3PL Logistics Primer For Business Success
OutsourcingCentral.com May 2004
By THOMAS CRAIG
President LTD Management
Outsourcing of 3PL logistics tasks and supply chain responsibilities is a dynamic
model. The most interesting aspect is that companies-manufacturers, retailers,
wholesalers, and distributors-are turning over parts of their supply chain to
firms that have their roots as commodity service providers. Firms that know
ocean shipping, forwarding, warehousing, or trucking are now handling and, in
some cases, managing broad domestic and international logistics activities.
3PLs, regardless of how experienced in outsourcing, face common challenges
to prime their market and keep it primed. These include:
Define yourself. How do you see yourself and your company? This is an
important question. It frames who you are and how you present and position yourself
in the market. Are you an ocean carrier with a 3PL service option? Are you a
warehouse with a 3PL service? Or are you a 3PL logistics service provider with a
strong shipping, transport, warehouse or forwarding capability? There is substantial
difference between these two views, a difference that affects how you position
yourself and how you are perceived in the market.
Develop strategy. Confusion sometimes exists between operational efficacy
and strategy. Operational efficacy is doing the same or similar activities better
than competitors. Management tools--such as benchmarking, partnering, reengineering
and change management, for example--are means that let companies reduce costs
and achieve performance improvements. They are necessary to sustaining competitiveness.
But they can also be temporary achievements, as competitors work to mimic programs
Strategy is how you differentiate your company in the marketplace. It is what
makes you unique and separates you from the competition. Positioning can reflect
the customers you target, the type of service you provide or a blend of customers
and service. For example, a strategy can be based on all importers and providing
one-stop shopping. A strategy can be sliced for importers who bring in less
than 500 containers per year; this is a different segment than the broad approach
of targeting all importers or even all large importers. Or a different strategy
is focus on importers of less than 500 containers who are distributors/ wholesalers
to mass merchandisers and large retailers. With the strategy, you can assemble
the resources and approaches needed for the market that you have selected.
Have outstanding management. Management is often what separates outstanding
companies from the also-rans. It requires a leadership who has a sustainable
vision, its processes, goals and methodology. They have an entrepreneurial mindset.
These people are proactive, not reactive. These leaders see the 3PL logistics service,
not the freight, warehouse or other assets employed. They see the supply chain
process, not the transactions. All this separates them from executive caretakers
who can flip-flop with management de jour approaches, indifference or quick
fixes to growth, positioning and profits. Investors realize how critical outstanding
management is to a company's success and so should the 3PL. These executives
can break the company from its commodity service origins into being a value
Research the market. For your marketing plan, you need to understand
your market. Depending on your market position you may be looking for general
or specific information as to opportunities or issues, with the market or with
you. Define the market; define your customer. Look at the market you compete
in. See its composition, size, trends and needs. Use internal and external data
and additional research as needed. Find customers; who are they; who makes decisions;
what decisions are made; how are they made, why are they made, what external
factors exist for customers; and how are you perceived as compared to competitors.
Learn if you are visible in this market. And remember, customers are both new
and existing, with changing needs.
Assess your capabilities. This is a moment of truth. You must honestly
assess your strengths and weaknesses, your capabilities and limitations. This
applies to all parts of your company, regardless of whether corporate office,
division or field locations or partners/alliances and regardless whether domestic
or international. The checklist of topics includes:
Organization. Look at your structure as to vertical, horizontal
or matrix. It should reflect the usual organization reporting arrangement. And,
more importantly, it should support the means to providing a dynamic, ongoing
3PL logistics service with successful results.
Skill sets. You want to establish yourself as a supply chain
service solution provider, someone who will develop a tailored logistics program
to fit the specific needs of each customer. Solution providers see the container-and
more. They see pallets of product-and more. They know it is about the process,
not the container or pallet.
3PLs initially focus on investing in assets, warehouses and technology, without
knowing how these fit into 3PL solutions. This approach constructs answers without
knowing the questions. Rather, the successful 3PL sells, design and manages
customized logistics in an international or domestic venue. The issue then becomes
whether existing personnel are capable of selling 3PL logistics and supply chain
A holistic sales approach is needed for 3PLs than for commodity service providers.
Commodity sales personnel often deal with the customer perspective of the need
to manage costs. Yet the customer has additional accountabilities. 3PL sales
personnel need to address the customer's supply chain accountability scope.
The accountability scope is 90% of the customer attention span as compared to
the 10-25% that freight or warehousing cost is. 3PLs must focus on the 90%,
not the 10-25%, to gain business.
Firms need training to facilitate these skills. Staffing is often built with
existing personnel who have sales and operations experience with the commodity
service parent company. 3PLs, not surprisingly, find that even with training,
and with continuous performance monitoring afterward, less than 10% of the sales
force can make the mindset change to sell logistics. As a result, they may employ
non-shipping people to do logistics selling. They draw on outside firms with
people who have real world supply chain knowledge and experience to sell and
assist with designing and managing integrated logistics programs.
Other. There are other points to recognize as to process design
capability, people, technology, budget, sales targets and advertising. The overseas
network, where applicable for international 3PLs, is a key factor.
Conclusion. The ongoing challenge for 3PLs is to successfully design,
sell and manage a logistics solution with easily monitored metrics and accountability.
Consider the high rate of outsourcing failures. Causes ranging from a rush to
procure business and not understanding the process and requirements to some
3PLs converting back into a commodity service. This conversion defeats the very
purpose of the 3PL. Outsource service providers seek competitive advantage;
they know that preserving competitive advantage is an ongoing challenge.
Top of Page |
LTD HOME PAGE