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Supply chain visibility

Three-part invention: what 3PL will mean for our logistics practices

by Michael Keizer on March 2, 2010

Distribution center of Kühne + Nagel in Hamburg, Germany.

Distribution center of Kühne + Nagel in Hamburg, Germany. K+N is one of the largest 3PL providers in Europe.

We have seen what third-party logistics is and what are its strengths and weaknesses; and why it will be part of logistics for global health and aid. But what does this mean for us? What will change in the way we work?

Improved information management practices

To be able to work well with 3PL providers, we will need to improve our information management: without knowing fairly well what needs to go where (and hence, what is where and what already goes where), we will not be able to enjoy the advantages of 3PL. What’s more, the more advanced 3PL providers have developed their own supply chain visibility solutions; and not only that, but often they are keen to help us to make our own systems interoperable with theirs, which almost inevitably will lead to better systems for our own use. They do that, not from the goodness of their hearts, but because their customers asked for it – you know, “no delegation without verification” – and because they think that better interoperability will also lead to better efficiency of their own processes.

Smaller logistics departments

If we can outsource all or most of our boring, ‘routine’ logistics work to 3PL providers, our own logistics departments can concentrate on those logistics that are not easily transferable: because they are in high-security settings, or because of specific sensitivities that mean that we cannot use 3PL providers without damaging our operations, or because they are in places where, quite simply, there are no 3PL providers. What remains is a small, highly specialised, highly professional, very flexible unit that delivers four types of services: supply chain management in places where 3PL providers cannot deliver or their services are not acceptable; leadership and coordination of quick scale-ups of operations in case of a sudden emergency; development and monitoring of logistics policies and contracts (including those with 3PL providers); and specialised logistics input for development of policies in other areas and for management.

Bigger logistics departments

Got you there, didn’t I?

Think of this: why would 3PL providers necessarily be from outside the aid world? We already see some 3PL activities from aid organisations themselves, e.g. WFP’s role as logistics provider of last resort in the cluster system. So why wouldn’t some of the larger aid organisations with strong logistics capacities act as 3PL providers for smaller organisations? I can easily foresee that organisations like WFP, MSF, or Oxfam, or perhaps even some governmental health logistics units would start delivering 3PL services to other aid organisations or even ministries of health. After all, they know better than most generic 3PL providers how to operate in the settings where we work, and hence can provide even better (and probably cheaper) services. These hybrid service delivery organisations will, by necessity, grow larger than they are now.

Greater logistics departments

Whichever of these choices these departments make, it will always allow them to become better than they are now: more specialised, more focused on their strengths and less exposed in their weaknesses, more flexible, more efficient, using synergies where they occur (instead of ignoring them as we often do now).

So what are your views? Is this too rosy a picture? Are you already going this way? Things I have missed?


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Three parties rolled in to one: third-party logistics for global health and aid

by Michael Keizer on January 9, 2010

"Mailboxes" by Minesweeper @ Wikimedia

Five-party logistics?

I have written several times before about supply chain visibility, and where it will lead us. One of the main reasons why visibility will be such an important issue for the foreseeable future, is because third-party logistics (or 3PL) will become more and more important.

So, I hear you ask, what is this 3PL? And why would it become more important? And, last but not least, why would that imply that supply chain visibility would become more important? I will write about those last two questions in a next post; this post will concentrate on an explanation of 3PL and its advantages (and disadvantages).

To explain this, let’s have a look at a fairly common scenario. Let’s say that you are the logistics manager of an aid organisation that has a central warehouse in the capital, and a couple of projects around the country, and you need to send a shipment from the central warehouse to one of the projects. Basically, you have two choices:

  1. You use your own transport, sending a truck (owned or rented) with the shipment from your central warehouse to the project. As you are the ‘first party’ in the shipment, this is known as first-party logistics or 1PL.
  2. You contract a transport company to ship the goods to the project, based on a contract and a waybill. The transport company (or as loggies like to call them, the carrier) is also known as a ‘second party’, and hence this is an example of second-party logistics or 2PL.

Most likely you now have an idea where this is going, but let’s spell it out anyway. Instead of having your own warehouse and trucks, you could have an external provider organise all this for you. You only need to tell the provider that a shipment made up of so many of this item needs to go to that project, and they take care of the rest (at a price, of course). A provider who offers this sort of multiple, integrated services, is called a third party and (you guessed it) this is an example of 3PL. 3PL providers come in all kinds, some offering a wider array of services than others; some very familiar ones are international couriers and international postal services, and freight forwarders: all three offer to organise your shipment across a variety of carriers and often (but not always) include clearing services.

Needless to say that there is actually an animal called fourth-party logistics (or 4PL), but I will leave that one for another day.

The reason for 3PL to exist at all is threefold:

  1. 3PL providers are specialised in integration of links in the supply chain, and they can levy much more expertise in this field than any aid or global health organisation ever will be able to. They know the markets to the last digit, have extensive knowledge of and experience in integrated supply chains, and have seen the same issues crop up over a variety of organisations – and know of many techniques to overcome these issues.
  2. 3PL providers can leverage economies of scale through combined facilities and shipping at much larger scales than any but the biggest aid and global health organisations, potentially providing better efficiency.
  3. 3PL allows for easier up and down-scaling: as our needs change, we can just use more or less of the provider’s services, instead of having to deal with a restructuring of our organisation (including possibly painful measures like lay-offs, or, conversely, having to go through expedited hiring of new staff, with all kinds of risks attached).
Untitled by PACOM @ Flickr

3PL by the US and Indonesian armies on behalf of USAID.

Of course, there are good reasons why 3PL can be a very bad idea, too – or even impossible:

  1. Aid and global health work often takes place in places and markets in which 3PL providers have no or very little experience, which might mean that their general expertise does not add that much value.
  2. In some contexts in which we work, 3PL providers (and, indeed, 2 PL providers) do not operate because of security constraints.
  3. Specifically for humanitarian aid, it is important to adhere to standards of neutrality and impartiality; it can be difficult to verify that 3PL providers do so, and the added limitations could mean that they are not able to offer any increased efficiency (e.g., it implies some limitations regarding combined cargo).
  4. In case of disaster response, many 3PL providers would have difficulties dealing with the damaged and overburdened infrastructure, which aid organisations have much more expertise in.

Yet, taking all this into account, I still foresee that we will use more and more 3PL services. Stay tuned to read why.

[Images: Mailboxes by by Minesweeper @ Wikipedia (public domain); untitled photo by Pacom Webmaster (some rights reserved).]

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Kudos, buddy! Or: how logistics information management will help you do your job

by Michael Keizer on November 12, 2009

My previous article about I-See technology was the first post on what looks to become a mini-series on logistics information management; it gave me some fresh ideas for new posts, and why not go with the flow when you’re on a roll?[1]

This one will be about logistics data and what to do with it. Hello, are you still there?

A couple of years back, I was asked to analyse and improve on a supply line for an international NGO in an East-African country.[2] My first obvious question was: how bad is it actually? They didn’t know: although everybody knew that hardly anything was delivered on time and that there were a lot of mistakes in order fulfilment, leading to frequent stock-outs and overstocks, nobody could really give me any hard data – it was all seat-of-the-pants. When I asked what caused the problems, and where in the supply line they occurred, I was told that that was why I was hired, and could I please get on with the job?

By the time I left, I was told that the supply line had never worked as well as it did, and that I had done a sterling job; but had I?

I think it is time to let the cat out of the bag on that one: in fact, the supply line hadn’t improved a bit – at least, after I started measuring things, my indicators remained fairly flat. In fact, they showed that the supply line really didn’t do that badly even before I arrived, taking into account the context.

What did change, though, was that I used the increased supply chain visibility to give useful feedback to field managers, both logistical and operational ones. For the first time, they would know when to expect their supplies, and would be informed at an early stage if things seemed to go off-track; which meant that they could plan for it and start taking contingency measures at an early stage. I also started to churn out regular one-page overviews of how the supply chain was actually doing, which showed nicely that we didn’t do too badly. Of course I presented this as a big improvement: nobody wants to be told that they were actually quite wrong.

Now this is a nice story, but how would this have helped me if, in fact, the supply chain had been the shambles people thought it was? Having increased visibility would at least have helped me to find out where exactly in the supply line the problems occurred, and perhaps even what caused them; it would also have enabled me to see whether my remedies worked, and to which extent – it would even allow me to try out various measures, and see which one (or which combination) worked best. And finally, it would possibly have helped me to argue my case when expensive or painful measures would have been necessary.

All this turned out to be moot, and I got kudos for what was a fairly easy job. Want those kudos too? Then start working on your supply chain visibility.

[Image: Kudos Buddy by Adam Fagen. Some rights reserved.]

Back to post [1] I just love mixing my metaphors. It’s like those chemistry experiments I did in school, with sometimes similarly interesting (or malodorous) effects.
Back to post [2] Sorry, can’t be more specific than that.

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The public/private mix in health logistics

by Michael Keizer on May 3, 2009

Some time back I went on a tangent to rant about the wisdom (or rather, the lack thereof) of concentrating on the public sector for health, to the detriment of the private sector. The word “logistics” was conspicuously absent in that post, a lacuna that I am going to repair in this one.

I guess that it will be clear how important the public sector is for health logistics in developing countries. But how about the private sector? What could be its role?

Combine the words “logistics” and “private sector” in one sentence, and obviously third party logistics (or 3PL) will jump immediately to mind (or it should, if you have all been paying attention and read my post on visibility and transparency). However, there are very few logistics companies (or, for that matter, health ministries or health NGOs) in developing countries who would be able to implement the necessary visibility; so I am afraid 3PL lies rather further in the future than one might wish.

An existing example of more or less successful inclusion of the private sector in the health system, are the private retail pharmacies you can find almost everywhere in developing and middle-income countries. In many of those countries, it would be (almost) impossible to get the necessary medical supplies to the patients without this private initiative.

However, it is not all sunshine and laughter. For example:

  • There are serious questions about the quality of the supplied medications by private retail pharmacies in developing countries. Not only can this be extremely harmful for the patients themselves, but it can also contribute to the further spread of resistant strains of viruses, bacteria, and parasites.
  • Likewise, the quality of advice given by private pharmacists is not always the best. Research shows that not only is this advice not always up to par due to a lack of knowledge, but there is the obvious problem that the pharmacist wants to sell items on which he can make a (larger) profit; and so they would be clearly tempted to advice e.g. anti-diarrheals instead of ORS.
  • Private pharmacies will go where there is profit to make. This means that sparsely populated areas or especially poor populations are more likely not be served by any pharmacy.
  • Likewise, private pharmacies will not give away their goods to their poorest customers either. This would mean that the poorest parts of a population that is served exclusively by private pharmacies might not be able to access the necessary medicines.

None of these issues are insurmountable; e.g., quality of supplies and advice can be increased by better supervision and training, incentives can be given to pharmacies to establish themselves in sparsely populated areas, and a voucher system can be instituted to safeguard the needs of the poorest. However, all this costs money too, and in the end it might actually be more effective to have a public (government-owned or sponsored) pharmacy than a public one. This is not something that can be decided on a system-wide level; more likely, the most effective and efficient solution is a mix of private and public pharmacies, supplemented with adequate supervision, training, and financial incentives. Finding the right mix is not an easy task, and probably finding this right mix will include a number of painful mistakes. Don’t forget that the most successful systems in developed countries are the result of many years (and sometimes centuries) of ‘tinkering’.

However, one thing is clear: an all-public system of pharmacies is as likely to be ineffective of hugely inefficient as an all-private system. Dogmatics will not help us at all, and that is as true for pharmacies as for many other issues in health logistics.

(Image courtesy of Getty Images through daylife).

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Visibility, transparency, and some sunshine

by Michael Keizer on April 9, 2009

Lockheed SR-71 Blackbird strategic reconnaissance aircraft taking on fuel from a USAF KC-135

One of the hotly discussed topics in logistics management is supply chain visibility. In a nutshell, you have a visible supply chain if your supply chain processes are measured and controlled on a fairly detailed level — often up to the level of the individual item. The big impetus for supply chain visibility has come from the advent of third party logistics or 3PL — the outsourcing of parts of the logistics process to specialised contractors, in an effort to gain economies of scale as well as economies of specialisation[1]. Outsourcing is basically an external version of delegation, and as any management textbook will tell you, there can be no delegation without verification; hence the need of a more visible supply chain. Good examples of extremely visible parts of logistics chains are the track-and-trace systems that are offered by most couriers.

An offshoot of supply chain visibility, supply chain transparence, has also gained a lot of traction over the last couple of years. Unlike supply chain visibility, which concentrates on supplying information to those using the supply chain, supply chain transparency concentrates on the ultimate buyer of the products supplied. A good example here is Icebreaker’s baacode, which gives customers an idea about the origins of their woollen undies and what happened to them during the production process.

I think both visibility and transparence will gain in importance in health and aid. Like I wrote before, any medical supply chain needs at least a modicum of visibility to be able to react effectively and efficiently to e.g. recalls; and transparence will undoubtedly become more important as we move towards more accountability to our customers, i.e. the populations we try to aid, our donors, and the general public.

However, there is more to this: I think we will also move more and more to 3PL (stay tuned to read about the whys and wherefores); and like the corporate sector, we will need more and more visibility in able to do so while still keep control of our supply chains. Whether we like it or not, we will need to invest more in systems[2] that make supply chain visibility possible; and as these systems take time to design and implement, we need to invest now.

We should be able to learn from systems that are being used in the corporate world. However, it will probably not be possible to use solutions from a corporate setting unaltered in (health) aid settings. Issues like insecurity, lack of instant telecommunications, etcetera, will mean that adaptations are necessary. This is why the Fritz Institute’s Helios system is such a great step forward: it offers the base for humanitarian supply chain visibility, packaged in a way that is suitable for many aid organisations. This is not to say it is without its problems; it isn’t, and it some organisations will find it more useful than others (e.g., it is tailored towards humanitarian aid, and might not be particularly suitable for developmental organisations), it is as yet incomplete in some aspects — but it is a step in the right direction.

high visibility clothingTime for a mea culpa. Some years ago, I was asked to advise on the choice for logistics management software for a large aid organisation. At that time, I advised against Helios (or the HLS as it was known back then) because I thought that its foreseen development trajectory was unfounded and too optimistic. I think I had good reasons for that recommendation, but I was also very wrong: Helios has been developed into something that is a model for supply chain visibility in aid.

Is your organisation thinking about supply chain visibility? Perhaps you are already implementing solutions? Share your best practices (and your mistakes — we can learn from those as well!) here.

(Images by James Gordon and Leo Reynolds.)

Footnote

[1] This will definitely be the subject of a future posting.
[2] No, systems are not just computer systems. When I write about a system, I refer to a coordinated whole of human resources, material resources, and procedures[3, 4], aiming towards a common goal. Cf. e.g. “the humanitarian system”, “the supply system”, etcetera.
[3] And yes, a computer program is no more than a fancy procedure, a.k.a. an algorithm.
[4] Don’t you hate footnotes in footnotes?

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The origin of my undies

by Michael Keizer on February 14, 2009

I recently bought thermal underwear from New Zealand outdoor clothing manufacturer Icebreaker. I am not going to bore anybody with an account of how good their stuff is (but yes, it is very good), but tell you a little story about the origins of my undies.

The wool for my leggings came from four of Icebreaker’s 120 sheep stations: Walter Peak Station, Olvig Station, Omarama Station, and Te Akatarawa station, which are all located in the South of New Zealand’s South Island. How do I know? Every Icebreaker garment contains what they call a baacode (no, they will not win the price for the world’s greatest wits). This code links to a database that contains production data for each of the batches of fabric that are used for their products, back to the original station and wool batch data. This is all part of what Icebreaker calls their ‘transparent supply chain‘.

Obviously, in medical logistics, such transparency is as least as important. Everybody who has ever been involved in a product recall will be able to testify to the difficulties that always crop up as a result of a lack of data about exactly which products are where in the supply line. Yet our supply lines are normally quite a lot simpler than Icebreaker’s: for each product, we usually have only a couple of potential suppliers (not more than 100 like Icebreaker), and we usually have only some tens of distribution points, a couple of hundreds at the outside (not thousands); yet we are hardly ever able to easily perform a trace like this one without a lot of hard work (which is too bad), often taking a lot of time to do so (which is a lot worse, knowing that in the mean time people could die from the effects).

Logistics management in medical aid work rarely use relatively simple tools like traces of from cradle to grave. Taking into account what this could mean for our patients, it is high time that we start implementing this as a minimum standard.

Icebreaker shows that this is more than empty wool-gathering.

Update (27 April 2009): I have written an expanded post on visibility and transparency (and some sunshine). Go and read!

Illustration: Wool by Sukanto Debnath. Some rights reserved.

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