Reprogramming the High-Tech Supply Chain
Written by Jonathan Oomrigar, Vice President Global High Technology Business Unit, Oracle
The most successful technologies often mask complexity, but in the case of the high technology industry, business operations are anything but simple. In fact, the rapid rate of technology innovation, complex integration challenges and intense global competition have forced original equipment manufacturers (OEMs) to fundamentally transform their business models to meet the increasing demands of their customers.
Faced with a world of constant innovation, high technology customers are demanding that OEMs offer turnkey (single contract) installation and implementation services required to help them quickly and efficiently absorb innovations into their existing operations. This subtle, but significant change, fundamentally transforms the relationship between the OEM and their customers. As to compete in a hyper-competitive global market, OEMs are forced to redesign their business processes.
Aside from managing the complexity of integrating new products and services into their customers’ existing operations, this new world order creates a delicate financial balancing act for OEMs. While they previously realized revenues upon the delivery of a product or service, the payment model has shifted with installation services now being required. The new financial reality for OEMs is that payments are spread into distinct stages that need to be carefully managed. Here is a typical example of what those stages or tasks look like:
1) Staging: An OEM receives a small percentage of the overall payment once the equipment is delivered. While it is difficult to put an exact figure on the payment, it typically ranges from seven to 15 percent. It is worth nothing that prior to recent changes, this would have been the point when the OEM received the full payment.
2) Site Delivery: An OEM receives another small percentage of the overall payment, typically between 10 and 20 percent, when the equipment is verified onsite.
3) Preliminary Acceptance Test: An OEM receives a further payment once it has proved that the new equipment is working. This typically ranges from 15 to 25 percent.
4) Final Acceptance Test: An OEM receives the remaining payment when the new equipment is fully integrated into the customer’s existing systems. In some cases this stage can also include making sure the new equipment works with all third-party products, further compounding the project complexity and extending the time before final payment is made.
The reality of this new business model is that the billing structure for the OEM cannot fully recognize revenue until the project is 100 percent complete. For the enterprise and specifically the CFO, this exponentially increases the complexity and risk involved in every single customer relationship. To compound matters further, OEMs will manage tens if not hundreds of projects (installation services) simultaneously. To date, most have relied on manual processes to manage the end-to-end project lifecycle.
To manage this complexity and achieve the project execution and control capabilities needed to successfully deliver projects on time, within budget and with the intended quality and design, OEMs need a unified platform that combines world-class supply and project management capabilities. By automating and integrating multiple operational layers, OEMs are better able to:
· Reduce project-related inventory by helping ensure parts and components are delivered to project sites and clients at the right place and time
· Improve financial forecast accuracy through real-time billing execution for supply revenue recognition and predictable revenue planning for reliable cash flow
· Increase installation project efficiencies through increased visibility into global resources, streamlining the management and project scheduling
· Automate complex billing processes, thereby improving financial forecast accuracy
· Integrate project management and supply management to provide real-time “what if” scenarios that promote the efficient use of materials and installation resources
While the financial management, operational efficiency and customer service benefits that a unified supply and project management solution are clear, it also delivers a more subtle, but hugely important benefit. As by managing the complexity presented by the rapid rate of technology innovation, complex integration challenges and intense global competition, it will create new service revenue opportunities and stronger customer relationships. That’s a powerful proposition that can transform a potential nightmare into an exciting new opportunity.
ABOUT THE AUTHOR
Vice President Global High Technology Business Unit
Jonathan Oomrigar is vice president of Oracle’s global high technology business unit. In this role, Mr. Oomrigar is responsible for business development, sales enablement and the strategy for bringing Oracle Applications and technology to the high technology market. Today, he works closely with customers who are adopting service-oriented architectures to gain a competitive edge and prepare for growth.
DHL and UPS: How is 3PL Evolving in 2021?
To optimise their supply chains, many companies have turned to third-party logistics providers—3PLs—to outsource how they manage inventory, stock warehouses, fulfil customer orders, pack pallets, and handle returns. Especially in the midst of the pandemic, corporations have struggled to satisfy their customers, mitigate shipping delays, and react to rapid spikes in demand. In short: if logistics isn’t your core competency, rely on the experts.
To examine the current state of 3PL, we decided to have a quick roundtable with Philippe Gilbert, President of UPS Supply Chain Solutions, and Phil Roe, Chief Customer Officer and Strategy Director at DHL Supply Chain. Here’s what they have to say on the subject:
What are the fundamental benefits of partnering with a third-party logistics provider?
‘Proper supply chain visibility and planning is one of the key challenges facing modern supply chains’, says Phil. ‘Supply chains now cover multiple jurisdictions across significant distances. They’re also omnichannel, meaning that it’s now standard practice for there to be multiple routes to the customer’. Philippe adds that, ‘3PLs can deliver efficiencies and resources across the supply chain that are difficult for most businesses to replicate’.
According to a study from UPS Global Logistics, five major challenges drive companies to outsource:
- Limited Space
- Increased Customer Expectations
- Faster Order Fulfilment
- Reduced Labour Costs
- Multiple Fulfilment Channels
Now, the pandemic has accelerated 3PL adoption. In that same UPS survey, 29% of respondents indicated that they’d switch to outsourcing their logistics as a direct result of the past year. ‘One of the biggest issues impacting our current customers is the timing on inventory levels’, says Philippe. ‘Production delays out of APAC have pushed receipts and built back orders of products’.
How are 3PLs helping businesses cope with broader disruptions, such as Brexit, transport logjams, and driver shortages?
‘We can categorise supply chain disruptions into three broad areas’, explains Phil. ‘Demand-side, supply-side, and environmental. Some of these are easier to control than others, but all benefit from proper oversight and the ability to quickly adapt’. When the Brits finalised Brexit, for example, DHL scaled up areas that needed specialist support, such as customs processing. ‘We can leverage our network and redeploy on demand’, he explains.
As for UPS, the company developed a post-Brexit SCS solution that enabled its clients to keep inventory closer to their UK customers. ‘We can maintain a broad portfolio of carriers and providers to quickly adapt to supply chain disruptions’, Philippe says. ‘This allows customers to avoid service delays, added costs, and administrative burdens associated with customs clearance’.
Next, this conversation would be incomplete if we didn’t talk about how the boom in e-commerce has affected 3PL.
Do you anticipate that e-commerce growth will continue?
‘The growth of the past 18 months shows no sign of slowing down’, Phil says. ‘Consumer habits have altered, in some cases, permanently. Over the last eight months, DHL has seen a 150% increase in its fulfilment division—reflecting the soaring demand’. To keep up, the company has focused on data and automation, as well as deploying robotics solutions alongside its employees. ‘Whether that’s automated pallet systems or pick-and-pack robots’, Phil explains, ‘we’ve coupled technology and data to manage demand, meet customer expectations, and smooth out labour requirements’.
Fundamentally, e-commerce is driving demand for additional labour and space. ‘This presents a unique opportunity for 3PL’, Philippe says. ‘New entrants in retail platforms, though currently small, will look to disrupt the giant retail players. They’ll be closer to their customers in the city. And they’ll try to unify and digitalise SME brick-and-mortar retailers’.
How are shifting customer expectations - such as the next-day “Amazon Effect” - impacting 3PL?
‘We see 3PLs expanding their networks to be closer to consumers and integrating fulfilment with last-mile delivery’, says Philippe. ‘They have to expand their reverse logistics, including investments in warehouse space’. He suggests that data analytics can enhance visibility and help 3PL companies address inefficiencies. ‘With the right technology’, he says, ‘businesses can access accurate, connected data and derive actionable insights’.
Predictive and prescriptive analytics, when coupled with artificial intelligence and machine learning, can help companies understand when, why, and how supply chain disruptions occur. ‘This way’, Philippe adds, ‘they can prepare for them—or better yet, sidestep them completely’.
In addition, customers now expect companies to follow through on their social commitments...
Can 3PLs help organisations deliver on their ESG objectives, such as reducing carbon emissions?
Absolutely. Through UPS’s Eco-Responsible Packaging Programme, for instance, the company evaluates its clients’ packaging processes to determine the best way to protect their products and the planet. In addition, the corporation works with carriers on creative, lower-emissions solutions. ‘By 2025, we plan to source 40% of all ground fuel from sources other than conventional gasoline and diesel’, Philippe explains. ‘That’s nearly double what we used in 2016’. By then, 25% of UPS’s total electricity will come from renewable sources.
As for DHL, the company offers a portfolio of GoGreen solutions, which offers its customers a range of ways to minimise their impact on the environment. ‘This includes everything from carbon reporting and analytics solutions to investments in internationally-recognised climate protection projects’, says Phil. ‘Sustainability provides us an opportunity to collaborate with our customers’.
Yet, it’s often challenging to serve customers in highly regulated industries. How can companies overcome those hurdles?
‘Companies operating in highly regulated industries such as pharmaceuticals and life science face extra pressure on their supply chains’, Phil explains. ‘Dealing with rapidly growing changes then requires depth and breadth, which is something a global business such as DHL can offer’. To overcome regulatory challenges, DHL offers its clients dedicated sector specialists who understand niche industries but still have access to its global network.
At the end of the day, Philippe comments, 3PLs must take responsibility for running compliant programmes and services. ‘Licensed or not’, he says, ‘they’ll need to work with their highly regulated customers to ensure that SOPs (Standard Operating Procedures) and audit processes are in place’.
What do the next 12 months hold for 3PL providers?
‘Providers will focus on mastering omnichannel e-commerce’, says Philippe. ‘You’ll see faster last-mile delivery, more sustainable logistics and packaging, and better forecasting for risk management’. Overall, he notes, 3PL providers will invest in data analytics and new warehouse technologies to provide greater visibility into their supply chains.
For example, UPS is rolling out a new suite of digital engagement tools. According to Philippe, the company introduced a new UPS Forwarding Hub, UPS Customs Brokerage, and CoyoteGo portals to help their supply chain solution clients. In addition, its e-Fulfilment and Ware2Go products help small- and medium-sized businesses outsource with ease. ‘We’ve focused on adopting technologies to improve our operations’, Philippe says.
Finally, UPS’s Advanced Technology Group (ATG) has implemented robotics, drones, artificial intelligence, autonomous vehicles, new software platforms, and sensor technologies to increase its 2021 revenues and cut bottom-line costs. Says Philippe: ‘With these tools, we can meet customer expectations for real-time tracking, end-to-end visibility, and personalised service’.
And there you have it: the future of 3PL.