What's the right role for global 3PLs? (page 3)
-- Logistics Management, 2/1/2006
Page 3 of 4 -- It's not just about the freight lanes.The TLI study notes that more than 70 percent of shippers still view their 3PLs as tactical service providers. To make a deeper connection with their customers, then, logistics players have to plan and act strategically rather than simply emphasize tactical gains.
Shippers will also need to change their outlook if they're to get the greatest benefit from outsourcing. "There isn't nearly as much collaboration up and down the supply chain as people would like to see," says Brooks Bentz, a partner with Accenture's supply chain management practice. "Most people on the shipper side still think that if they can get the 3PL at the right price, they can get the services they want. It's a 'what are you going to do for me now' mentality." Needed now: a shift toward proactive assessments of how logistics can add value, not simply in terms of cost containment but also in terms of potential market-share gains, improved product development, and superior customer service.
The battle for simplicity never ends. Most 3PL users are activelyreducing their rosters of logistics providers. Hewlett-Packard has halved its lineup since 2001 and will halve it again by the end of 2007, says logistics chief Feitzinger. Other industry leaders are seeking an "irreducible minimum" number of 3PLs. Such streamlining is laudable, but there's no foreseeable end to those efforts because there's no letup in the economic forces that are making supply chains more complex. And the surging merger and acquisition activity in the 3PL industry means shippers must constantly reappraise their logistics relationships. The upshot: There is no way to permanently delineate an ideal logistics scenario.
Needed: New skills. As use of 3PLs expands, there's less need for traditional competencies like negotiation of freight rates. At the same time, a broader understanding of cross-border trade issues is needed whether or not those services are handed off to a 3PL. Most importantly, internal resources must demonstrate skills in selecting and managing third parties. That places a premium on relationship management skills and on collaborative working patterns.
It may not be an easy transition. In many companies, 3PL selections are still largely driven by requests for proposals (RFPs), says Scott Szwast, sector marketing manager at UPS Supply Chain Solutions. But some shippers are experimenting with breaking that mold. A Hewlett-Packard pilot, for example, borrows the architecture field's design-competition approach as a method of evaluating and selecting 3PLs. HP's argument is yes, RFPs make things easier for procurement staff, but they are not effective for evaluating the complex 3PL relationships needed to generate the best results today.
Standard processes are the Holy Grail.The TLI study highlights a worrying lack of consistency in core services among global 3PL providers. As shippers expand their usage of 3PLs into new regions, they're finding that they can't take for granted the levels of service they experience in their home markets. They often find a marked difference in quality, even between the United States and Europe.
Technology is power.The larger 3PLs have a significant edge when it comes to IT systems, where they can use their process specialization to good effect in different locations worldwide. Whereas the typical in-house logistics group may install one or two warehouse management solutions in a decade, IT groups at many 3PLs may have installed dozens of such solutions in the same timeframe. Says BG Strategic Advisors' Ben Gordon: "The technology bar will only continue to rise." Continued...
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