Inefficiencies in the supply chain erode EBITA. An evaluation of portfolio companies’ supply chains may be one of the largest value creation strategies performed this year. Given the pace of change across the freight industry, portfolio wide supply chain strategies may have been setup to execute on a market that is no longer relevant. With a misaligned freight management plan, portfolio companies may be inefficiently navigating industry trends and incurring excess costs. Unlike the small parcel market, the domestic freight market is comprised thousands of carriers. The critical ability to extract value from seemingly endless combinations of providers requires current and intimate knowledge of the marketplace itself.
While a consulting group may provide supply chain advisory services, third-party logistics companies (3PLs) are a growing solution for private equity operating partners who recognize that the best solution to a problem may be the ones closest to it. Inviting a 3PL to conduct a benchmarking assessment not only provides a larger, more current pool of data for comparison, it provides best-in-class standards that are tried and tested. With their direct industry experience, 3PLs are in-tune with current market conditions and can provide insight into trends, ultimately developing a supply chain management plan that anticipates forecasted changes. These strategies are generated utilizing proprietary modeling tools and are based on the most current, real-world data available – a true advantage for a 3PL. If a company is satisfied with a 3PL’s findings – it is easy to begin recognizing those efficiencies.
Harnessing a 3PL’s expertise and buying power allows for a flexible supply chain strategy to be implemented across multiple portfolio companies. With the ability to measure incremental savings and comingle portfolio companies’ volume, 3PLs can expedite implementation, streamlining operations with fewer suppliers to manage.
The full or partial management of a private equity fund’s book of business allows a 3PL to curate a mix of active carriers under management. This intimate knowledge and established relationships highlight the nuances of a carrier’s network such as visibility to lanes where a carrier is repositioning empty equipment. Another factor would be evaluating carriers that perform best in certain markets compared to others, avoiding premium recovery rates. There is also the intimate understanding of how each carrier executes, ensuring a carrier provided their proper rate and has the available capacity. All which can be leveraged by a 3PL to bring more savings with a sturdier network.
Continuous improvement in action
The continuous improvement approach of a 3PL mutually incentivizes innovative tactics that a consultant may not be equipped to provide. With the technological advantages and operational experience, 3PLs can quickly identify improvements like mode conversion, freight consolidation, shipping schedule shifts and even complete network redesigns – all with the central focus of eliminating expense and mitigating market increases. These strategies are designed to scale with highly acquisitive companies and can typically be seamlessly integrated with existing company add-ons and new acquisitions. As the solution matures, incremental savings opportunities are major incentives for the 3PL as they strive to maintain the relationship beyond the consulting stage. While consultants do offer an outside perspective, the fact is, emerging supply chain trends will be better met by a 3PL with intimate industry knowledge and best in class performance execution.
Mikael Trapper is Assistant Vice President Private Equity Consulting at Hub Group. Hub Group is a preeminent supply chain management company that takes an innovative approach to supporting customers’ supply chain goals. For more information or to get in touch, visit hubgroup.com or email PrivateEquity@hubgroup.com