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Disruption has Fundamentally Altered the Shipper-3PL Relationship


Disruption has Fundamentally Altered the Shipper-3PL Relationship

Adaptation and bold sourcing strategies are key for logistics leaders to ensure they’re getting the best value.

This is a contributed op-ed written by Matthew Beckett, senior director analyst at Gartner. Opinions are the author’s own.

Logistics sourcing strategies have historically been focused on lowering rates. In times of space abundance and high levels of competition, this was indeed the best strategy. Back then, third-party logistics providers had lean margins that made it irrelevant for shippers to invest in strong partnerships with them.

But ongoing disruption in the world has fundamentally changed the relationship between shippers and 3PLs — in favor of the 3PLs. For logistics leaders, this means they must now look at all characteristics of a 3PL to determine the best value.

3PLs have evolved from being a mere service provider to an enabler that makes sure that customers get their goods delivered. And shippers realize that a good relationship with their 3PL is key to a good experience for their customers. A recent Gartner survey found that 63% of logistics leaders believe that logistics outsourcing has had a positive impact on their organization’s competitive positioning.

But how do you establish a good 3PL relationship to create that great customer experience? Through adaptation. By being bold and adopting logistics sourcing strategies that are suited for the world we live in.

Shipper of choice?

Space is limited and prices are up, which means a trusted, long-term partnership can be very helpful. However, forming one requires some effort.

A shipper can, for example, aim to become a shipper of choice. But this requires building more accuracy into planning and forecasting, which translates into weekly logistics shipping forecasts.

If this sounds too ambitious, remember that building trust with a 3PL begins with making small commitments, such as delivering on volume promises and communicating when something doesn’t go according to plan. Then try to establish a closer, integrated partnership by formalizing a supplier relationship framework.

Tech + innovation = resilience

A key driver of ongoing supply chain resilience in the logistics space is investment in technology.

Gartner’s recent Logistics and Contract Manufacturing Outsourcing Survey asked respondents to rank their top three logistics priorities in the near future. Unsurprisingly, technology improvements, data quality improvements and cost optimization ranked at the top.

However, without knowledge and understanding of where and how technology investments benefit the logistic operation, leaders will fail to take advantage of digital offerings and overlook opportunities for process and cost improvements. Leaders must sit down, do the research, and determine which 3PL invests in the technologies that align best with their technology priorities— be it visibility, speed or cost reduction.

Target suppliers ‘for maximum value’

While navigating the various disruptions of the past few years, logistics leaders have realized that traditional methods of managing and engaging suppliers won’t deliver the best outcomes. Many have turned to segmentation.

Segmentation is the process of differentiating suppliers in terms of their impact on the organization and the potential risks posed — service failures, security or compliance risks. But 3PL segmentation shouldn’t just be based on spending and volume drivers. Some 3PLs might be specialists in cold chain or handling dangerous goods, for example. The talent pool among these specialist applications is shallow, so protecting this relationship can often be critical.

It’s important to define segmentation guidelines and agree on specific criteria. This will ensure that everyone’s time and focus is targeted to the most appropriate suppliers for maximum value. Poor practices will result in wasted time and investments.


Speeding Up the Supply Chain With Interoperable Systems

Ongoing supply chain disruptions have highlighted the need for more data sharing among supply chain partners. Implementing interoperability—connecting companies’ computerized and automated systems to expedite information exchange is one way to accomplish it.

Improving data sharing through interoperability can provide many benefits. “Increasing transparency across a value chain through data sharing and collaboration is a powerful way to keep supply chains operating efficiently,” said Tarek Kasah, associate partner, McKinsey & Company. Visibility across all tiers of a supplier network minimizes the risk of supply chain disruptions, improves productivity and gives a holistic perspective on environmental impacts.

There’s been some progress toward interoperability in recent years. The diverse technologies companies use for their own operations are no longer an insurmountable barrier. “Modern cloud technology and the Industrial Internet of Things offer solutions to the technological challenges of data sharing and interoperability across the supply chain,” Kasah said.

But data-sharing standards are still being developed (see sidebar on page 24), and many organizations have reservations about moving forward. “The greater challenge is trust between players, which requires a common understanding on what data can be shared and agreement on how it will be used,” Kasah added.

Data security

For interoperable supply chains to work, organizations need to be confident their data is protected from competitors and unauthorized entities. The growth of remote working has made security issues even more complicated, because data is now being processed through remote connectivity and virtual interfaces.

“You could say that the more virtualization you have, the more potential channels you have to open up opportunities for security hacks or data breaches,” said Andrew Stevens, senior director analyst at Gartner.

Organizations must incorporate strong security protocols at the beginning of any data sharing/interoperability initiatives, and ensure that there’s continuing vigilance and monitoring around security issues.

Kasah said one possible way to safeguard data is to appoint an impartial, third-party trustee that acts as intermediary, reviewing potentially sensitive data and helping to establish incentive arrangements for sharing it. Another approach is to share insights gleaned from the data rather than the raw data itself.

Defining value

Before companies commit to interoperability, they need to understand the benefits they will gain.

“Even two very similar organizations that are making similar products can approach the value of interoperability very differently, depending on what they consider to be highest priority objectives,” Stevens said.

In the food and beverage supply chain, for example, global retail chains might encourage interoperability in order to gain valuable business insights from data shared by their supply chain partners. But the value for some could also be in their ability to answer customers’ questions about the provenance of the raw materials used in their products.

It’s important to understand that the benefits derived from interoperability and data sharing are not spread equally among supply chain partners. “To make this data exchange lucrative and in the interest of both parties, respective terms and conditions need to be identified and agreed upon at the start of forming a supplier partnership,” Kasah said. The partners will need to address issues such as to how data will be shared, what data standards they’ll follow, and who has the rights to data access and ownership.

Options for interoperability

There are numerous ways that companies can implement interoperability and data sharing.

QR codes are one solution. Invented by MHI member DENSO Wave in 1994 to track automotive components, QR codes today provide information for a wide variety of products and services. Scanning a QR code leads to a website that offers whatever details the QR code creator chooses to share.

“One of the beauties of QR codes is that you can set it up to work however you want it to; it’s a reflection of the data that you put into it,” said Kevin Bradshaw, sales and business development manager, Americas at DENSO.

supply chain MHI

Supply Chain Disruption Fuels Investments in Technology

87% say the pandemic has altered the strategic importance of supply chains and 64% are increasing tech investments.
Charlotte, NC – Nearly 80% of supply chain leaders say their digital transformation has accelerated due to the pandemic, according to an industry report released today by MHI in collaboration with Deloitte.
As a result, investment in supply innovation over the next two years is expected to rise dramatically, according to the 2022 MHI Annual Industry Report, “Evolution to Revolution: Building the Supply Chains of Tomorrow.” The report provides new insights into trends and technologies that are transforming supply chains and the priorities of the people who run them.
Of the 64% of respondents increasing investments, two out of three say they will spend more than $1 million over the next two years. Investments are particularly growing in the middle ranges from $5 million up to $100 million – where 41% say they spend more than $5 million and 18% say they will spend more than $10 million.
“Supply chain leaders have never been in a better position to drive impactful and lasting change for the industry,” said John Paxton, CEO of MHI. “With the white-hot media spotlight chronicling the after-effects of the pandemic, the importance of supply chain is finally coming into focus in boardrooms across the world.”
The 2022 report, the ninth in a series of annual industry reports published by MHI and Deloitte, provides updates on the innovative technologies that have the most potential to transform supply chains, including projected adoption rates of the next five years for each of the 11 categories of technology covered in the report and an analysis of common barriers to adoption.
The technologies covered in the report are:
  • Artificial Intelligence
  • Predictive analytics
  • Inventory and network optimization
  • Robotics and automation
  • Wearable and mobile technology
  • Driverless vehicles and drones
  • 3D printing
  • Internet of Things
  • Cloud computing and storage
  • Sensors and automatic identification
  • Blockchain
Supply chain technology adoption predicted to rise sharply
According to this year’s respondents, all technologies covered by the survey are expected to achieve an adoption rate of 66% or higher over the next five years. Cloud computing, which is now the standard platform for most supply chain software, continues to have the highest current adoption rate at 40%. Inventory and network optimization is expected to rise to the top over the next five years, with an expected adoption rate of 87% (in a statistical tie with cloud computing at 86%). However, artificial intelligence is expected to see the most accelerated growth – rising from 15% to 73% over the next five years, a nearly five-fold increase.
Additionally, Predictive Analytics, currently at 22%, is expected to grow to 82% over the next five years. Industrial Internet of Things, currently 21%, is expected to grow to 80%. Robotics and automation, currently at 28%, is expected to reach 79%.
Robotics and automation continue to top the list of innovations that survey respondents believe have either the potential to disrupt the industry (17%) or to create competitive advantage (39%). However, a handful of other technologies are very close behind, including: predictive and prescriptive analytics; sensors and automatic identification; autonomous vehicles and drones; and AI technologies.
“Supply chains are becoming more and more a technology-driven industry. While firms have not adopted some technologies as quickly as they thought they would back in 2014 or 2015, what we are seeing now is a big jump in these investments. Where we used to say evolve or die, what we now say is transform or die,” said Thomas Boykin, Supply Chain Specialist Leader, Deloitte.
Disruption now tops list of supply chain challenges, talent shortage a close second For the past nine years of the survey, hiring and retaining qualified workers was consistently the top supply chain challenge. However, in this year’s survey supply chain disruptions and shortages rose to the top at 57% – presumably due to the ongoing effects of the global pandemic. Talent issues (54%) and customer demands (51%) remain top challenges but must now be addressed in the context of avoiding future supply chain disruptions.
This shortage is spurring companies to invest in technologies that not only improve agility and efficiency but also reduce the need for repetitive, manual labor. These investments create the kind of advanced technology environment that results in more rewarding supply chain jobs that appeal to today’s top talent.
This could provide a new path to upskilling current employees and attracting new talent – creating a more modern, capable workforce that can quickly adapt and adjust to changes in the technology and market landscape.
“Supply chain automation and technology provide tools to mitigate disruptions, but the real solution goes much deeper, said Paxton. “It’s having the right culture and the right people in place to implement this technology and to bring it all together to exceed your customer demands and expectations – whether they are fast delivery, personalization, low cost, delivery transparency or ESG goals.”
Lack of clear business case is #1 barrier to adoption 
Company leaders understand at a theoretical level that their supply chains could greatly benefit from investing in innovation, but potential gains often take a back seat to short-term profit targets and concerns over the cost associated with new technology and the threat of disruption to day-to-day operations. For the first time since the inception of the MHI Annual Industry Report, ‘lack of a clear business case to justify the investment’ was cited as the leading barrier to adoption for all 11 technologies in the report.
Many companies are now using the MHI Digital Consciousness Index (DCI) toolkit highlighted in the 2020 and 2021 reports to understand their organizations’ digital mindset and evaluate their progress on the journey to becoming more digital. However, for every key investment decision on that journey, a robust business case is needed to provide the foundation for informed decision-making.
“Building a business case provides the roadmap to supply chain technology investment, but it’s so much more, Paxton said. “It tells the entire story of why change is imperative to delivering on-going value. It really all comes back to using these technologies to better serve the customer.”
The report also provides real-world case studies of digital supply chain technologies and recommendations for leaders for developing strategies to implement these innovations.
The findings of the 2022 report are based on survey responses from over 1,000 manufacturing and supply chain industry leaders from a wide range of industries at the end of 2021. Eighty-one percent of respondents hold executive-level positions such as CEO, Vice President, General Manager, Department Head or Engineering Management. Participating companies range in size from small to large, with 59% reporting annual sales of more than $50 million, and 13% reporting $1 billion or more.
The 2022 MHI Annual Industry Report is sponsored by 6 River Systems and Generix Group. Download the complete report at
About MHI
MHI is an international trade association that has represented the material handling, logistics and supply chain industry since 1945. MHI members include material handling and logistics equipment and systems manufacturers, integrators, consultants, publishers and third-party logistics providers. MHI offers education, networking and solution sourcing for their members, their customers and the industry as a whole through its programming, events and WERC division.
The association sponsors the ProMat and MODEX expos to showcase the products and services of its member companies and to educate manufacturing and supply chain professionals on the productivity solutions provided through material handling and logistics. MODEX 2022 is being held at Atlanta’s Georgia World Congress Center from March 28-31.
About Deloitte
Deloitte provides industry-leading audit, consulting, tax and advisory services to many of the world’s most admired brands, including nearly 90% of the Fortune 500® and more than 5,000 private and middle market companies. Our people work across the industry sectors that drive and shape today’s marketplace — delivering measurable and lasting results that help reinforce public trust in our capital markets, inspire clients to see challenges as opportunities to transform and thrive, and help lead the way toward a stronger economy and a healthy society.
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