A catch-22 for 3PLs

Plane at an airport.

Next week, SCM World will publish the results of a “voice of the customer” study of third-party logistics (3PL) providers, based on responses from almost 600 supply chain professionals with direct experience of using them as part of their strategies. The aggregate results suggest we’re all stuck in a depressing trap: 3PLs want to be the innovative “solution” providers that customers claim to need, but buying habits make it impossible to get there. It’s a classic catch-22.

Innovation lags because we starve it

Last December some logistics firms, especially UPS, got thrown under the bus when a bunch of consumers didn’t get their orders delivered in time for Christmas. Amazon was quick to shed blame and indicated that it would be fixing the problem by beating up its delivery partners. The lesson from Christmas is that shippers don’t really act like partners so much as bargain hunters.

A casual observer might conclude that UPS was a disorganised gang of simpletons unable to keep pace with the innovative geniuses in Seattle. Our survey results, however, show that UPS is the most innovative of the major 3PLs. It also did pretty darn well in terms of reliability, trailing only FedEx.

In fact, reliability – the cornerstone of great delivery – looks pretty good for all the 3PLs we asked about, while innovation is miles behind as a source of customer approval. Are they all just too stupid to help?

Surveys of selection criteria consistently and overwhelmingly say that shippers choose 3PLs primarily on the basis of cost. It is taken for granted that any decent 3PL will also be reliable. As the head of global logistics at a pharmaceutical manufacturer noted: “The relationship is going nowhere if the 3PL can’t deliver on the basics.” We treat logistics as a commodity to be bought cheap, and we expect perfect execution at the same time.

Who will build the logistics network of the future?

This all sounds fair enough, but in a world of radically changing logistics expectations, someone will have to foot the bill for the investment needed to keep up with what consumers expect. We know, for example, that nearly half of all supply chain strategists are currently building direct-to-customer fulfilment capabilities.

We also know that increasing SKU complexity, delivery option variety and consumer visibility to shipment status is exploding the universe of capabilities needed to handle modern logistics. In fact, a recent SCM World field study of the emerging skill sets essential to logistics shows that we demand a lot more than “kicking boxes and licking labels”. Almost three-quarters of participants say that information management and exchange is now an essential skill.

No doubt respondents were not thinking of clipboards and paper bills of lading when they chose this answer in our survey. We clearly expect more brainpower in our logistics providers.

Graph showing the importance of skills/capabilities for logistics practitioners.

 

It is also clear that new technology, equipment and even building footprints are part of the path forward for logistics services. The same survey found more than a third of respondents planning to build larger, more centralised distribution centres, another fifth investing in smaller, more local distribution centres, but less than half projecting no investment plans at all in the next two years.

For 3PLs, the imperative to stay ahead of this curve is life or death, and all but the most blinkered realise that their ability to understand shippers’ business challenges and respond with “solutions” is the key to survival. It’s quite clear that all understand the need to at least talk the talk in their marketing messages. Unfortunately, desire alone won’t do it.

Collaborate to innovate in logistics

We have seen deepening collaboration between companies like Raytheon and General Dynamics in product development, and by companies like Intel and Lenovo in technology road-mapping. One wonders when hugely co-dependent relationships like the one between Amazon and UPS will go the same way.

Building such collaboration starts with trust and is followed by resources, including both people and money. The 3PLs are ready. Will shippers do their part to break the catch-22?

Author Guest

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