I first wrote a version of the following way back in 2005 for a very large telecommunications company in the US. If someone would have asked me then if CSPs would still be struggling with this issue in 2012 I would have flippantly dismissed the idea as absurd. I would have been wrong.
Supply Chain Evolution
The evolution of fulfillment and the supply chain is similar in most industries and telecom is no exception. When originally pressed to provide product fulfillment services, organizations usually attempt to handle it internally first. After some time they decide the hassle and effort isn’t worth it and they turn it over to an outside specialist. Finally, hopefully, they realize that certain parts of that service are highly valuable and they move to re-acquire those pieces of the supply chain. Certainly there are some situations where 100% outsourcing may make sense but for the majority of CSPs owning the value components of the supply chain is critical to success.
The first pass at handling fulfillment of any equipment, including customer premise equipment (CPE), is usually to attempt to handle it completely within the four walls of the organization. There is usually a grass-roots effort to pull some capability together and over time many of these organizations evolve into groups with a considerably amount of efficiency. At some point though, the internal cost of managing custom software, owning or leasing facilities and managing part-time help get to be a burden on an organization that is focused on selling primarily, not shipping products.
The second evolutionary phase introduces the idea of outsourcing, taking certain pieces of an organizations business and turning those over to an outside ‘expert’ who specializes in that piece of the business. In the case of fulfillment and shipping services these ‘experts’ are many times called Third Party Logistics providers (3PL). In the telecom industry the outsourcing of CPE began to permeate in the early 1990’s about the same time that Caller ID boxes were coming into vogue. Sales of CPE equipment skyrocketed once invoicing for the equipment could be placed directly on the consumer telephone bill (this type of capability is a very strong ‘value’ component of many CSP supply chain partners).
The final phase tends to be re-examining the fulfillment end of the supply chain and looking for opportunities to bring the ‘value’ components of the supply chain back within the organization’s four walls without having to deal with the overhead and management issues that were encountered in the first phase. Technology is the ultimate enabler of this phase.
Commoditize the Supply Chain
The ability to commoditize the last miles of the supply chain is critical to driving out cost and driving up efficiency when working the external providers of fulfillment services in any industry, including telecommunications. By allowing outside integration partners and 3PL providers to control too much of the supply chain and its logical decision points they become ‘required’ components of the corporate supply chain.
Inevitably this is exactly what 3PLs and other supply chain ‘partners’ strive to do; their primary goal is to become so intrinsically embedded within the organizational supply chain that they cannot be extricated without much financial pain and business risk. This allows the 3PL to keep from becoming a price-based commodity partner and adds ‘value’ to their offering allowing them to many times maintain single sourcing and higher rates / margins on fulfillment services. In some cases external 3PLs are embedded in the CSP billing process, a highly valuable piece of the supply chain. The capability to interact with provider billing systems and drive billing events ties them explicitly to the CSP supply chain.
All of the value in the supply chain is within the supply collaboration, fulfillment routing, business logic, billing and fall-out or issue management. The box shipping out the back door is regulated to becoming a commodity offering measured by a Service Level Agreement (SLA) for on-time shipping / delivery, shipping accuracy and cost.
By allowing partners to control the ‘value’ components of the organizational supply chain they take on a role larger than a ‘commodity partner’. Traditionally the three key components necessary for success are people, process and technology. By giving one or more away to a partner we limit our capability for supply chain success.
Compounding the problem with the scenario listed above is that once control of the ‘value’ components of the supply chain is given away, the external partner(s) no longer has any incentive to continue to drive cost out of the supply chain. They are also now in control of the fulfillment end of the supply chain and will look to take margin wherever and whenever they can do so.
Partners often don’t possess the domain knowledge required to deftly handle the kinds of decision logic that a CSP has to manage. They also have sometimes hundreds of other clients that they are trying to become embedded with as well which sometimes divert their focus from the things a provider needs to accomplish.
Partners many times also need to add a large number of ‘client services’ personnel to work with clients like service providers in order to overcome their antiquated and stretched IT system capabilities. Bringing the ‘value’ back into the four walls of the CSP almost guarantees the ability to reduce headcount needed at the 3PL partner at the same time increasing order efficiency and accuracy.
In the next blog we’ll look at how communications providers can begin taking steps to bring the value of the supply chain back into their organization.