is a major force in achieving these savings The path will be more an evolution than a revolution as first expected