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Supply Chain Analyses Versus Synthesis

by Mike Bernos

Many managers believe an integrated service offering exists only in utopia. But some companies are distinguishing themselves by orchestrating a new vision for the future instead of adhering to traditional roles as resource providers.

“You cut costs to survive, but innovate to prosper.” Nowhere is that adage proving truer than in the supply chain. The chorus of supply chain managers and executives who have said they can whittle costs no more would drown out the Mormon Tabernacle Choir.

What these managers are looking for are strategic partners who can bring creative solutions to the table that go beyond traditional service offerings. Automakers are searching for providers that have the depth and clout to meld cost-cutting shared channels, once considered taboo in automotive logistics planning. Shippers in the electronic, fast-moving consumer goods, and retail industries that operate inbound supply chains are realizing increased costs reductions by eliminating the lines between warehousing and inbound transportation functions.

Lisa Harrington, Senior Fellow with the Supply Chain Management Center at then University of Maryland’s R.H. Smith School of Business says that enlightened logistics managers are in fact taking a “broad picture” look at the supply chain and are turning to Third Party Providers (3PLs) to help them address these extended challenges. “One of the prerequisites for these 3PLs is to have sophisticated IT with ability to integrate with their client’s customers,” she says. “However, as much as they would like to have an integrated service offering from their 3PLs many managers believe it is but a dream.”

Still, where do logistics planners as well as the growing list of 3PLs find these new solutions? It may be found in the difference between synthesis and analysis. Henry Mitzberg, professor of management at McGill University and an authority on strategy, clarifies the differences between analysis and synthesis by distinguishing strategic planning from strategic thinking: “Planning has always been about analysis, about breaking down a goal or set of intentions into steps, and articulating the anticipated consequences or results of each step. Strategic thinking, in contrast, is about synthesis. It involves intuition and creativity. The outcome of strategic thinking is an integrated perspective of the whole enterprise.”

More logistics managers are asking their logistics providers for an integrated perspective of the whole enterprise, and an increasing number of 3PLs are recognizing this. Customers who use professional advisors or consultants are clearly making the distinction between analysis and synthesis. Their conclusion is: if you just want information, you get an expert. But that’s not a real advisor. The advisor is a person who provides new perspectives and new ways of looking at the same old issues, but more importantly helps you see the big picture.

This view is supported by the eighth annual study of third party logistics prepared by Cap Gemini, Ernst & Young, Georgia Institute of Technology and Federal Express which affirms the growing importance of a 3PL serving as a “strategist” and “orchestrator” rather than just a resource provider.

Instead of being asked to just simply provide lower transportation or warehousing costs, 3PLs are being challenged to come up with more creative ways to lower costs based on reconceptualizing the problem. For example, a top logistics executive in an automotive OEM recently asked his newly matriculated staff members what was the most efficient mode of transportation. After many of them offered the traditional responses of rail, LTL, and ocean, they were surprised to hear the executive answer, “None.”

In fact, the answer is not that far fetched. 3PLs are now designing transportation networks that optimize space over time, reducing the number of runs and increasing savings. But such an optimized transportation network can produce further savings by integrating it with warehouse functions. For example, while a decreased shipment frequency reduces transportation costs and provides improved utilization of trailer/container capacity, warehousing costs will increase due to an increase in space requirements, material handlers, and equipment. Conversely, when warehousing costs are minimized, transportation frequency must increase which heightens the burdened cost per part. In addition, both the transportation and warehouse solutions must consider the financial impact on inventory and returnable containers. The optimal supply chain is synthesized from a blend of these individual solutions. According to Jenny Killingsworth, project manager for TNT Logistics North America, these “synthesized” solutions are proving so successful they are being branded and marketed.

Harrington says that 3PLs are doing more of this as a form of up selling. “When a customer comes to a 3PL and says I have a regional supply chain issue, the better 3PLs respond by wanting to address the entire supply chain.”

Synthesizing solutions can be found also in the amalgamation of technology. Instead of using one application for one vertical such as transportation or warehousing, the integration or synthesis of the two lead to greater efficiencies as in the case of the manufacturer who discovered greater costs reductions when it integrated its previously single-silo optimization functions.

The synthesis provided by 3PLs is nothing new and follows the arc of many scientific discoveries. Isaac Newton performed what was considered the greatest act of synthesis when he developed his laws of motion. He took the theories of Gilbert, Galileo and Descartes and others and integrated them into his thinking to see the unifying principle and patterns. “I stood on the shoulders of giants,” he said.

3PLs are standing on the shoulders of an entire industry as they search for solutions that are synthesized not only from research, but also from the trial and error gained from multiple implementations throughout diverse industries. Their success depends not only upon how well they innovate but also assimilate what is out there.