LOGISTICS STRATEGY IN A TIME OF CONTINUOUS DISRUPTION --Wake Up for 3PLs and Service Providers----

 

What Is Happening.  The world has been in a time of continuous disruption. These are not small events.  They are global.  First, there was e-commerce and its impact on retail from mass merchandising to direct customer orders and shipments. Then, it was the pandemic. Now it is geopolitics—from actual war to trade war. Add the significant disruption coming with climate change.  And nature—floods, drought, and earthquakes. And who knows what else may be coming.

Manufacturers, retailers, and wholesalers are struggling with what to do and how to manage everything. Add inflation and recession to the uncertainty and confusion. The inventory vagaries we have seen validate this. It is a time when companies ask themselves about doing too much or doing too little—and the risks of each.

Years of certainty and fixed practices are being challenged. Topics arise on what to do—resilience, supply chain diversification, reshore, and others. These add to the challenge because they are not quick fixes. The time for creating new supply chains with the ability to adapt generate risk.

Set the Stage. Supply chains drive logistics. It is not the other way around. Logistics is a  derivative of various external events. That places it in a dependent role.

With all that is happening, logistics firms bring their own challenges. Start with freight rates, a key metric for these firms. The extreme swings and their profitability inference.  Add logistics disruptions. Ports. Railyards. Labor strife. Derailments. Infrastructure. Out-dated software. Lack of needed technology. And more.

These compound the disruption and confusion for both supply chains and logistics. And with this is a seeming lack of open discourse on what can be done. There are no national supply chain strategies and logistics strategies that reflect across the transport modes and warehouses. 

Then/If.  If customers are making changes to deal with external events outside their control, then what are logistics providers and 3PLs to do? More of the same while the world and end-to-end supply chains are looking for answers to adapt. Against that background of waiting for leadership and clear direction from customers and the uncertainty and risk, what are logistics firms to do? Borrowing from Shakespeare’s Hamlet, “Ay, there’s the rub.”

Reaction or Strategy. Strategy can be a misused term and is confused with a new program or other action.  Taking something done for one customer and trying to promote it for other customers is a program, not a strategy. Same with being swept along with implementing a technology.

For example, digital is not a strategy. Technology is often a topic that enables and is utilized in the business. And it has gotten much attention with the idea of resilience. But, and there is always a but, technology can be a strategy. If, if it recognizes the below.

Strategy.  Strategy is bigger. Think of it as a new direction, a significant shift.  And the risk and change that means.   

All logistics providers—3PLs, transport, forwarders, warehouses, logistics centers, ports, and others--and whether they are asset-based or non-asset based--should have a strategy.  The strategy identifies challenges, issues, and risks with markets and their dynamics; and, going forward, can set the direction where the company is going for new markets and new business and customers to grow sales and profits.

A strategy does not have to be long-term.  Given the rate of disruption, especially with continuous disruption, five years or less is a good time frame. Longer can also result in being stuck in a rut.

Surprisingly, despite the purpose and benefit, many service providers do not have a viable, current strategy.  Instead, they view developing one as too much work, react to what customers ask or what competitors are doing, or have one that is outdated.  In a way, they letting business vagaries drive their direction and future.  Having no strategy can be risky, especially in a time of continuous change, and if competitors, established and potential new entrants, have a well-done strategy and especially given the reality of global economic change. 

The strategy can be operations focused or it can be a significant change, to transform the company.  Which strategy is developed can be based on and reflect risks for the business or for the service sector, competition, or changing customer and/or market segments.

There are two parts to a successful strategy—first, developing it and second, executing it.  Developing a strategy comes from a serious, formal strategic planning process.  It involves a blend of financial and non-financial objectives.  The plan should also focus on the present business, and how it will adapt to the future and new services and opportunities.  It identifies where the company is going--and where it is not going-- and what it takes to succeed in that service arena.

            Planning.  The starting point is where the business is now as to present dynamics with trends, markets, services, and customers; value proposition, and competitive positioning, coupled with sales and profits.  At any stage of the planning process, at the minimum, a SWOT (Strengths, Weaknesses, Opportunities, and Threats) is useful for the present and potential future scenarios. 

Planning contains mistakes that can limit the ability to develop a worthwhile strategic plan.  Some of the shortcomings that can lead to a bad strategy include:

ü  Firms only go out for one to three years with the plan.  While that span is easier to deal with than looking out five years or so, that is based too much on what has happened, miss-assumes what will happen, over-assumes the company’s position in that future trend and is not strategic.  It is more like a budget or extended sales plan. 

ü  As a corollary to the short-span view, companies confuse goals with strategies.  Increasing sales or reducing costs by a certain percentage is a goal, not a strategy.

ü  Providers try to mimic what a competitor is doing, especially if it is new.  That is not a strategy.  A good strategy separates the business from the competition.  Emulating competitors or chasing the next new logistics service is a short-sighted approach that often lacks an understanding of market niches, operational nuances, and value proposition. 

ü  Companies stay with what they are familiar with, their comfort zone.  This can be a myopic bias against performing the diligent planning analysis that is necessary. ü  It does not identify and address hard questions and challenges, such as how sustainable the present business approach and operations model is.  That negates the concepts of strategy and planning.  

ü  Planning is not rigorous and does not adequately assess both external and internal factors.  Internal analysis does not get the rigorous attention it should get.  Diligent self-assessment is required, but it can be difficult.  Overestimating abilities and underestimating problems short-circuit any serious planning.

ü  Companies oversimplify trends, especially global ones, and their impact on future business.  They let the past dictate too much of what will happen, even against the dynamic and changing global business world.  Firms do not comprehensively deal with uncertainty and look at “what if” scenarios.  It is a dismissive approach based on the past.  Change, with its speed with competitors and markets, is more than local; it is global.

ü  Businesses create a wish list of strategies.  Aggregating a catalog of possible ideas, no matter how worthwhile, is not strategic planning.  The effort dictates potential strategic choices be culled and prioritized and that hard decisions must be made on what to do.

ü  Service providers do not scrutinize how well the strategy positions the service offering to the dynamics of global economic and business forces.  They also overestimate potential competitive advantage—and underestimate its transiency-- that the firm may create with its strategic placement.

ü  Companies keep the planning within the C level and do not extend it down to others who may have a better understanding of the present activity.  There is also an underlying assumption that what a company and its executives do is transferable to the future.  This lack of communication and buy-in with the planning often continues with attempts to execute the strategy—attempts that often fail.

             Execution.  Strategy implementation is critical.  The best strategy, without good execution, will struggle to succeed.  And the more dramatic the strategy is with scope and impact, the greater the challenge for sound execution.  An operations strategy has internal capabilities and requirements, perhaps best-in-class.  The significant change strategy has both internal and external requirements.  Each strategy carries different proficiencies to implement and creates challenges for present executives, managers, and employees to have the skills to implement the strategy.

ü  Achieving the strategy separates planning for the sake of planning and planning needed to advance into the future.  It also demonstrates the conviction that the company has in its strategy. Executing the strategy means communicating the plan within the company and with stakeholders to build support—both operating and financial--and aligning the business with its strategy.  Adequate resources and defined responsibilities for execution are needed, along with corresponding, relevant metrics to track progress. 

ü  The transformation and its rate of implementation to carry out the strategy may require recognizing and dealing with the need for change management.  In reality, there are strong similarities between change management and successfully implementing a strategy.

ü  Tied to the grand strategy are underlying strategies and implementation plans for sales, pricing, marketing, positioning, operations, and technology.  Logistics providers should recognize the life cycle of their services, especially concerning profit maximization and the commodity service view of their offerings.  This service life cycle creates the need for the subset of strategies and their fulfillment of them.  How people within the company grasp and execute these opportunities can have a significant effect on long-term margins.

ü  While direction can come from the top level, carrying out the execution needs clear lines of responsibilities coupled with a coordinated, cross-functional effort by different groups within the company.  There can be no standalone activities for success.  It should be integrated.  The potential for assuming away the need for collaboration can create unnecessary surprises and failure to gain all the market, operations, and financial benefits of the strategy.

      Strategy planning and execution are not easy for logistics providers.  They are a challenge.  But as difficult as they are, doing nothing in the face of dynamic competitive and market changes can be dangerous for all stakeholders.  Logistics providers that do not plan well and implement well let events drive where they are going.  They do not control it.  These providers are market followers, not market leaders.  As a result, these firms do not transition to take full advantage of opportunities.  They miss out on market share, customers, and profits that companies, that have coordinated planning and strategy execution, earn and enjoy.

Think About.  There is a change from logistics being the dominant emphasis in supply chain management.  This could redefine, for example, the 3PL niche to 3PSCM—or SCMaaS (Supply Chain Management as a Service). 

Two, another disruption comes from within the field.  Technology is adding new requirements, and new ways, to what firms must do, from digitalization to artificial intelligence.  It is also developing new competition that uses technology, including platform businesses.  Also, logistics providers in a niche are expanding their reach into other niches.

There is also the dual-use disruptor, shippers who are taking control of their logistics and bringing activities in-house.  Think of it as a type of reverse outsourcing.  In turn, such dual-use actions could mean shippers taking their logistics capabilities to outside retailers and manufacturers—and taking business away from present logistics providers and 3PLs based on proven end-to-end supply chain results.

The results of the disruptions are threats to these firms, including disintermediation.  At the same time, it is opening new opportunities.  Against the perception that logistics is a commodity business, the challenge is how to adapt and transform.

This reason questions what a firm should do, in what context it should be a service, and how to differentiate it.  It is about strategy.  Some say it is being agile, which often means doing something the firm was not designed to do or is within its operations capability. Agile is not a substitute for transformation and strategy.

 

Conclusion.   The times they are a changing.  There is a new reality in supply chains, and as a result, in logistics.  Call it chaos or disruption. Talk about adapting or transformation. 

Customers are doing more and expect more with the new reality they are dealing with. Business as usual is vanishing.  Established practices are being replaced.

There is risk in doing nothing.  The best path forward is to develop and execute a strategy.