What is the Role of Logistics and Transportation Companies in Building Resilience?

By Beatriz Acero López and Dr. María Jesús Saénz

Companies across the globe are rethinking their supply chains in response to an increasingly uncertain competitive environment. But a key issue that many enterprises are overlooking is the role of logistics service providers (LSPs)* in developing and managing resilient, dynamic supply chains.

The Zaragoza Logistics Center, Zaragoza, Spain, is leading a research study to address this issue. Using global, survey-based research as well as historical scorecards and performance indicators, the researchers are evaluating the potential of collaborating with LSPs to improve risk management and operational efficiency.

Over the last decade or so, supply chain risk management has attracted a huge amount of interest. The focus on resilience – especially in relation to supplier-related issues – reflects growing concern over the vulnerability of business operations to service disruptions. Globalization, rising market volatility, and shifts in consumer buying patterns are among the forces that have elevated risk levels worldwide.

But LSPs have, to a considerable extent, been left out of the conversation. These parties tend to interact less directly with shippers than, for example, suppliers of raw materials and components. In general, LSP’s are not included in strategies for tackling supply chain risk on a global basis, and when they are engaged in this way, the emphasis is often on security and network optimization.

Yet LSPs can be important allies in the never-ending battle to control costs, increase efficiency and to develop dynamic supply chains that can compete effectively in uncertain markets.

In today’s business climate, companies must dynamically adapt to rapidly changing market conditions. Such agility requires a business model that is attuned to responding quickly to complex challenges. A key supporting strategy is to create collaborative, hyper-connected value networks that are also extremely flexible. LSPs need to clarify where they fit into such efforts.

What business models do they need; which capabilities will enable them to collaborate with partners, customers and other stakeholders? And how can they help to make these value networks more resilient? Answers to these questions are not immediately obvious, but there are some case examples that LSPs can draw on.

Consider, for example, the partnership between carmaker Subaru and the 3PL Venture Global Solutions, that was created to launch the Impreza car model. The two enterprises worked together to improve supply chain agility and responsiveness. They optimized processes as well as the distribution network for the new line, through increased supply chain visibility and flexibility. More specifically, Venture Global helped Subaru to implement new transportation management and yard management systems, as part of a long-term objective to implement specialized technologies such as radio frequency identification and drones.

Another notable example is the collaboration between Procter & Gamble and logistics company DHL. They jointly restructured P&G’s supply chain networks in the Middle East and Africa. The deployment of control towers and a supply chain reconfigured to achieve closer network integration, helped to lower costs and increase efficiency and reduce risk by improving visibility.

Although examples like these are impressive, companies need to go even further if they are to build supply chains with the resilience and dynamism required to avoid disruptions and remain competitive in a risk-prone world. They need to embrace co-modality and synchromodality; logistics strategies that give LSPs the flexibility to react swiftly in real-time to network changes while loads are in transit, and to optimize freight transportation.

In these situations, LSPs function as orchestrators that work in collaboration with shippers. For instance, when the Eyjafjallajökull volcano in Iceland erupted in 2010, more than 100,000 flights were halted in a single week. The resultant disruptions rippled across Africa, Europe and North America. TNT, an LSP based in Europe, minimized the impact on its customers by quickly shifting from air to road transportation. The strategy was made possible by a specially designed supply chain, that provided the operational flexibility TNT needed to rapidly rejig its customers’ modal mix. But in other cases this orchestrator role might not work.

The ZLC research study will explore solutions like this. The researchers will also analyse which capabilities companies need to develop in conjunction with their LSPs, to create dynamic supply chains that are resilient and deliver competitive advantage.

In addition to yielding new insights into the role of LSP’s in risk management, the study will help to address the inadequacies of past research efforts in this area. Much of this research is theoretical, and lacks the applied, practical insights that enterprises need to involve LSPs in risk management strategies. More quantitative research is needed on the role of the LSP in value networks, as well as the relationship between LSP performance and the elimination and/or mitigation of supply chain risks.

As part of the current research, the project team is analysing logistics performance using a combination of historical financial and non-financial indicators. Also, the impact of interrelationships between shippers and LSP will be considered by analysing contractual agreements and collaborative strategies.

The duration of the study is 1.5 to two years, and a key part of the work is an industry survey to find out how LSP key performance indicators affect resilience.

* For the purposes of the project, an LSP can be a third-party logistics provider (3PL) or 4 PL, or a rail, road, ocean or waterway carrier.

Retailers and manufacturers that want to understand how LSPs might become risk management allies, and are interested in collaborating on
this research, should contact Beatriz Acero López, PhD Candidate at bacero@mit.edu or María Jesús Saénz, Professor at the MIT-Zaragoza International Logistics Program, at mjsaenz@mit.edu