Transforming Logistics: How 3PL Providers Are Driving Resilience, Innovation, and Strategic Collaboration

In a world where supply managers are constantly buffeted by unpredictable forces, the long-recommended change from transactional relationships to implementing strategic partnerships with third-party logistics (3PL) providers seems to have become fully accepted.

“Today’s partnerships are built on performance. Shippers increasingly turn to 3PLs not just for logistics services but for their ability to provide adaptability, innovation and resilience in a volatile operating environment,” researchers conclude in the 30^th annual 3PL study, led by Dr. C. John Langley of Penn State University.

The study, sponsored by Penske Logistics and NTT Data, was made public at this year’s Council of Supply Chain Management Professionals EDGE conference, held earlier this month in suburban Washington, DC.

“Overall, this year’s study results confirm the progress being made by shippers and their 3PLs in spite of new challenges and disruptions that have arisen,” Langley observed. “The 3PL industry has grown and transformed significantly over the past 30 years. Both shippers and providers and managers of supply chain services have responded forcefully to the continually changing and challenging business and supply chain environments."

Delivering on more than just direct logistics cost savings is vital to 3PL customers. Today’s partnerships are built on performance, according to the researchers. “Shippers increasingly turn to 3PLs not just for logistics services but for their ability to provide adaptability, innovation and resilience in a volatile operating environment,” they said.

“Variability in today’s marketplace remains, and the nuances of consumer demands, the modes that are needed and the capacity to fulfill those modes depend on responsiveness and resiliency,” noted Mark Baxa, president and CEO of CSCMP. “Shippers are leaning on 3PLs to create that resilience and the ability to not only recover from sudden shifts but also provide elasticity and problem-solving no matter what happens.”

Just how reliant shippers have become on 3PLs is shown by the fact reported by the researchers that among those who are using outsourced logistics services, the average cost of these services now represents 62% of their total logistics spend.

Among this year’s survey respondents, 88% of shippers said their 3PL partners are capable of solving their specific needs and challenges, and 95% of 3PLs added that their goal is to bring innovation to their customers.

Shippers revealed that supply chain disruptions (81%), cost optimization through collaboration (76%), and digital transformation (57%) are among the top drivers for strategic partnerships. When it comes to the 3PLs’ viewpoint, they believe that key considerations for shippers are demand for end-to-end visibility (61%), customized/value-added services (61%), and cost optimization via collaboration (56%).

The 3PL Holy Grail

Almost from the beginning 3PLs have been promoting the concept of strategic partnerships with their customers. Not long after the concept of separate logistics companies providing new and better ways for managing the supply chain was introduced from Europe in the 1980s, outside companies offered to take over a shipper’s traffic department as a form of forward integration into their customers’ operations.

Less spoken of was the fact that these relationships also offer 3PLs the added benefit of increasing the amount of pain the shipper would feel if it chose to end its outsourcing agreement once their traffic department had been supplanted.

Not too much later, some 3PL practitioners then overpromised on what they were capable of delivering, claiming they were capable of managing the entire supply chain process, from sourcing raw materials to last-mile deliveries, when that capacity simply didn’t exist. (Although with the further development of artificial intelligence, that point may be reached sooner than we think).

Another obstacle was the ingrained tendency of upper management to pressure their supply chain manager to squeeze cost out of transportation and other services by forcing providers to lower their rates. But in an era where the demand has been accelerating for the delivery of faster and faster service due to the growth of e-commerce, that practice was eventually seen to be self-defeating in the long run (at least the service providers hope that is the case).

Advances in technology definitely are bringing us closer to grasping the holy grail of seamless end-to-end supply chain management. At any rate, the 3PL study shows that relationships between shippers and 3PLs are at least moving away from being transactional to functioning more on a strategic level.

Given the increased demand for improved visibility, speed and reliability of delivery and expanded service capabilities, it is not surprising that an overwhelming majority of shippers (90%) regard the availability of advanced technological capabilities to be among the most critical deciding factors when selecting a 3PL.

The majority of shippers (80%) and 3PLs (81%) are deploying advanced analytics at some level, the researchers found. AI and machine learning are utilized by shippers at a 67% rate and at 73% for 3PLs. However, the research also took note of the barriers that exist to the deployment of next generation tech, said to include insufficient funding, unclear business cases, inadequate talent, trust of that technology, risk aversion, and scalability.

“More shippers expect real-time visibility, data-driven insights and agility, and 3PLs are responding with technology that can drive operational performance,” the researchers pointed out. Among the top technology needs identified by both practitioners and customers are advanced analytics and network optimization.

The survey also found that digital supply chains are being used to improve the flow of goods, information and finances. Among shippers, 70% reported significant use of digital supply chain technologies, compared to just 13% of 3PLs. This gap is likely to recede as 3PLs make related investments to better meet shipper expectations, the researchers believe.

In response to this need, 3PLs are investing in multiple technologies, including those that can capture and analyze data to improve asset utilization and service, enable predictive analytics, and strengthen agility and resilience, the survey found.

A good sign is that shippers who are currently using logistics providers reported having a positive view of their relationships. No less than 88% of shippers report that their 3PL relationships are generally successful, down only slightly from the 89% who made the same observation in last year’s study.

The researchers said a critical takeaway from the study team’s research into transactional versus strategic relationships is the need for both shippers and 3PLs to “walk the walk” in a manner consistent with the chosen sourcing model.

For example, if a shipper enters into a strategic partnership with a 3PL but then treats the provider and its team as a commodity, the resulting service will likely reflect that mindset, leading to a more transactional relationship rather than a strategic one, they observed.

“To fully realize the potential of a strategic relationship, both parties must actively listen to each other to ensure that they realize the mutual benefits they anticipate at the outset,” the researchers advised. “While a joint commitment to a true win-win partnership and decision-making process may require more time, effort and investment, the measurable benefits achieved should far outweigh the costs.”