How 3PL providers can fight commoditization & drive innovation
The question on every 3PL provider’s mind today seems to be:
How can we stand out from the crowd and avoid getting trapped in a price war?
Adrian Gonzalez, founder of Adelante SCM sheds some light in his blog Talking Logistics: “There is no incentive for 3PLs to be innovative and creative if your objective is to beat them down on cost, shift all the risk to them, and then put the business out to bid again in 1–3 years. Procuring logistics services is not the same as buying paper clips, yet that’s how many procurement organizations approach it.”
Chris Saynor, CEO of Eye for Transport (eft), echoes his comments. “There’s a technology gap from what the customer wants and what logistics companies provide. The gap’s always been there, and it’s there because they can’t agree who should actually pay for it.” he said at the Quintiq World Tour event in London earlier this year. “When you talk about commoditization, it’s the technology which actually can start to battle the commoditization. That’s the differentiation.”
Indeed, the recent 3PL contracting report 2015 released by eft found over 40% of its respondents agreeing that new technologies such as augmented reality, drone delivery, 3D printing, and driverless vehicles, will play a role in their businesses in the future. However, the majority on both shipper and 3PL sides do not have plans for them in the immediate future.
In my view, what 3PLs can and should focus on now is boosting their planning capabilities and operational efficiency. Here, there are four key areas 3PLs need to focus on improving:
1. Visibility across borders and business units
This is mainly about efficiency. The first step to cutting down on empty miles and unnecessary truck trips is knowing where your assets are at all times. Do you have a platform that can do this at scale?
2. Balancing service levels and costs
Many planners struggle to create a workable plan, so KPIs are probably not a consideration in the day-to-day planning. Whether it’s reducing your dependency on contractors or improving customer satisfaction, you need to be able to simulate different planning scenarios to find the best solution.
3. Offering services beyond that of a transport service provider
Here is where you stand the best chance to get ahead and decommoditize your offerings. Can you handle the complex planning requirements of multimodal transportation and inventory management?
4. Adhering to strict rules and regulations
This sounds trivial but it shouldn’t be overlooked as it can disrupt your operations. Whether its driving and working regulations, cooled freight, or access rules and policies — your plans should take into account all the rules and regulations.
Building a solid planning foundation will allow 3PLs to be more competitive both in terms of cost and services. Again, I’d like to quote Chris on this: “Companies who get it earlier I think will be the ones who will get a USP, they’re not going to be commoditized.”
Want to know more? Come join Chris Saynor and a host of experts at our upcoming Quintiq World Tour conference in Istanbul this November 5. Reserve your seat today.
This post was previously published on LinkedIn.