Dual perspectives (page 2)

-- Logistics Management, 1/1/2005

Page 2 of 3

Other categories saw similar results, but it's hard to say whether this year's responses represent a trend or an anomaly, Lieb says. Nevertheless, he believes that a rebounding economy is partly to blame. "When times are tough, you're in survival mode. We got some really positive feedback from both users and providers last year, almost an esprit de corps sense of collaboration," he says. "If we've gotten back to business as usual, users are likely to be a little more critical and their expectation levels tend to be higher."

Economic growth has hurt 3PL performance in other ways. "Their ability to move product has been impacted by the state of the economy," Bentz says. Port congestion, capacity constraints in all modes, and rising fuel prices have slowed shipments and raised rates. Because the most commonly outsourced activities are transportation-related, it's no surprise that "negative" ratings increased for logistics costs and service.

Bentz suspects that rising rates and tighter capacity are causing the cost benefits offered by 3PLs to "bottom out." That may partly explain shippers' opinions about the value they receive from 3PLs. Forty-two percent said that value has "continued to increase over time." Another 46 percent said it has "stayed relatively constant," and 12 percent said that value has "declined."

Further evidence of differing viewpoints appears in the 3PLs' lists of their biggest problems, where "continuing downward pressure on pricing" came in first and "low return on IT investments" was third. Traditionally, 3PLs have used their ability to cut shippers' costs as a prime selling point. But the CEOs made it clear that shippers want more than they're willing to pay for. When asked to identify the causes of their low returns on IT investments, most said that solutions often are unique to individual customers; clients are unwilling to pay for IT solutions; and many customers consider IT to be part of a basic package rather than a value-added service.

Some providers aren't just sitting back and taking it on the chin, though. CEOs said they're combating cost and pricing problems by adopting better cost analyses, developing easily adaptable IT solutions, and improving partnerships with software providers.

Third-party providers are also tackling those issues by seeking business along their customers' supply chains; that is, by selling services to their clients' suppliers and customers. This strategy creates an opportunity for them to sell integrated solutions and provide integrated information flows, Lieb says. Providers also said they are being more selective about customers, and are either negotiating more remunerative pricing or are walking away from unprofitable customers.

Visions of the Future

What kind of a future do shippers and 3PLs foresee? When asked to identify the most significant opportunities in their market, providers named "expansion of international opportunities," "further supply chain integration," "further IT integration," and "increased customer collaboration." Most of those opportunities match well with shippers' responses. But the subject of IT integration is less clear. "We've gotten data that shows providers are looking at systems integration as a major opportunity, but shippers don't really think of 3PLs as leading IT providers," says Lieb. "They just want 3PLs to customize a lot of things."

One factor behind 3PLs' optimism about IT may be their expectations about radio frequency identification (RFID). Three-fourths said they believe RFID will be "significant" or "very significant" to their customers, and most said they were developing RFID capabilities to support customers' expected needs. Continued...

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