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 that work.
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 service provider.
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 solutions.
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.