The New Value Equation in Contract Logistics

With all of the changes happening in the supply chain and logistics realm — whether it’s technology, regulations, mergers and acquisitions, new business models and competitors — is the value equation in contract logistics changing too?

That was the main question I addressed with Greg Boring, VP of Sales at Kenco Group, in a recent episode of Talking Logistics. We started by discussing one of the main factors transforming the value equation in contract logistics: changing customer expectations.

“Customers are more educated today in terms of what they expect from their third-party logistics (3PL) partners,” said Boring. “Gone are the days where a customer could hire a 3PL and as long as the provider was receiving and shipping their product and doing an okay job they could fly under the radar. Customers are expecting 3PLs to come in and have robust continuous improvement programs, they’re expecting them to be up to date on the latest technologies, to be innovators and thought leaders, and to drive year-over-year cost improvements. Customers have really raised the bar on expectations.”

What’s driving these expectations? “In a lot of ways, it’s our customers’ customers who are now dictating the way they want their products shipped and delivered,” said Boring, citing e-commerce as an example:

“In a lot of cases where a customer might have shipped full pallet or full case quantities, now they’re having to ship individual units, they’re having to perform kitting functions or other value-added services, they’re having to ship directly to their customers’ homes. And all of this typically requires more labor, more automation, more sophistication around material handling and storage equipment, and they’re now getting involved with parcel and less-than-truckload carriers where before they might have dealt primarily with truckload carriers. So all of this has added complexity to the industry and has led companies [to work with 3PLs] to increase their ability to serve their customers the way they want to be served.”

Another factor changing the value equation is technology. In many ways, 3PLs are going from being providers of logistics services enabled by technology to becoming providers of technology and business intelligence enabled by logistics services. What’s driving this trend?

“Visibility is driving a lot of the demand around technology,” said Boring. “But not just with consumers ordering things on Amazon and other e-commerce sites, but also with our customers directly…All of those spreadsheets and Access databases and charts and graphs hanging on the walls in a general manager’s office, those are now automated and available at their fingertips via web-based systems that access our warehouse management system (WMS) and other information systems so that customers can get a dashboard view of their key performance indicators (KPIs), how much inventory of SKU X is at the facility, what’s my cycle time and service performance today, and other insights. And what’s driving that is the fact that more and more customers are viewing their supply chain as a strategic advantage instead of just a cost of doing business, which is why visibility has become so much more important.”

In light of all these factors, has the way companies procure logistics services and manage relationships changed? Is there still room for improvement in this area? Watch the short clip below for Boring’s response, where he highlights the growing role of the procurement function in bids and the difference between price and value:

I encourage you to watch the rest of my conversation with Greg for additional insights and advice on this topic, including the impact of mergers and acquisitions in the industry and the questions companies should ask themselves to assess whether they’re maximizing the value they’re getting from their 3PL relationships. Then post a question or comment and keep the conversation going!

Comments

  1. Today, customers demand more and more, and it is up to the logistics provider to give them what they want. The equation is changing, and will continue to change as the emphasis on global ecommerce gets even bigger

  2. Yep, 3PLs are required at several levels to provide a different customer experience. These knowledge exchanges and complex information provision transcend transactional service delivery, and MUST be priced accordingly, recognizing investments in kai zen and technology.

    Value equation only begins to develop a vision for new formulas for relationships and deliverables. The old model is not only discredited, it is an obstacle to progress.

    Maybe the equation does not change all that much, but the values in its components are radically skewed from past practice. We’ve all got to recognize the impacts of those changes. And, the staggering gap between industry leaders and traditional transactional service providers.

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