Why LSPs Need a Digital Transformation Strategy

Industry analysts, consultants, and enterprise software vendors have been talking about the importance of digital transformation for many years. But the message didn’t hit home for many companies until 2020, as they struggled to respond effectively to the disruptions caused by the Covid-19 pandemic. Now, digital transformation has become a priority, especially for logistics service providers (LSPs). Why is having a digital transformation strategy important for LSPs? Where does a transportation management system (TMS) fit in as part of this strategy? How do you get started? Those are the main questions I discussed with JP Wiggins, Co-Founder & Vice President of Logistics at 3Gtms, during a recent episode of Talking Logistics.  

Why A Digital Transformation Strategy Is Important Today

We began our discussion with the question of why a digital transformation strategy is important for LSPs, and why now? JP points out that prior to the pandemic many LSPs failed to act for various reasons, such as an inability to convince CEOs it was necessary and not knowing where to start with so many solutions out there. Many LSPs are caught in the middle between rising customer expectations and keeping up with large competitors, some of whom are spending billions of dollars on digital transformation initiatives that they can’t match.

“What I tell customers is you have to chart your own path,” says JP. “You don’t have to copy what the large freight brokers are doing. Figure out your own business model, your own methodology, and your own path to digitization.”

Navigating the Hype

With so much buzz about digital transformation, machine learning, AI and other emerging technologies, it can be hard to know where to start. I asked JP for his thoughts on this.

JP paraphrases Jeff Bezos in saying real innovation comes from experimentation: you have to be prepared for successes and failures. “You have to experiment with your own business models. What business model is going to work for you? What do your customers want? How do you increase your business with them? Then you figure out which technologies can help you accomplish this.”

With regards to technology, flexibility and the ability for LSPs to self-configure their solutions is important. “You can’t wait on your software vendor any more to set up your business flows, design screens for you, or design your business rules and process automation — you have to be able to do that yourself.”

“There are lots of exciting new logistics technologies out there,” continues JP. “First, decide what will be your core system, such as a TMS, and then decide which other technologies to add on to it to meet your objectives. Because you’re likely to experiment with a number of add-on technologies, a critical capability for your core system is its integration functionality and interoperability with these other systems.”

Evaluating TMS Alternatives

Since a TMS is often the core technology, or what JP calls the “rallying point” for your logistics stack, I asked him to discuss what companies should look for when evaluating various alternatives.

JP immediately jumped back to integration capabilities. “Integration today is a lot more than mapping data fields and hitting APIs,” JP notes. “A TMS has to translate between customer order systems, carrier systems, financial systems and warehouse systems that all handle data a little differently, and often provide bad data. So, your TMS has to have process automation and intelligence to translate and fix bad data. It requires business intelligence, not just integration. Without that, your cost of ownership can skyrocket. Also, you have to be able to provide all of this information to your customer. You have to be able to plug into their systems.

“You have to think about your digital strategy. What services am I offering? How am I going to extend those services to my customer base? Then put those business flows in front of potential software vendors and ask them how their solutions can enable them. Also, how can I change those business flows? Can I do it on my own? Because there are going to be phenomenal developments in logistics technology over the next 2-3 years and you want to be able to take advantage of those.”

Digitize or Bust?

Given all of the great technologies available and the escalation in customer demands, have we reached the point of “digitize or bust?” And who will be the winners in this environment? JP shared some interesting insights on these questions (hint: it’s all about the customer), as well as on our previous discussion points, so I recommend that you watch the full episode for all the details. Then post a comment and share your own thoughts and experiences on this topic.