By: Roger Whitton – VP of Marketing
A recent article by Patrick Burnson on the Supply Chain Management Review website left me questioning if there isn’t something missing in the approach taken by the parties in many logistics relationships?
The article titled “Optimizing 3PL Relationships: How to Avoid Commoditization”, detailed the findings of a SCM World survey of 557 global shipper organizations on their perception of its 3PLs.
The study found that while shippers were generally content with the reliability of their 3PL partners, there is considerable concern about the value of long-term, strategic relationships. According to Barry Blake, vice president of research at SCM World, “Third-party logistics providers are seen as fast and fairly reliable…but not innovative.” The logistics sector is booming, but shippers are still “shopping around” for a better price or more complete service. Additionally, logistics providers struggle to deliver innovative solutions in the eyes of their customers.
What drives this disconnect between 3PL performance levels and their perceived reluctance to innovate? The study authors cite the fact that the major expectation for logistics service providers is cost savings. This entrenched focus creates a self-perpetuating cycle where logistics providers resist investing in innovation since their customers don’t yet believe that innovation will drive cost savings more effectively than traditional methods.
“This pushes logistics services further towards blandness without any meaningful differentiation.” Blake concludes. “Both sides need to come together if logistics service innovations are to take root and see the light of day.”
While this cycle of shipper cost reduction expectations leading to logistics providers resisting investment is a contributing factor, it is important to understand that the cost of investment isn’t the only inhibitor of innovation.
In fact a lot of innovation, change, and improvement can take place without significant capital investment.
The “Knowing / Doing” two step”:
We believe that a more basic factor limiting innovation is the approach under which much of logistics is done. You could call it the Knowing / Doing two step. It occurs whenever the customer, or the logistics provider, enters the relationship certain in the knowledge that they already know what needs to be done, and then just continues doing it.
In some instances, the shipper approaches the deal by issuing an RFP wherein they stipulate what needs to be done, because that is how they have always done it.
In other cases, the logistics provider approaches the deal with a few canned services that can fit any square peg in a round hole, because that is all they have to offer.
How will anything change? How will any innovation take place? How will any underlying issues be identified and solutions developed? Clearly nothing changes, no innovation takes place, and no solutions are developed.
So what is missing in the way most logistics is done?
The article touches on the answer when Blake talks about “logistics providers needing to do a better job of understanding their customer’s business”, and “both sides needing to come together if logistics service innovations are to take root”. While the article still ties both comments to investment, they are getting closer.
In our opinion, what is missing is a disciplined, collaborative approach where the customer and logistics provider work together; first to analyze and understand the current state (What Is); agree on the desired future state and what goals are to be achieved (What Could Be); and then work together on challenging the status quo, to develop unique solutions that will get the customer from where they are now, to where they want to be.
At first blush that approach may seem too simplistic. After all, today’s supply chains are getting more complex and logistical solutions can be global in nature. But if you don’t begin with a discussion focused on understanding where you are now; and where you want to be in the future; how will you ever develop a solution to get from here to there?
Call it collaboration, supplier engagement, two-way communications, or a true partnership. We call it the WHAT IF Approach to logistics. And it works.