Technology keeps 3PLs on top

Omnichannel retailing and other forces are dramatically changing consumers' expectations. For example, retailers must now offer personalization, specialty products, exclusive offers, free shipping, and time-definite delivery (including two-day, next-day, and even same-day) just to stay competitive. That's why more and more retailers and brands are looking to their logistics service providers, also known as third-party logistics providers (3PLs), for guidance and new ideas about how to meet those expectations.

"Consumer expectations are changing. They want their products delivered fast, and they don't want to pay a lot of money for delivery. Shippers are struggling to meet the challenges these expectations create, and many are turning to outside logistics companies for expertise and support." –Marc Althen, president, Penske Logistics (CSCMP's "State of Logistics Report," 2016)

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[Figure 1] Current and recent technology investments Enlarge this image

Logistics service providers are increasing the depth of their relationships not only with their customers' operations, as noted above, but also with their customers' suppliers, distributors, and, in the case of many supply chains, their customers' customers. Indeed, from the customer's perspective, the expectation is that logistics service providers should be willing to work with their partners in terms of providing assets, services, and technologies. The resulting collaboration is driving toward a network approach to logistics management.

One key advantage of this networked approach is that it will help logistics service providers gain a more complete view of the entire supply chain and thus provide better service.

"... There are many inefficiencies in the supply chain—a lot of trucks are still in the wrong place at the wrong time, for example. Freight goes by air when it could just as easily go by sea. Freight moves by expedited when it's not urgent." –Bradley Jacobs, chairman and CEO, XPO Logistics (CSCMP's "State of Logistics Report," 2016)

As the quote above suggests, many of the problems companies face in regard to logistics management are related to not having the right information or not being able to use that information to make better decisions. Logistics service providers, then, must continue to evolve from being asset-focused to information-focused businesses. They should be paid for delivering results or outcomes, not just for providing physical movements or support services.

For most providers, technology will play a key role in helping them to manage these challenges. At a time of higher customer expectations, lower revenue, and increased costs, logistics service providers need to push their networks to implement new technologies that take advantage of "big data," facilitate greater transparency across the network, and increase efficiencies through optimization. While most logistics organizations have chosen to only invest in foundational technologies until some of the more unsustainable fulfillment options are weeded out (as seen in Figure 1), there will be greater pressure to increase technology investments as new companies enter the market with different perspectives on handling logistics problems.

New competitors with new tools
These new entrants are not bound by the conventional wisdom in regard to network optimization, and they may very well develop a new approach to driving efficiency across today's increasingly complicated operations. For example, nontraditional competitors like Google are approaching logistics from the perspective of technology and information management. Google Express is being launched as essentially an aggregator service for last-mile delivery. By aggregating consumer purchases from stores such as Target and Costco and then providing same-day or overnight delivery, Google Express optimizes the number of deliveries that are made to a home.

Other new competitors are focusing on the digitization of manual and inefficient processes, much as Uber did with scheduling car service. For instance, companies like GetLoaded and 123Loadboard, to name just two examples, are applying this nonconventional approach by automating load tendering, driving efficiency for both shippers and carriers.

Additionally, both traditional and nontraditional competitors are using new technologies to redefine logistics operations and respond to challenges such as the driver shortage or the need for more flexible last-mile delivery. Google, for example, was awarded a patent earlier this year for a self-driving delivery truck equipped with lockers that consumers could open with a personal identification number. Other companies are experimenting with truck "platooning," where two or more trucks are electronically connected to a lead vehicle to form a "road train." Still others, such as Deliv, provide crowdsourced, same-day delivery with independent drivers using their own cars or trucks to pick up and deliver orders for consumers.

Logistics service providers are not the only ones who will have to change. Shippers will need to evolve as well. They can start by reexamining some of their traditional, self-imposed constraints. For example, is it still necessary to follow rigid routing guides (this origin ships a full truckload to that destination on a certain date, using one of three specified carriers)? Instead, they should ask themselves: Are there opportunities to manage the volatility of capacity, fuel, and performance at the lane level on a weekly or even a daily basis? And do they have to continue the traditional core-carrier programs that worked well in the past, or should they consider an alternative approach?

One alternative may be to apply the concept of arbitrage to transportation. A commonly used definition for arbitrage is "the simultaneous buying and selling of securities, currency, or commodities in different markets or in derivative forms in order to take advantage of differing prices for the same asset." What if shippers or logistics service providers approached transportation as a commodity, and with the information available, applied the techniques of foreign-currency trading? The shipper's problem statement would change to: "I have 100,000 pounds of freight at X origin that needs to be delivered by Y date to Z destination. Where are there favorable differences in pricing across modes and carriers that meet my needs?"

All of this suggests that just as shippers' strategies and operations have evolved in response to the dramatic changes in customers' expectations over the last few years, so too must the logistics service providers that serve them. Increasingly, that includes reevaluating the value proposition to their customers and the business model that supports it.