When we need advice on our health we see a doctor. When we need to optimize our taxes we speak to a specialized tax accountant. When we need legal advice we obtain advice from a lawyer.
Quite simply, when we need specialized advice from experienced professionals, we have no difficulty recognizing the benefits of employing professional services. This same principal explains why companies seek out the services of a professional supply chain, logistics, and distribution consultants.
The main reasons that companies seek out the services of a supply chain consulting firm are:
- The need for specialized expertise that is not available internally within the firm. An example of this may be a distribution center expansion, reset or design project.
- The need to temporarily rent resources to execute a specific project. This is very common for supply chain technology projects where a specialized supply chain software application is being purchased and / or implemented.
- The need for an unbiased entity to help a firm develop, evaluate and / or rationalize a complex strategic decision. These projects tend to involve multiple operating divisions with vested interests and a high degree of political struggle within the firm. We often see this requirement when working on projects that involve logistics network strategy.
- Insufficient internal resources available to harvest opportunities or assess important supply chain or distribution operations challenges. These projects are often tactical in nature and involve the need for “someone from out of town” to evaluate opportunities to reduce operating expenses, identify potential efficiencies, or to breath more life into existing assets such as in a distribution center reset.
Regardless of the reason for seeking external supply chain, logistics, or distribution consulting advice, it is important for your firm to understand the landscape to make the right decision for your firm when choosing a consulting partner. Note that we emphasize the word right rather than using the word best because each company has different needs that call for different solution providers as explained below.
System Integrator Consultants
System integrators are consulting firms that provide more than just consulting services. These firms also sell turn-key solutions that may include:
- Software Applications - some consulting firms have eliminated the process of spending money and time evaluating supply chain software applications. Their approach is to work exclusively with a single solution provider that provides the “best fit” for your company as a means of “cutting to the chase”.
- Material Handling Equipment (MHE) - some consulting firms resell turn-key material handling equipment hardware where there is a significant capital outlay required for the project. These firms guarantee the price of the project to the client and build in a healthy margin for undertaking this risk.
- Warehouse Control Systems (WCS) - some consulting firms develop and sell these applications which are different from Warehouse Management Systems (WMS) because they manage complex material handling equipment such as packaging systems, conveyor systems, or automation systems.
In each of the above examples, the systems integrator may have a vested interest in the solution that will ultimately be proposed to the client. This is important to keep in mind since this may or may not have an impact on the future performance of your company's success as far as logistics operations are concerned. Why is this?
- As an example, the system integrator that sells conveyor systems will no doubt have strong expertise in conveyor systems. This firm may have started out as a conveyor sales / integration company and later expanded by adding consulting services. This type of consulting firm makes significant revenue selling steel as opposed to consulting services. These firms tend to have a much higher revenue per employee because they procure the material handling equipment and generate revenues through inside margin on the sale of equipment. These firms may even sell their material handling and warehouse design consulting services at below cost in order to land the “big deal” because the equipment order is where the real money is to be had
- The consulting firm that provides advice to proceed directly to a specific software solution, rather than evaluating the market place for available solutions, likely also has a built-in bias because they generate revenues through the software vendor channel for that vendor’s software or services. They may have invested significant money into developing experienced resources for a specific vendor's software applications, hence their goal is to persuade the client to move in a specific direction because of their own economic interests.
It is important to note that in the examples illustrated above, the system integrator may actually be the right solution provider for your company depending on the project being undertaken. As mentioned earlier, some system integrators provide a guaranteed budget for large-scale projects that involve a high degree of cost and complexity. Their expertise allows them to do this because they are at risk of losing money if they underestimate the budgetary requirements. The unbiased consulting firm cannot offer guaranteed turn-key project budgets because their business model cannot finance the project.
- Of course the flip side of obtaining guaranteed pricing from a system integrator is that your firm will pay more for the solution because competitive quotations are not being solicited. The system integrator offsets the risks incurred with guaranteed pricing by building in a healthy margin on the equipment they sell.
- The other risk your firm incurs is the notion of over-designing a system. If you have ever walked through a distribution center that has an overkill of conveyor systems then you can almost be certain that a system integrator sold the equipment to the client because of the over-design and the profit motive to sell more steel.
In short, if your firm is seeking strong domain expertise in a specific type of material handling system such as conveyor systems and it is important to have a guaranteed budget for the project then system integrators may be the right partners for you.
Multi-Discipline consultants tend to be larger consultancy firms that offer a wide array of advisory services that may include audit, financial accounting, taxation, risk management, human resources, legal, information technology, real estate, government infrastructure / A&E projects , etc. These companies tend to have offices across a wide geographic area and often have a presence in many countries. The company's supply chain, logistics and distribution consulting practice is usually a small subset of the overall firm and typically consists of a specialized group of individuals positioned out of a few offices.
These firms typically provide supply chain consulting services as a means of keeping clients “within the family” so to speak. Their goal is to maximize revenues by cross-selling different services to the same client base. Their strategy is to provide provide consulting services in supply chain and logistics by leveraging existing relationships in place for say accounting services.
A client once said it best and so I quote: “a consulting firm is only as good as the man you rent”. Herein lies the buyer-beware issue for multi-discipline consultants. The big complaint with these firms tends to revolve around the scenario whereby the Senior Partner is last seen once the sales cycle is over. Hence the proverbial school bus driver shows up during the sales cycle and then returns to drop off the kiddies off once the contracts are signed. To make matters worse, the kiddies are then billed at premium rates that are substantially higher than industry averages because of the inflated multiplier requirements that these firms require to support their corporate overhead. It is important to note that in consulting-speak, a multiplier of 3.0 means that the consultant's billable rate is set at 3.0 x the actual fully loaded labor cost of the resource. It is not unusual for multi-discipline consulting firms to charge multipliers of 3.0 - 4.0 + as compared to many boutique consulting firms that sell services in the 2.0 - 2.5 range.
Multi-discipline consulting firms tend to be most successful in ERP projects where a pool of resources are temporarily required for a one-time large-scale software implementation. For larger companies, the cost of these projects can easily be in the tens of millions of dollars and the risk of failure is so great that the safe bet is to select a large consulting firm that has a proven track record with the ERP application being implemented.
For supply chain, logistics and distribution projects that involve more specialized experience, these firms tend to be less competitive because they tend to be generalists as opposed top specialists. These firms also tend to be substantially more expensive than their boutique consultant competitors. Depending on the project at hand, multi-discipline consultancies may or may not be the right partner for your firm.
Specialized Boutique Supply Chain, Logistics and Distribution Consulting Firms
The boutique consulting firm generates revenues by providing strictly unbiased services within the supply chain, logistics, and distribution industry domains or within some subset thereof. Given that the supply chain is estimated to represent 10+% of the entire economy, there is indeed a very wide array of services that are available for a consulting firm to develop leadership skills within.
The most typical firm in this category is the small to mid-size consultancy that provides deep domain expertise in a specific subset of the the supply chain, logistics, and distribution industry . Many (but not all) of these firms are unbiased meaning that the solutions being developed are in the best interests of the client and there is no hidden agenda at play. There are plenty of specialized consulting firms that have some form of revenue stream that is derived through vendor channels hence it is important to understand this before establishing a commercial relationship with these firms. The main point is that if your firm considers it important to hire a consulting firm with an unbiased perspective then it is important to understand your prospective supplier's profile before engaging the firm as a supplier.
Since boutique consulting firms tend to be smaller than system integrators and multi-discipline consulting firms, they generally do not have a large army of consulting resources to provide to any one client. These companies tend to thrive in projects that require a smaller, focused project team where high value per consulting dollar is required. It is a misconception to think that only small and mid-size companies hire specialized consulting firms, since the Fortune 100 quite often leverage these skill sets depending on the project being undertaken.
Specialized supply chain, logistics, and distribution consultants tend to be the ones that roll up their sleeves and get their fingernails dirty to get the job done. There is a strong entrepreneurial culture that exists in these companies because each client is of critical importance to the firm. As such, the specialized firms tend to work tirelessly to ensure that client expectations are exceeded.
The reasons to hire a supply chain, logistics, and distribution consulting firm are no different than the reasons one hires a doctor for a health issue or a lawyer for a legal issue. Your company seeks specialized expertise to provide advice in an area of the business where it is needed. The consulting firm that makes the right partner for your firm depends on the type of project being undertaken. In the table below, a list of the pros and cons of each type of consulting firm is provided.