Like many logistics managers, Dave Molnar uses a third-party logistics provider (3PL) to help him coordinate outbound shipments from the 73 locations he manages for U.S. Filter Surface Preparation Group in Newnan, Ga.

Molnar, however, doesn't rely on the 3PL for transportation management and planning. Often, he doesn't even use it as a carrier.

Instead, Molnar plans and manages his own shipments using an online, proprietary transportation management system (TMS) that he licenses from his 3PL, even when he doesn't use its logistics expertise. In short, the 3PL provides a software solution, just as a technology provider would.

It is a unique arrangement that gives Molnar the best of both worlds. He licenses a best-of-breed TMS solution to optimize his shipments and transportation costs. At the same time, he gains access to a 3PL when his needs exceed what his network of contract carriers can provide.

"I've gone with a total 3PL solution in the past and felt I gave up the ability to manage my business," says Molnar. "With this system, I have options and control. I can schedule all my shipments using my established contract carriers. For other shipments, I can ask the 3PL to bid on my requirements. Or I can turn the management of a shipment over to the 3PL if that's the best option for one of my locations."

This represents a striking departure from the usual relationship between a shipper and a 3PL. Although tech-based and asset-based 3PLs have offered proprietary software solutions to their customers for years, they didn't try to compete with software companies.

Some 3PLs, however, are challenging those traditional roles, says Evan Armstrong, a 3PL industry analyst with Armstrong & Associates of Stoughton, Wis. "In the last year, we've seen a few companies fall somewhere between a 3PL and a software provider," Armstrong says. "They're hosting their software services over the Web to customers who pay a subscription fee or a transaction fee based on their actual usage."

Armstrong cites two advantages for logistics managers. One is lower startup costs. "You don't have to spend a million dollars to implement a solution," he says. The other is real-time supply chain visibility. The solutions available now are designed to provide tracking and tracing capabilities down to the stock-keeping unit (SKU) level across the supply chain.

The benefit to the 3PL is potentially more revenue in a competitive economy. "3PLs with good proprietary systems are looking for ways to sell more services," Armstrong says.

Clicklogistics, a Boston-based 3PL that hosts U.S. Filter's TMS, is one of the 3PLs that has jumped into the software business. "We got our start as a 3PL and still offer basic 3PL transportation management services targeted at the mid-market shipper with $10 million to $80 million in annual freight bills," says Tom Sanderson, CEO of Clicklogistics. "But we have also developed a technology solution that a company can use to run [its] own logistics operations."

The 3PL and technology company hosts a Web-based transportation management and supply chain visibility solution on either a subscription- or transaction-fee basis. Five modules allow users to select the mode of transportation, including rail, air freight, and truck; to select a carrier from all available options; to tender a load to a carrier; to track a shipment throughout the supply chain; and to perform post-shipment analysis. Because clients can use all or part of the service, customers like U.S. Filter have the choice of planning the shipments in-house using the system, turning transportation planning over to Clicklogistics, or using both strategies according to their business needs. "The advantage of purchasing the technology from us over a pure software vendor is that you can use our logistics execution expertise where you need it," says Sanderson.

Schneider Logistics of Green Bay, Wis., is another 3PL offering both traditional execution services and a hosted TMS solution. Schneider's "MySummit" suite rates North American and European shipments based on their origin, destination and other charges across the LTL, TL, ocean, air and rail modes.

The solution, which allows users to run what-if planning scenarios using Schneider's database of 3 million rates as well as rates from the user's contracted carriers, also incorporates a capacity component that lets users optimize their shipments based on actual rates and capacity. If a user accepts one of the answers suggested by the rating and optimizing engines, the load can be tendered over the Web or via electronic data interchange (EDI) and the shipment's progress can be tracked via electronic connections. Other modules manage order releases at the SKU or part level across the supply chain and arrange for freight payment and post-shipment analysis.

Whether solutions like those from Schneider and Clicklogistics represent an emerging trend or a limited development in the 3PL industry is still an open question.

Steve Banker, director of supply chain solutions for ARC Advisory Group of Dedham, Mass., does not see this as a broad-based trend. "3PLs in the past have announced that they were going to develop and sell software without much success," says Banker.

That's because most 3PLs are structured to sell logistics services, not the services associated with selling software. In fact, Banker has reviewed several recent deals where 3PLs with their own proprietary software solutions have agreed to use a different technology specified by their customer to clinch the deal. As a result, he says, many 3PLs that once used proprietary systems have turned instead to software leaders like i2 and Manugistics for new technology solutions.

Ryder System is a case in point. "When I came to Ryder six years ago, we had the 'not invented here' syndrome," says Kevin Bott, vice president, product and technology management. "If we didn't invent it, we didn't want it."

Today, Ryder is using a variety of best-of-breed programs to create its supply chain technology solutions. "At the end of the day, we're selling a logistics solution, not technology," says Bott. "We'd rather invest our capital in total execution solutions [than in] software development."

That's why, long term, Steve Banker sees the emergence of 3PLs in the software business as a marketing gambit. "The conversation with a customer may begin around technology," says Banker, "but I think they'll end up talking about a total 3PL solution using that technology or another."

Though they may not be jumping into the software business with Clicklogistics and Schneider, other 3PLs are definitely exploring their options for expanding their technical services.

APL Logistics, for instance, licenses a proprietary visibility tool, but only to customers of its execution services. Redwood Systems, for its part, has explored reselling and implementing best-of-breed warehouse and transportation management systems.

Another vendor, Menlo Logistics, works closely with software vendors to develop new supply chain solutions. For example, warehouse management system (WMS) vendor Provia Software provides Menlo with the source code for its WMS product. That allows Menlo to customize the system for particular projects across different vertical industries. "As we build those customizations, we give them to Provia to use in their system," says Ed Feitzinger, vice president of technology and engineering at Menlo.

Recently, Menlo formed a similar relationship with Baan, the enterprise resource planning (ERP) systems provider, to develop a global enterprise and transportation management solution. Menlo, however, has no plans to resell the Baan system. Instead, Baan will incorporate Menlo's customizations into its system and resell that. "Our expertise is in development," says Feitzinger. "We'll let them become the experts in database interfaces and marketing. That's what the software vendors are good at."

Still, the shippers that are licensing software from 3PLs appear to like the arrangement.

U.S. Filter, for instance, is managing between 300 and 400 outbound shipments per day across 73 locations with Clicklogistics' TMS. A pilot program to handle inbound freight from suppliers is now being evaluated.

Although the company saved implementation fees up front, Dave Molnar says, the system's real value has been a reduction in data entry errors and the amount of time it takes to bid out shipments. "We've reduced the time it takes to get a quote from carriers and generate a bill of lading from 20 minutes to 11/2 minutes," Molnar reports.

The need for training, he adds, has been minimal. A new employee can be up and running on the system in a few hours. "My people were hesitant when we first began to implement the system," says Molnar. "But now that they've been using it, they wouldn't give it up."