Third-party logistics: 3PLs put accent on IT services
For users of 3PL services, the type and availability of IT services offered by the provider is becoming a bigger factor in the evaluation and selection process.
By William Atkinson -- Logistics Management, 6/1/2009
The availability of value-added IT services from third-party logistics services providers (3PLs)—and actual usage of these services by customers—is on the rise.
At least one major research study confirms the trend. "One thing we found in our 17th annual study on Trends and Issues in Logistics and Transportation is that it is clear that more customers are relying on 3PLs for their information services," reports Karl Manrodt, associate professor of logistics at Georgia Southern University. "There was a significant increase in the availability of these services last year from the year before." (For more on this research, see www.transportation-trends.com.)
One reason for the heightened interest, according to Manrodt, is that 3PLs are looking to leverage their value propositions and increase their revenues. At the same time, customers are actively looking to reduce costs. They look at IT and ask, "Why would I want to spend a lot of money for software, when my 3PL can do it for me?"
Supply chain consultant Chuck Franzetta, CEO of Franzetta & Associates, comments on this trend. "In the past, a lot of 3PLs tended to look at the acquisition of software as a necessary evil in order to perform the services they needed to perform. They didn't see it specifically as carrying value."
All that has changed, Franzetta says. Today, 3PLs are providing more information to customers than just the location of an ocean container, for example. The IT services these days help customers determine what they should be doing from a broader business perspective. "When 3PLs look at the supply chain and the logistics activity contained within that supply chain, they begin to get involved in intimate relationships with their customers," the consultant explains. "They can make information available to customers that the customers didn't have themselves."
In sum, 3PLs have come to realize two things. Franzetta explains: "First, they have this valuable information that can be manipulated into a form that warrants compensation for the value that it represents. Second, they realize they can use it as a way to market the overall value of their services to existing customers, as well as potential customers, who aren't completely sold on the idea of outsourcing their logistics, but do see the advantages of some of the additional information and controls that would be made available to them by 3PLs."
Value-added IT services
Third-party logistics providers now have the ability to do much more than just store product and ship it from Point A to Point B. They can provide information that's valuable to multiple functions in the customer organization beyond logistics—including marketing, finance, operations, and production.
"There is even technology that will provide information on temperature, humidity, and shock variations that were in place during the time your shipment was in transit," Franzetta says, noting that this data is critical in shipping high-value, sensitive, electronic equipment or perishable commodities.
Technology also provides an attractive avenue for shippers to save in fundamental areas of operation, which becomes hugely important in tough economic times. "Using IT, 3PLs can help shippers reduce their inventory levels," says Joel Sutherland, the managing director for the Center for Value Chain Research at Lehigh University and executive vice president of Priority Distribution, a provider of 3PL services. "In transportation, shippers want to optimize the lanes that they put their products in to minimize the wasted out-of-route lanes."
With technology, Sutherland continues, 3PLs can minimize the number of miles necessary to move product. That is, they can use technology to combine lanes that will enable a shipper to benefit from other shippers' freight that is being managed by the 3PL. As an example, Priority Distribution is now working with a nationwide retailer to optimize the inventory that flows through its supply chain.
"We couldn't have done that five years ago, because we didn't have access to the technology that we now have access to," explains Sutherland.
IT service delivery methods
Third-party logistics providers typically either have their own IT-related software or use programs from outside vendors. In fact, it is the increased adoption of IT services in general, says Franzetta, that has helped facilitate the emergence of the pure non-asset-based 3PL. The consultant explains: "There is human interface, monitoring, and manipulation, but, overall, the system is set up to handle everything for customers from a logistics perspective and allowing customers to have full visibility of everything that is going on."
The availability of different technology delivery methods helps both the customers and the logistics services providers. "3PLs are now getting involved in more on-demand technologies," Sutherland says, pointing to one popular delivery method. Increasingly, these and other types of IT services are being offered by big and small providers alike. According to Sutherland, smaller 3PLs can match up very well technology-wise with the larger players thanks to the availability of less expensive solutions and pay-as-you-use options. And as a 3PL takes on more customers, it can add more IT features and pay for only those features, rather than having to pay for the full package at that time.
Transplace, a non-asset-based 3PL, is among those providers offering a software as a service model (SaaS). The company believes this option allows customers to get up and running more quickly than if they were using an installed software package. Vincent Biddlecombe, the company's CTO, notes that in the past 3PL IT services tended to focus on transactional systems. Now, they also include analytics and reporting, which are designed to improve efficiencies and reduce costs. "Beyond offering a TMS service, we are also doing a lot with business intelligence, which includes operational dashboards not only for our internal teams, but also for our customers," Biddlecombe says.
Transplace also offers a wide array of reporting capabilities, including technologies that can monitor carrier service and performance, such as on-time delivery. "In fact, this service has helped one of our customers become recognized by Wal-Mart for its on-time delivery performance," Biddlecombe says. He adds that in terms of visibility, Transplace works with carriers to make it as easy as possible for them to provide status update information.
Another 3PL emphasizing new technology to serve customers is LeanCor LLC, which is three years into a five-year roll-out of supply chain optimization technology. Components of the technology are inbound logistics, outbound logistics, material planning, full pipeline visibility, and pull replenishment systems. "A big part of this involves helping to implement 'lean' in the supply chain, which focuses on reducing inventory and moving smaller shipments more frequently in a very level fashion," explains Robert Martichenko, LeanCor's CEO. "When you reduce inventories to high-risk levels, you need to know where inventory is in the pipeline at all times. This requires pipeline visibility technology."
Stability in the performance of the players in the supply chain—suppliers, transportation carriers, and 3PLs—is an important consideration here. "This also requires technology that can provide real-time information," Martichenko says. "We have several customers who are already using some of this technology to plan material requirements, to communicate parts ordering requirements to their suppliers, and to communicate requirements to transportation providers."
The LeanCor executive adds that the technology also provides real-time visibility of supplier performance in the critical area of fill rates. Each day, a supplier goes onto LeanCor's website, enters the web portal, and sees the part numbers and quantities scheduled to ship that day. The supplier also sees what type of truck is supposed to show up to pick up the shipment. Thirty minutes before the truck is scheduled to arrive, the supplier goes onto the website again and updates what it intends to ship relative to what was ordered. "If there is any discrepancy, a whole flurry of e-mails are sent out to all parties involved in the supply chain," says Martichenko. "Then, all of these people have 30 minutes to try to correct the problem before the truck shows up at the supplier location."
Investing for the future
Companies like i2 Technologies, which provides consulting services and supply chain software to shippers and 3PLs alike, can offer an interesting perspective on the subject. "The 3PL has had a tradition of being responsive to customer needs, but, at times, just reactive," observes Razat Gaurav, the company's senior vice president, global logistics. "They have done a good job dealing with operational needs of shippers, but they often lag behind on the innovation curve—not bringing new ideas to the table. As a result, one thing we are seeing is that shippers are forcing their 3PLs and us to innovate, especially in the area of technology."
In fact, according to Gaurav, some shippers now feel that if their 3PLs aren't willing to make the investment in technology, the shippers will either start doing business with other providers or implement their own technology solutions in-house. "In sum, 3PLs that don't begin offering technology-related services will become extinct," asserts Gaurav.
Robert Martichenko of LeanCor takes that observation a step further. "The successful 3PLs will be those that offer flexible technologies to their customers, rather than those that tell customers how their technology works and expect customers to change their processes," he says. "In other words, the right process should drive the technology that is being used, rather than the technology driving the process design."
According to Georgia Southern University's Manrodt, though, before "marrying" a 3PL for its value-added IT services, it's important for shippers to think carefully, strategically, and long-term. "Once their business becomes interconnected with a 3PL that offers these IT-related services, 'divorce' becomes incredibly painful, if not impossible," Manrodt concludes.
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