The future of the third party logistics industry
According to New World Business Solutions, customers of logistics services are seeking good reliability at lower total cost consistently – whether across the globe or in one sub-continent.
But as higher performance from greater end-to-end integration, supported by better visibility tools, becomes more attainable, the approaches of third party logistics (3PL) providers are diverging.
More customers are recognising that to realise the full value of the potential trade-offs from outsourcing, they need to broaden their span – from purchasing many piecemeal transport and warehousing services, to fewer, bigger contracts with much wider scope.
In response, the 3PL industry has been evolving to offer greater scope and more complex solutions.
However, for the more demanding customer segments – those seeking greater integration and higher degrees of process conformance – there is often a gap between buyer needs and provider capabilities.
Often, providers market and represent capabilities that they have not yet implemented, so they over promise and under deliver.
The business model of many providers traps them because of their inability to scale offerings, thus failing to generate returns, which will allow them to meet the expectations of high process conformance buyers.
High process conformance, in this context, is the ability to deliver end-to-end supply chain integration and synchronisation repeatedly for many customers, establishing de facto process and technology standards.
For the more demanding customers, the 3PL model must be reinvented.
So providers increasingly choose between serving a large commodity segment and the growing, but more demanding, high process conformance segments.
The journey toward value starts with having strategic clarity about the market segments in which to participate. It involves an overlapping sequence of activities to develop enhanced provider capabilities, including:
- Strategic clarity – rigorously aligns target market segments and value propositions with organisational culture, business model, core competencies, asset planning and performance measures
- Standardisation and integration – proactively sell the value of standardised and integrated global processes and shared user services – internally and externally
- Componentisation – provide customised solutions from a set of standardised – but configurable – process, information, workflow and value-added components
- Global governance – improve global deal consistency by moving such contracts to global Profit and Loss statements (P&L’s) and reserving traditional country P&L’s for narrow scope activities
- Service innovation – invest in new capabilities (such as visibility, supply planning and control; dynamic synchronisation and optimisation of business processes, a virtual supply chain information platform)
- Teaming capability – for the emerging Synchronised Providers – invest in teaming skills in the new era of co-opetition, where the value and breadth of services offered to their customers will amplify as the service provider’s network of partners grows
No provider today can complete this transformation as a single project. It is a strategic journey.
The journey will need to be broken into manageable chunks of initiatives, which can be realised in well defined timelines and at relatively low risk.
Where any one provider begins will depend upon its own business goals, market pressures and the maturity of existing capabilities.
The future 3PL industry will be more global, more concentrated, more segmented around customer types and universally better at execution. Business processes will be standardised and systems integrated.
There will be better visibility of end-to-end supply chain information and integration with partners and customers.
The industry will have effective, shared metrics to continuously measure performance and handle exception management more easily through event monitoring linked to business rules. And at long last, providers will have a single view of their larger global customers.
1-May-2007