Optimizing 3PL Relationships: How to avoid commoditization
While shippers may generally be content with the
reliability of their 3PL partners, new research indicates that there’s
considerable concern about the value of long-term, strategic relationships.
Industry analysts explain how innovation and a deeper commitment to
collaboration will become the key differentiators in the 2015
marketplace.
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By Patrick Burnson, Executive Editor
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Trust but verify
As President Reagan was fond of saying: “Trust but verify.” That adage is winning currency with 3PL consultants as well. Steve Banker, who leads the supply chain and logistics team at market research firm ARC Advisory Group, says 3PLs that are seeking to optimize their relationships with shippers should invest carefully in a transportation management system (TMS).
As President Reagan was fond of saying: “Trust but verify.” That adage is winning currency with 3PL consultants as well. Steve Banker, who leads the supply chain and logistics team at market research firm ARC Advisory Group, says 3PLs that are seeking to optimize their relationships with shippers should invest carefully in a transportation management system (TMS).
“Before committing to any TMS demonstration, we suggest that the 3PL asks
about shipper ‘onboarding,’” says Banker. The 3PL must be able to leverage the
configuration settings used to support shippers with templates that can be setup
for various implementations. Shippers have unique workflow rules, Banker adds,
and require
3PLs to have flexible billing capabilities to meet specific needs.
“Both third-party providers and shippers need a TMS that manages multi-leg,
multi-mode, time-phased planning and execution,” says Banker
Is there a limit to the number of legs or modes? “For shipments that cross an ocean, that time-phased element is important,” says Banker. “If you look at a dray move to port, 27 days on sea, do you really want a pre-planned truck move on the other side of the ocean? A lot can happen in 27 days.”
Is there a limit to the number of legs or modes? “For shipments that cross an ocean, that time-phased element is important,” says Banker. “If you look at a dray move to port, 27 days on sea, do you really want a pre-planned truck move on the other side of the ocean? A lot can happen in 27 days.”
Which brings security into the picture. Banker says that there should be
“logical barriers” between a 3PL’s client base so that on shipper can’t see
another’s shipment performance or billing.
A new study by Accenture reinforces the idea that 3PL/shipper relationship
optimization will be focusing on risk in the future. “As demonstrated by the
leaders in our study, a centralized, top-down approach to supply chain risk
management tends to generate the highest ROI on risk management,” says Mark
Pearson, senior managing director of Accenture Strategy Operations.
“Such a commitment to risk management between the two parties can also help
managers guard against business disruptions in the wake of natural disasters,
geo-political events, shifts in commodity or shipping prices, or any number of
circumstances that can endanger a company’s operations,” adds Pearson.
Blake asked respondents to rate 3PLs on the following metrics: reliability;
speed; innovation; value for the money; and scale of impact, or how vital the
3PL is to the shipper’s strategic needs. With a few exceptions, most 3PLs scored
well, with over 50 percent of respondents rating them “good” or “excellent” at
the aggregate level when it comes to the basics, such as reliability.
However, shippers don’t seem completely confident that they’re receiving the
degree of value expected for the money they are paying for 3PL services.
Moreover, the results showed that the 3PL community collectively struggles to
deliver innovative solutions in the eyes of their customers.
“The message coming across loud and clear through the data and follow-up
discussions with logistics professionals is that 3PLs need to do a much better
job understanding the businesses of their customers if they are to move up the
innovation curve,” says Blake.
Blake adds that, while the results didn’t surprise him, shippers need to keep
in mind that this is a two-way street. Unless a shipper “incentivizes” its 3PLs
to focus on innovation, it’s difficult for the provider to make the necessary
investments to support it.
“Innovations don’t typically sprout overnight, nor even during the yearly
tender cycle between parties,” says Blake. “Shippers and 3PLs should have a
one-on-one discussion about risk mitigation, and how change management can
address those concerns.”
Overall, the major expectation for logistics service providers is cost
savings. This entrenched focus essentially commoditizes logistics services,
creating a self-perpetuating cycle in the marketplace where 3PLs resist
investing in innovation since their customers don’t yet believe that innovation
will drive cost savings more effectively than traditional methods.
“This pushes logistics services further towards blandness without any
meaningful differentiation,” Blake concludes. “Both sides need to come together
if logistics service innovations are to take root and see the light of day.”
Partnership pays off
As cost control remains a key priority for supply chain professionals—and no doubt will remain so for many years to come—initiatives such as horizontal collaboration and supply chain sustainability are becoming increasingly important.
As cost control remains a key priority for supply chain professionals—and no doubt will remain so for many years to come—initiatives such as horizontal collaboration and supply chain sustainability are becoming increasingly important.
Researchers at London-based Eyefortransport say that their recent survey of
global chief supply officers indicates relationships between supply chain
executives and 3PLs are increasingly improving as these providers are perceived
to be more proactive in suggesting strategic partnering.
Some prominent U.S. shippers agree. “Given the ongoing talent-gap in the
supply chain industry, we see a greater reliance on outsourcing key functions,”
says Craig Boroughf, senior director, global sourcing for U.S. Gypsum Company, a
subsidiary of USG Corporation. “While we continue to invest in our own human
resources, 3PLs can augment that effort by providing skilled workers as we need
them.”
Boroughf is responsible for USG’s procurement, including supplier management
and strategy of raw materials, indirect goods, and services and freight
transportation services. He maintains that 3PLs are showing a greater
willingness to become strategic partners, but must continue to demonstrate that
they’re putting shipper value ahead of pure cost.
“As in any customer-supplier dynamic, 3PLs should concentrate on economies of
scale when budgeting in the procurement arena,” says Boroughf.
Frank McGuigan, president of transportation management at 3PL Transplace,
says that closing ranks with his customer base comprising USG and others is
important, but requires a new “play book.”
“The 3PL has undergone tremendous change in recent years,” says McGuigan,
“and we are aware that shippers can hedge their bets by working with several
3PLs at the same time. But as their reliance on outsourcing becomes greater, the
exposure to risk becomes more of a concern.
Trust but verify
As President Reagan was fond of saying: “Trust but verify.” That adage is winning currency with 3PL consultants as well. Steve Banker, who leads the supply chain and logistics team at market research firm ARC Advisory Group, says 3PLs that are seeking to optimize their relationships with shippers should invest carefully in a transportation management system (TMS).
“Before committing to any TMS demonstration, we suggest that the 3PL asks about shipper ‘onboarding,’” says Banker. The 3PL must be able to leverage the configuration settings used to support shippers with templates that can be setup for various implementations. Shippers have unique workflow rules, Banker adds, and require 3PLs to have flexible billing capabilities to meet specific needs.
“Both third-party providers and shippers need a TMS that manages multi-leg, multi-mode, time-phased planning and execution,” says Banker
Is there a limit to the number of legs or modes? “For shipments that cross an ocean, that time-phased element is important,” says Banker. “If you look at a dray move to port, 27 days on sea, do you really want a pre-planned truck move on the other side of the ocean? A lot can happen in 27 days.”
Which brings security into the picture. Banker says that there should be “logical barriers” between a 3PL’s client base so that on shipper can’t see another’s shipment performance or billing.
A new study by Accenture reinforces the idea that 3PL/shipper relationship optimization will be focusing on risk in the future. “As demonstrated by the leaders in our study, a centralized, top-down approach to supply chain risk management tends to generate the highest ROI on risk management,” says Mark Pearson, senior managing director of Accenture Strategy Operations.
“Such a commitment to risk management between the two parties can also help managers guard against business disruptions in the wake of natural disasters, geo-political events, shifts in commodity or shipping prices, or any number of circumstances that can endanger a company’s operations,” adds Pearson.
As President Reagan was fond of saying: “Trust but verify.” That adage is winning currency with 3PL consultants as well. Steve Banker, who leads the supply chain and logistics team at market research firm ARC Advisory Group, says 3PLs that are seeking to optimize their relationships with shippers should invest carefully in a transportation management system (TMS).
“Before committing to any TMS demonstration, we suggest that the 3PL asks about shipper ‘onboarding,’” says Banker. The 3PL must be able to leverage the configuration settings used to support shippers with templates that can be setup for various implementations. Shippers have unique workflow rules, Banker adds, and require 3PLs to have flexible billing capabilities to meet specific needs.
“Both third-party providers and shippers need a TMS that manages multi-leg, multi-mode, time-phased planning and execution,” says Banker
Is there a limit to the number of legs or modes? “For shipments that cross an ocean, that time-phased element is important,” says Banker. “If you look at a dray move to port, 27 days on sea, do you really want a pre-planned truck move on the other side of the ocean? A lot can happen in 27 days.”
Which brings security into the picture. Banker says that there should be “logical barriers” between a 3PL’s client base so that on shipper can’t see another’s shipment performance or billing.
A new study by Accenture reinforces the idea that 3PL/shipper relationship optimization will be focusing on risk in the future. “As demonstrated by the leaders in our study, a centralized, top-down approach to supply chain risk management tends to generate the highest ROI on risk management,” says Mark Pearson, senior managing director of Accenture Strategy Operations.
“Such a commitment to risk management between the two parties can also help managers guard against business disruptions in the wake of natural disasters, geo-political events, shifts in commodity or shipping prices, or any number of circumstances that can endanger a company’s operations,” adds Pearson.
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