A new kind of service company

Service businesses, where a company takes on a set of tasks that used to be done in-house, is quite common. Companies are outsourcing all sorts of things – call centers, janitorial services, accounting, IT services and the list goes on. In the supply chain world, contract logistics – where a third-party logistics company (3PL) operates and manages warehouses on behalf of its customers, is a market worth more than $200 billion.

In supply chain services, the service company plans and executes on behalf of its customers. The right IT is critical. For example, in contract logistics, the 3PL makes use of a warehouse management system so they can get the job done efficiently. For managed transportation services, the best transportation management system is at the core of the service. There is also managed planning, where a service company uses a supply chain system to forecast demand and plan for replenishment and manufacturing. This is much less common than contracted logistics or even managed transport.

But now we’re seeing a whole new kind of service company in the supply chain world – a service provider that does the planning and owns the inventory. This model is the result of a partnership between GEP and Eliant Inventory Solutions. Partners have some customers who are using managed planning and inventory ownership service.

Managed Services in Supply Chain Management

Typically, service providers are based on a cutting-edge supply chain application that is purchased from a supply chain software company, but in some cases the application was developed by the same company. GEP is one of the relatively rare companies that is simultaneously a software company, a consultant and a service provider. GEP offers acquisition orchestration and visibility/fulfillment applications. The orchestration is based on your GEP NEXXE application.

The GEP NEXXE solution is a Multi-Enterprise Supply Chain Collaboration Network (MSCN) application. MSCN orchestrates the flow of materials across an extended supply chain that includes the enterprise, contract manufacturers, 3PLs and other trading partners. This platform provides visibility and collaboration – forecasting, purchase order and capacity collaboration. This collaboration is the foundation of the inventory and transport synchronization provided by the solution.

A critical aspect of an MSCN is its architecture. If the application is not based on a public cloud architecture, it is not an MSCN. Collaboration and visibility are much more effective when based on a many-to-many multi-tenant architecture. One of the key benefits of an MSCN is its ability to support supply chain agility. The architecture of an MSCN supports agility in a way that an on-premises application cannot match.

I spoke with one of GEP’s planning clients. This company has a complex supply chain with tens of thousands of products (stock keeping units). It has outsourced manufacturing. This manufacturer uses GEP’s technology and services to synchronize the flow of materials in its partners’ factories. Inventory is stored in a number of central inbound warehouses managed by 3PLs. The relationship is young, but this company hopes to achieve higher service levels, reduced inventory levels and lower transportation costs. This company is well on its way to receiving a robust return on investment by improving customer satisfaction. It’s also a simpler supply chain that allows your top supply chain managers to focus on higher value activities.

Working Capital Efficiency

Eliant Inventory Solutions is an inventory services company that takes title to inventory and releases working capital tied to inventory in warehouses and ports around the world.

For example, in a multi-enterprise supply chain consisting of a company, its suppliers, and its supply chain partners, the company usually has a contract that says it will pay the supplier for its materials 60 or 90 days after receipt of the goods. If inventory levels are high, the company will have high inventory holding costs and less cash on hand.

There are different types of working capital solutions, but a common solution would be for GEP to order materials for its customers using its platform, these materials are shipped to a 3PL warehouse where Eliant purchases and appropriates the inventory. The platform provides a timestamp of when the goods are received, which starts the clock on the inventory property. Then the goods are shipped from the warehouse to the factory. Eliant ceases to own inventory immediately after materials leave the centralized warehouse.

In this example, the GEP/Eliant customer releases a significant amount of money from this agreement. Historically, the company held inventory on the balance sheet upon receipt of goods and in turn borrowed money from those assets to increase working capital. But with GEP/Eliant, the OEM does not need to take inventory on the balance sheet until a later stage, giving the customer financial flexibility.

Here are some key points to keep in mind:

1. Eliant can secure financing to hold inventory at a lower capital cost than the customers it serves.
2. The visibility provided by the GEP platform can lower Eliant’s risk of fraud or payment errors, allowing it to charge less.
3. The risk associated with holding inventory is understood and managed by Eliant. Eliant may assume it will hold inventory for 60 days, but could end up holding it for 120 days. If that were to happen, it would obviously cut into Eliant’s margin. However, the GEP MSCN solution and managed services help ensure that inventory planning is done with a high level of competence and thereby reduces operational risk for Eliant.
4. One of the foundations for resiliency is better end-to-end supply chain visibility. The GEP platform provides this visibility.
5. There are also advantages for vendors. When recessions strike, and one is looming, companies often try to free up cash by lowering their payments to suppliers. This can be counterproductive for several reasons. First, because a good supplier may be reluctant to work with the company; secondly, because the provider is obliged to charge more for its services; and, finally, because late payments can even drive a major supplier partner into bankruptcy. But with commercial services, providers are always paid on time.

In short, the combination of GEP plus Eliant creates a better solution from both an efficiency and resiliency perspective. This is a significant innovation. Many partnerships are announced, which makes for a good press release, but not much. Eliant/GEP is the real deal because it is born out of mutual synergies.

Conclusion

This is an unprecedented way of contracting services on the market. The benefits are operational and financial. The partnership at the heart of these services would not be possible without advanced technology.