According to the trade press and 3PL presentations, ‘control towers’ are springing up like daisies all over Europe. Anyone who is anyone in the supply chain arena has at least one, if not more. The control tower concept is one that is easy to visualize, as a hive of activity staffed by multi-lingual traffic controllers. One could imagine that the central point of the control tower hosts a vast screen depicting an integral overview of all freight flows and clearly pinpointing any problem areas. Is that really what a control tower is about? Are you missing out by being stuck with your ‘old-fashioned’ freight management desk? This article will bring the control tower back down to ground level, explain its functionalities and try to identify situations in which the concept really adds value.
1. What is a logistic control tower?
To clarify what a control tower is, we will start with a brief summary of what it is not:
- It is not actually a tower
- It is not in direct communication with truck drivers, captains or pilots
- It does not control the production, storage, replenishment and order process
- It is not a synonym for a 4PL
The essence of the control tower concept is to provide supply chain visibility across divisions, countries and modalities. The heart of the control tower is an information hub supported by a set of detailed decision-making rules and a trained team of operators. The big advantage of this central information hub is that it gathers and integrates data from a variety of sources and subsequently distributes it in a consistent format. This integrated overview allows the control tower operator to detect risks or opportunities at an earlier stage.
The actual scope of a control tower differs from one company to another, ranging from the orchestration of raw material supplies to a factory to an end-to-end control center. Management of spare parts and returns is always done separately (figure 1).
2. What is the difference between a control tower and ‘good old’ freight or distribution management?
Contrary to the traditional way of managing freight and distribution flows from either origin or destination, the control tower is not physically or hierarchically linked to one specific location.
Furthermore, a control tower is usually focused on ‘event management’. Status information from suppliers and logistic service providers is collected and stored in a structured way; it is used to provide the control tower team with insight into the actual status of orders, products in stock and shipments. This information is used to make informed decisions when planning, monitoring and analyzing the supply chain.
In comparison, freight management only focuses on the transport or distribution part. Freight management activities typically include freight forwarding activities, tracking and tracing as well as pick-up and delivery scheduling.
Figure 1: Typical activities of control towers and relationship with freight management
3. Who needs a control tower?
Control towers are used to improve visibility in ‘complex’ supply chains. Your supply chain qualifies as complex when:
- the scope is global or inter/intra-continental;
- the dependency is high;
- many supply chain activities are outsourced;
- and your customers’ service requirements are increasingly challenging.
Complex supply chains have fast and fact-based information requirements. Questions about the status of an order, the logistic costs of a product, the performance of a supply chain partner or a root cause analysis need a quick, integral response. A control tower concept with the right data -centralization solution has proven to be effective in providing answers to such questions.
Some of our case studies show that even highly fragmented supply chains can also benefit significantly from a control tower function. Nevertheless, companies that are heavily structured around local organizations may expect some resistance when suggesting a control tower solution. As with most centralization efforts, local organizations will object to losing direct contact in their local language and to having reduced influence in ad-hoc problem-solving. If your local organizations currently have a large degree of independence, a balanced scope and implementation phased over a longer period of time will ensure sufficient local control combined with the benefits of a centralized approach.
4. Can I set up a control tower internally or should I outsource it?
To set up and run a control tower, you need specific capabilities in the areas of:
- Planning: typically people with a background in supply chain
- Event management: typically people with a background in transport operations
- Business intelligence: typically people with a background in operational improvement
- Management of supply chain partners: typically people with a background in 3PLs
- IT management: handling IT tools to exchange data with supply chain partners (suppliers, manufacturers, 3PLs and carriers) as well as internal system management to store the data in a structured way and provide information to support the control tower functions.
A shipper’s decision on whether or not to outsource a control tower depends first of all on whether it is feasible to develop the abovementioned operational and IT capabilities in-house. Secondly, the business case behind the investment required for an in-house solution compared against the indirect costs associated with outsourcing will have a big impact on this decision. Volatility of the workload and a certain critical mass will further influence the benefits of an in-house versus outsourcing strategy.
The trade-off between the increased control and in-house expertise when insourcing a control tower needs to be critically balanced with the increased flexibility offered by outsourcing. Depending on the scope and volume of typical control towers, a small to medium-sized team of FTEs is needed to cover the skills listed above. Holiday seasons, peak seasons or staff illness can pose a serious risk to business continuity. Insourcing, at least in the early stages, tends to favour process quality whereas outsourcing provides a solution with greater long-term flexibility with regard to resources and systems.
5. What are the typical benefits of a control tower?
As the term suggests, a control tower helps to keep situations under control. Ultimately it should enable action to be taken to prevent potential problems up ahead. Without a central team and an integral overview, a lot of time is spent on local fire fighting. A control tower can identify patterns in local issues and develop structural countermeasures based on processes that fit the big picture.
This should all sound like music to the ears of any supply chain manager, but it is nevertheless essential to assess the expected benefits carefully. Firstly, it is key to align expectations and take a reality check, not only internally but also externally towards the providers. Secondly, the benefits should form the basis of the set-up in terms of processes, systems and resources.
Most benefits of a control tower come from increased supply chain visibility. It enables better planning, decisionmaking, proactive event management, improvement of the performance of supply chain partners, and more sophisticated supply chain analytics. In the end, this will result in:
- Savings on logistics costs
- Reduction of inventory
- Improvement of service levels such as total cycle time and on-time delivery
Chemicals Control Tower
DSV in Venlo, The Netherlands, hosts a combined control tower for 11 European customers. Each member of the 8-man team has their own specialty skills and customers but can rotate between tasks when necessary.
For one of the larger customers, Dow Chemicals, the control tower manages groupage, Less than Truckload and Full Truckload shipments from 24 Dow shipping locations of in 8 countries to 34 destination countries in Europe. The scope of the control tower for Dow covers order management, shipment coordination, performance and exception management, central complaints and claims handling and central invoicing. The solution has been operational for several years, and nowadays the entire customer organization knows that they can contact the control tower with questions or to prevent problems escalating. Next to the state-of-the-art IT solution, it is also the quality of the team that will make the difference. Besides Venlo in The Netherlands, DSV operates similar control towers in Puurs, Belgium, and Horsens in Denmark managing over €150 million worth of freight costs.