7PL - The Definitive Supply Chain Revolution

7PL™
The Definitive Supply Chain
Revolution

October 2001
Confidential

© Copyright 2001. YCH Group. All Rights Reserved

No portion of this publication may be reproduced in any form or means (graphic, electronic, mechanic, microcopying,
photocopying, recording or otherwise) without the prior written permission from YCH Group.

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7PL - The Definitive Supply Chain Revolution

Contents

1. Executive Summary

2. Introduction of Concept

3. Evolution of Supply Chain

4. Business Environment & Trends

5. Conclusion

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Executive Summary

All Businesses today understand the value and importance of building an

effective supply chain, as part of organisational growth and profitability.
Logistics has come a long way from becoming an expensive corporate
support chore, to now a key strategic & competitive advantage. The industry
has become a highly regarded professional service that is the source for
efficient response to dynamic manufacturing requirements, and fulfilment
of demand-chain triggers. These are the quintessential facts for today’s
success and tomorrow’s edge, in all existing, emerging, and rapidly
globalising economies.

Yet despite this apparent fact, and ‘conundrum’ of exploiting the infinite
potential opportunities, many still remain uncertain as to the shape of this
new “animal”, and how, what, when and where the next supply chain
revolution is going to be. With the emergence of terms such as e-logistics,
4PL, 5PL, and collaboration, within a short spans of time, while many are
still grappling with 3PL, JIT, and VMI, the exponential progression of the
industry is at pace, if not more radical than the information technology
industry.

But as we go through the often confusing and inundating logistics models,

concepts, and technologies, a new equation has borne out of the cauldron.
And as the dust settles, a new hybrid of what we term as 7PL, is to be the
defining paradigm shift for the established discourse of Logistics and Supply
Chain.

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Introduction of Concept

7PL = 3PL + 4PL:

The concept of 7PL stems from the very simple notion of amalgamating
the well-established 3PL domain with the concept of 4PL, originally coined
and trademarked by Accenture. Its representation does NOT connote the
over-complication of the supply chain with 7 other intermediary levels or
seconded entities. In fact, 7PL serves to optimise and rationalise the new
economy supply chain partners. In the simplest manner of comprehension
for 7PL, it is the effective fusion of physical and process expertise of 3PLs,
with the enhanced knowledge-based macro-strategic consulting and IT
capabilities of 4PLs.

7PL essentially materialises the long-standing need for a comprehensive

and holistic approach to the fulfilment of the most intricate and complex
supply chain requirements for the entire spectrum of logistics. Many
debates have risen on the roles and capabilities of the different players in
the industry, largely because of disparate definitions of scope and varying
degrees of depth of expertise.

More so, the complexities and permutations of the new global economic
framework has not only created numerous niche silos of specialised logistics
segments, it has also created a vacuum for a truly scaleable and optimal
supply chain partnership integrating the various relationships into a web of
synchronised, and streamlined networks of intelligent and collaborative
organic supply chains. This is also partly caused by the multiple platforms
of technological disparity with all the entities in the supply chain equation,
which complicates matters with the need for further intermediation.

Hence, this hybrid we call 7PL is not just about the definitive “playing field”,
beyond just managing supply chains, but the consolidation and collaboration
of all value-creating segments of knowledge, technology and best-of-breed
disciplines (such as quality management, human capital enrichment, and
entrepreneurial modelling), to truly achieve the utopian fulfilment of
seamlessly integrating the physical, information, and financial flows in the
most optimum manner for all entities.

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Difference between 3PL and 4PL:

Understanding the role and competencies of each entity is necessary so

as to truly appreciate the kind of “hyper-value” created by 7PL. Many
3PLs have claimed to offer integrated or total logistics, but have only
succeeded with showcasing the inability to truly understand or appreciate
the complexity and the competency required, albeit the expertise in real
execution, does enable a 3PL to ‘feel the pulse’ of the supply chain.

As well, many 4PLs claim to be able to offer a more strategic management

objective, which also raises concerns over live operational, implementation,
and execution expertise, as well as further intermediation or dilution of the
client from its supply chain pulse. However, the proposition of the 4PL
brings into question the viability, and rapid obsolescence of comprehensive
supply-chain re-engineering plans that require at least 1-2 years to deploy,
within an environment that needs to cater to demand dynamics which are
ever-changing within a radically shortened business cycle.

The question does still remain however, as to who would be most

appropriate, to not only have intrinsic knowledge of the customer’s
requirement, and yet have the accountability, responsibility and capability
to not just plan/manage, but also to have the necessary to execute the
supply chain. In this respect, it can be clearly seen, even through the
many cases that have occurred in the last couple of years, that in order for
a thoroughbred 7PL to emerge, the entity must be built and grown from
ground-up, and not top-down. This means that the physical, asset-based,
infrastructure and ‘hardware’ must be in place to a certain degree to truly
fuse with the intangible, non-asset-based ‘software’, through soundly
established ‘hardware’ that ‘feels’ the supply chain.

These will be further elaborated in the following sections. Meanwhile, to

begin and better understand the current environment, as well as the organic
path to the proposition of 7PL, we will explore briefly the evolution of
Logistics and Supply Chain to date.

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Evolution of Supply Chain

Historical Micro Trends:

Although, there have been many debates as to the period of the evolutionary
milestones, and claims being the paradigm shifters, the different phases
in the evolution of the supply chain can generally be represented as going
through the phases that are described in the following.

• Piecemeal Logistics (arguably before the 70s)

Fundamentally, the character of the modern industrialised commercial

logistics industry was basically made up of stand-alone logistics service
providers who specialised in any 1 of the 3 basic services – ie:
Transportation, Warehousing, or Freight Forwarding. Integration was non-
existent as each service provider took pains to establish their own position
and importance in the flow of goods, with no consideration of the macro
perspective. This left an often over-complex and highly inefficient set-up,
which resulted in more wasted resources from the customer to manage
and ensure that the loose ends connected.

• Integrated Logistics Services / 3PL

As the industrial manufacturing revolution kicked in, a glaring opportunity

arose within the logistics industry to provide integrated logistics services
(ie: connecting the 3 fundamental service elements as 1 offering). This
was a requirement of major manufacturers who saw tremendous cost
savings to streamlining and centralising the critical logistics functions to a
‘one-stop-shop’ that removed the bureaucratic administration of the 3
distinct yet vital elements. This also saw the gradual shift away from in-
house managed logistics by companies, who saw to outsource more and
more of the non-core-competent functional elements of the organisation
to grow and globalise effectively. It was only the beginning of a new breed
of what has been historically termed as 3rd Party Logistics service providers.

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3PLs took many different forms, depending on their heritage among the 3
areas – Transport, Warehousing, Freight. Even then, the lines were blurred
as to which element would be an appropriate anchor to develop
comprehensive integrated logistics services. In any case, the realisation
then of the importance of logistics in the back-end, and the potential of its
impact in the front-end took shape. The growing realisation in the
empowerment of knowledge, and the advantaged positioning of the entity
‘possessing’ the goods, added significant clout to the equation of the supply
chain, so much so that it was very easy for logistics companies to move up
the value-chain and offer other secondary value-added activities to the
situation.

• Impact of Information Technology

This was enhanced further by the information and PC revolution in the

80s, which created a commonly accessible channel for entities to tap,
extrapolate, integrate and manage information with ‘machine-like’ velocity
and accuracy. The information that was already in the box on the back of
the truck, within the four-walls of the warehouse, and on-board the shipping
vehicle, proved to be a ‘gold-mine’ for the picking. The empowerment was
obvious, as service providers began to ‘mine’ this information to create
new niches and opportunities with value-adding activities, with the newfound
intelligence acquired through technology. Logistics service providers were
no longer mere executors of instructions, but also able to offer planning
and sub-management of the supply chain.

• Supply Chain Management / Solutions

As technology became an essential ‘appendage’ to the logistics machine, e-

commerce, web and WAP technologies added new dimensions to the scenario.
The frequency of the business cycle was dramatically intensified, manufacturing
and fulfilment expectations were raised to an all-new level, traditional supply-
chain models were thrown out the window, sophistication and complexity were
magnified exponentially, with new permutations of requirements, as well as hybrid
/ unconventional channels of providing related services. Truly, the new and
intelligent world of commerce created a whole new realm of expectations,
anticipation, and fulfillment of the final demand-chain, with comprehensive supply
chain solutions built on empowering technologies.

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• 4PL
With this came boundless new opportunities, where previously perceived
as unrelated entities began to associate themselves as part of the Logistics
function or supply chain in the relational equation. Primarily, there have
been many lively discussions with respect to the most notable inclusion of a
4PL or 4th Party Logistics. While many argue for and against the necessity,
value and role of the 4PL, everyone agrees on the need for a new level of
competency for the Logistics and supply-chain partner of the sophisticated
global corporation. Lengthy debates have arisen with regards to effectiveness
of the 4PL as a ‘lead logistics integrator’ or ‘complexity manager’, providing
impartial strategic oversight and higher-levels of holistic management
expertise, in an asset-free environment with no direct vested operating
responsibility. While we do not deny the increasing importance of
incorporating these capabilities into the service portfolio, and that tremendous
value has been created with such interventions and re-engineering, the
question remains as to the foreseeable form of the ‘hyper’-integrator, and
the likelihood from which the background of such a hybrid should evolve
from – operator/executor or information/knowledge administrator.

As much as one contends to the rapidly over-taking importance of the

information flow than the physical flow, and how 3PLs and 4PLs are typically
conflicting breeds, again we are left to expound on the virtues and eventuality
of the integration of the 3PL and 4PL competencies into the 7PL.

• The Next Revolution

At the end of the day, the power shift of the Logistics and supply chain entities
is not a question of whether the 4PL (front-end) or the 3PL (back-end) should
take the lead, it is a question of synchronising the 2 competencies into a new
revolution of supply chain partnership. The trends pointing to this eventuality
are very apparent. As information technology is getting more accessible and
made easily adaptable, the barriers to entry for a 3PL to develop 4PL
competencies are being broken down effortlessly, while 4PLs are increasingly
looking into getting more involved with the operating back-end, through mutually
vested arrangements, and ‘valuable’ hands-on understanding, which does
not come-by through ‘short-cuts’ or without time-tested resource investments.
Even with newly-coined terms such as 5PL for e-hubs and exchanges, this
does not in any way undermine the potential of the 7PL as the coup-de-grace
for ultimate supply chain collaboration and optimisation.

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Business Environment & Trends

Apart from the functional characteristics of the different players of the logistics
and supply chain equation, the evolutionary trends and the imminent business
environment that we have and will be experiencing very much determines
the need for the synergising of the 2 main protagonist (3PL and 4PL) of the
equation, and augurs very well for the new breed of 7PL.

As mentioned before, the logistics and supply chain element is relentlessly

moving up the value-chain of all business contexts. Total supply chain
management outsourcing is becoming increasingly popular as corporations
identify tremendous savings and economies of scale through the
realignment of core-competencies and rationalisation. Also, with shorter
demand cycles, increased complexity due to personalisation and
customisation, through direct and more intimate/intricate communications
with the end-consumer, via e-solutions and i-technologies, the emphasis
on further collaborations, lesser intermediations, frequent consolidations,
is more than ever. Businesses are constantly searching for the most
scaleable, flexible solution to respond to hyper-sensitive supply and demand
chains. New economy models have resulted in new sciences and
disciplines that create concepts such as Efficient Consumer Response,
Execute-To-Demand, point-to-point, door-to-door, & end-to-end supply
chains, to complement with the conventional fields of Customer-
Relationship-Management, Enterprise Resource Planning, etc.

7PL is poised to not just gratify the theoretical or hypothetical models of

untested studies and consultations, but to merge and synchronise with the
reality-based models that have proven their worthiness in execution. It is
the perfect relationship for materialising innovation and results. 7PL is
positioned to manifest the depth of knowledge and intelligence stemming
from technological impetus, with hyper-speed in execution of real global
supply chain operations, using optimally scaleable and responsive solutions
that are able to organically improve with the supply chain needs.

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Conclusion

All supply chain specialists wish to be in “Supply Chain Heaven” where

there are no inventories! Innovative financial concepts like Zero Inventory
Model (ZIM™) triggers inventory ownership transfer across the dynamics
of the supply chain and the constant search to integrate the physical,
information with the financial flows pose great challenges to the traditional
business landscape. Traders, distributors, middlemen that adds little or no
value will slowly fade away and in its place will be new regimes of cyber
traders, e-distributors or simply a well orchestrated supply chain flawlessly
executed that has the similar impact of a DELL direct model. This will be
truly an optimised supply chain – the pinnacle of real logistical excellence
where the “ONE TOUCH” of the consumer can trigger the entire supply
chain from finished goods for demand fulfilment and materials for immediate
BTO with financial, information and physical flows seamlessly integrated.

The supply chain is getting leaner as we move towards Zero-Inventory-

ModelTM (ZIM). With 7PL, the financial / transactional flow will be more
feasibly incorporated and assimilated eventually into the supply chain,
thereby creating a true “Logistics Superhighway in a Borderless World”.

END

For further information, please contact YCH Group Corporate Communications at (65) 860-7748 or
email corporate@ych.com, or visit www.ych.com

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