Stay Competitive at a Predictable Cost

Oct. 1, 2009
The latest trend is to outsource some of your logistics to a tech-savvy 3PL.

Domestic and global commerce would be seriously curtailed and perhaps even come to an abrupt halt without third-party logistics providers (3PLs) and freight forwarders to ensure that goods reach their destinations, particularly when crossing international borders. Thus, it’s no surprise that, despite an ongoing freight recession in 2008, 3PL revenues grew an estimated 5.5% to $128.7 billion as more suppliers outsourced warehousing and transportation of their products during the economic downturn. Specifically, 3PL market growth has been driven by companies outsourcing logistics functions to concentrate on core competencies, the need for supply chain information technology solutions and the ongoing globalization of trade and logistics.

However, 3PLs compete for that business in a very crowded market, and one of the most common problems for them is how to differentiate themselves to their potential customers. What should 3PLs, especially small or mid-sized ones, do to better position themselves in the RFP process to win more business from companies looking to outsource a key area of their logistics processes?

When looking for a 3PL, manufacturers typically issue an RFP to ensure they select a 3PL that can meet all of their requirements. In a highly competitive and margin-driven business, the ability to deliver a differential to the end customer is what can separate one provider from the next, creating opportunities for companies looking to find a 3PL.

If you talk to most 3PLs, acquiring new business is both a top priority and a meaningful challenge, and they are constantly looking for new services they can offer to help them move ahead of the competition.

Look for a 3PL that can offer outside-the-box services and expertise. The complexity of the supply chain, the rising costs of logistics and growth in new geographies and markets are the major drivers that lead companies to evaluate the use of logistics service providers.

Of course, to stay in business, 3PLs have to maintain some kind of profit margin, which means they need to have a lot of predictability in the services they provide to customers. When they look to offer new services, the one thing that’s often difficult is balancing risk and reward, because often they don’t understand the total cost associated with a new service they’re offering.

Many companies are discovering that software-as-a-service (SaaS) solutions are available in application areas, including ERP, WMS and EDI, which provide supply chain technologies usually available through predictable monthly subscription fees instead of large upfront costs. SaaS solutions are also scalable, so users only pay for what they use and can quickly expand their subscription to accommodate the changing needs of the 3PL’s customers.

Marrying Logistics With SaaS

Most 3PLs don’t have the expertise to become masters in all areas of the supply chain; nevertheless, that’s what they’re expected to deliver. They have to be good at warehouse management. They have to be good at information collection and reporting. And, they have to be able to integrate their systems electronically with the suppliers they serve as well as the retailers that are ultimate end customers. Because they don’t have the infrastructure or desire to become experts in these areas, this is where SaaS comes into the mix. If a 3PL can leverage work capability, functionality and service that’s already being provided to others, then they can use those services to their advantage without having to be masters of all domains.

For example, you need to find a 3PL that can answer “yes” when you ask the following question: “I am obligated to send certain documentation—an advance ship notice (ASN), carrier information or invoicing information—on my behalf to my retailers that are compliant. Can you help me meet the electronic requirements of all my retailer trading partners?” Many 3PLs might have the technical capability, but they certainly don’t have the time, experience or expertise to know all the unique requirements of every retailer.

By taking advantage of SaaS-based models for EDI, 3PLs can offer more services with greater speed, reliability and supply chain intelligence. They can also scale, and, certainly, it’s a much better financial option than having to hire additional staff or purchase unnecessary hardware and software to try to meet those needs.

Some 3PLs are adopting SaaS as a way of streamlining EDI, inventory and warehouse management processes, especially when it comes to inventory visibility across multiple warehouses or multiple clients in a single warehouse.

Value-added services are what differentiate 3PLs from transportation companies and basic warehousing operations. Today’s best-in-class material handling and logistics executives are looking to 3PLs as a value-added extension of their organizations that can help deliver value to their retail customers at a lower cost.

David Novak is executive vice president of business development at SPS Commerce, a provider of SaaS-based EDI systems.

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