Becoming a Modern 3PL:
A Prescription for Growth

The logistics industry is almost completely vulnerable to events beyond its control – and it has certainly been navigating some rough terrain lately. First, changing global market conditions and fuel and currency volatility challenged the notion of long, thin supply chains. Then slumping economies further turned up the pressure.

Now, with recovery beginning to occur, companies are viewing this as the time to re-evaluate relationships with their 3PLs and possibly drive them deeper. Already, shippers are turning to transportation providers for innovation and ways to achieve greater value.  In return, 3PLs are developing new service offerings, new capabilities and expanded reach. The modern 3PL, for example, can help clients restructure their distribution networks to maximize efficiency, minimize miles and improve financial performance; expand to new markets or offer new products; and convert fixed costs to variable costs.

Opportunities for Growth

At the heart of this change is a continuing drive to transform from commodity-based, price-driven contract service providers to strategic solution partners. As 3PLs move to become more partner-like with their customers, the mix of services they offer must change.

Historically, the most frequently outsourced activities are those that are transactional, operational and repetitive in nature, with companies managing the more strategic, customer-facing and IT-intensive activities internally. For 3PLs that have the requisite expertise, many of these internally managed activities are prime candidates for future growth, such as transportation planning and management, supplier relationship management and LLP/4PL services. For 3PLs to take advantage of these opportunities, they will need to address issues related to technology, customer relations and changing metrics.

Fill Gaps in Technology

IT-based logistics services are an essential part of the client-3PL relationship. However, there is a gap between clients’ expectations and their satisfaction with those services. Inadequate technology translates to operational inefficiencies and a lack of global visibility to orders and shipments. By investing in a warehouse management solution, 3PLs can improve productivity of warehouse operations while gaining real-time visibility into the status of their shipments and inventory.

As 3PL providers look to automate their operations, the deployment model becomes important. A multi-tenant, hosted service model, where each customer has a separate, configured- as-needed instance of the application provides the greatest flexibility, functionality and security. The affordable “pay as you go” payment structure scales with demand without upfront capital investment and monthly payments become almost like an operating expense. By evolving to a single operations platform that supports multiple lines of business and multiple clients, 3PLs can speed time to market, lower IT costs and ease collaboration with shippers and carriers.

Build Customer Loyalty

By fostering greater collaboration and working to maintain strong personal relationships with customers, 3PLs can develop customer loyalty, increase customer retention, deliver greater value and gain repeat business. Key factors for success include creating personal relationships on an operational level, being flexible in accommodating customers’ needs and achieving cost and service objectives.

In building customer loyalty, 3PLs should work to truly understand their customers’ businesses and main pain points and continuously investigate whether delivered services are meeting the customers’ needs. It’s also vital to maintain open communication and share as much information as possible.

By gaining a deep understanding of the needs of the customer and leveraging the functionality of a powerful warehouse management system, 3PLs can quickly implement solutions that are flexible to customer-specific business requirements and which create a reluctance to change service providers. By delivering solutions that meet the customer’s needs on all levels, 3PLs can endear their customers to them and build the deep loyalty that endures.

Deliver New Metrics

Stemming from a desire to create more sustainable, environmentally conscious supply chains, companies are increasingly striking a balance between labor and transportation costs. One approach is to choose manufacturing locations that deliver proximity to markets. To select these locations, companies are beginning to embrace total landed cost, or total distributed costs, as a new metric. In addition, companies are seeking key performance indicators from their 3PLs so they can respond more quickly when performance metrics are not in the desired range. To deliver these new metrics, 3PLs need to begin collecting the data required to calculate these metrics rather than simply providing individual activity costs.

By providing robust data sets, 3PLs can transform the 3PL-client relationship, become a strategic partner and participate in the customer’s business on a new level. A warehouse management system with powerful reporting tools allows a 3PL to analyze the data and measure performance. Further, it empowers the 3PL customer to mine WMS data for information they need to make informed business decisions as they respond to market conditions and grow the business.

Forging New Ground

A solution partnership can reward the 3PL with greater account penetration, easier sales cycles, fewer price-led bidding wars, better margins and, potentially, long-term profitable relationships. Shippers are willing to entrust their providers with mounting responsibility, but only when that provider demonstrates expertise in their industries. For 3PLs to move to the strategic level of partnership with their customers, they need to demonstrate deep business process knowledge and expertise, offer flexible and integrated IT platforms and systems and deliver the data and reporting capability that empowers the customers to make informed business decisions.

About The Author
Roark Janis is Vice President, Sales & Marketing with ASP Global Services, makers of SphereWMS. He has over 20 years experience in the logistics industry.