Operating models of the future
An operating model based on collaboration and modal optimization will best address the industry challenges. Major benefits of the multimodal approach include improved equipment utilization; reduction of deadhead miles; reduction in lane rates; lower capacity challenges; reduced total transportation/logistics costs; and reduction in greenhouse gas emissions.
Within vertical collaboration, two operating models are vying for advantage: retail-centric and integrated transportation. One or both are likely to emerge as viable in the near future as businesses in the transportation industry begin to engage in large-scale vertical collaboration.
Likely to emerge first, the retail-centric model will entail the retail giants to form exclusive alliances with their suppliers. With such a model, a retailer will manage its own transportation network and the part of its suppliers’ transportation networks used to serve that particular retailer through a joint venture or consortium with suppliers (see figure 9). This retail-centric collaboration will cause the retailer’s network to become fully optimized, reducing deadhead miles and increasing asset utilization. These actions will also reduce the carrier’s cost to serve and result in more sustainable solutions. Retailers adopting such models will share part of the cost-to-serve efficiencies with their participating suppliers. However, the suppliers’ remaining networks—which might be utilized to serve other retailers—are likely to become de-optimized due to a lack of scale, forcing other retailers to form their own similar joint venture or consortium to avoid becoming marginalized by their competitors.
An integrated transportation model will eventually be the more optimal solution since it will look at all retailers’ and suppliers’ networks in totality. Here, retailers and suppliers form a jointly-owned transportation management business unit that manages the combined transportation networks of all participating retailers and suppliers collectively, as a 3PL would do (see figure 10). The value captured by collectively managing all participants’ networks will be shared based on a variety of metrics including scale and stake in the transportation management business unit. This model will provide the maximum value capture because the transportation networks of a number of retailers and suppliers will be optimized together as opposed to optimizing individual retailers’ networks. This joint optimization will lead to even greater asset utilization and further lowering of cost to serve as compared to the retail-centric model. However, it will require competing retailers and suppliers to develop the level of trust needed to be able to work together. Both vertical collaboration models will help retailers and suppliers capture benefits they would otherwise be unable to capture by continuing to operate as independent entities. However, as figure 11 shows, the integrated model goes a few steps further than the retail-centric model by exercising additional benefit levers and expanding the realm of benefits.
External service provider
Horizontal collaboration, which can be implemented in parallel with vertical collaboration, can yield incremental value. One operating model is to appoint an external service provider, i.e., a multi-client 4PL. This is a quick and easy strategy for starting the collaboration process. It entails extending the typical 3PL role—which is to serve each client individually—to serving all clients involved in a collaboration process as one large client. This option has few integration requirements since the 3PL provides an integrated service for all participants. On the downside, however, 3PLs charge commissions, do not always provide full transparency and sometimes take more than their fair share of value capture—all of which reduces the total value created for the participants. Nonetheless, it is a good option for getting the collaboration process started.