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.