A decade ago, third-party service providers were happy to do business with anyone who walked through the door. But these days, they're downright choosy about who they'll work with.
James Cooke is a principal analyst with Nucleus Research in Boston, covering supply chain planning software. He was previously the editor of CSCMP?s Supply Chain Quarterly and a staff writer for DC Velocity.
You won't read about it on the providers' web sites or in their marketing materials, but the third-party logistics service industry is undergoing a seismic shift. What's changed is not what they do or how they do it, but who they'll do it for. A decade ago, third-party service providers were eager to serve just about any client that came a-knocking. These days, if they decide that a potential client just doesn't measure up to their requirements, they won't hesitate to show it the door.
"Everybody [in the third-party logistics business] is going through the process of pruning the customer list," says Dr. Robert Lieb, professor of supply chain management at Boston's Northeastern University and author of an ongoing survey of third-party logistics service providers (3PLs). And it appears that no one's exempt from being cut from the client rolls. Third parties are becoming more discriminating not just about what new business they'll accept, but also about whose contracts they'll renew.
For evidence, you need look no further than the results of Lieb's latest study, The North American Third-Party Logistics Industry in 2006: The Provider CEO Perspective. All 22 of the CEOs of North American 3PLs, all 11 of the European 3PLs, and nine of the 11 Asian 3PLs who responded to the survey said they had become more selective about the customers they would work with. There's nothing haphazard about their selection approach, says Lieb; they're making these decisions based on the numbers. "All these companies have gone through a customer profile process to determine ... the dimensions of an attractive account."
If they've become choosier, it's because they can afford to. Two decades ago, players in the fledgling 3PL industry had little choice but to take on any client that presented itself. But as the third-party service business has burgeoned into a market worth an estimated $100 billion worldwide, service providers have become more sophisticated in their approach. "The industry has matured to the point where there's a lot more emphasis on taking on business that has proper profit margins," says Richard D. Armstrong, chairman of Armstrong Associates in Stoughton, Wis., which publishes an annual guide to the 3PL marketplace. "They are less inclined to do things with taking on market share. They want to make every account pay."
Choosing a specialty
For many 3PLs, that's meant abandoning the notion of trying to serve everyone and instead, choosing a market niche. That might mean targeting customers of a certain size or in a certain geographic region. But most often, it means specializing in a certain industry—automotive, say, or chemicals, consumer products, or electronics. "3PLs are trying to evaluate which verticals and which markets offer the most upside and provide more consistent revenue streams and profitability," says Scott McWilliams, CEO of Nashville, Tenn.-based 3PL Ozburn-Hessey Logistics.
"It's too difficult to serve a number of areas and have the systems and expertise to service all those areas and understand the customers," says Joel R. Hoiland, former head of the International Warehouse Logistics Association, a Des Plaines, Ill.-based trade group representing warehouses and 3PLs. "They [3PLs] have to figure out their niche where they can be successful. Typically, it's a type of customer or industry segment."
Along with targeting specific industries, 3PLs are also focusing on arrangements that are longer-term in nature. Greg Humes, president of National Logistics Management in Detroit, says that his ideal customer is one that's willing to enter into a partnership that lasts three or more years.
For 3PLs, these longer-term arrangements represent more than just job security. A long-term deal also gives the service provider a chance to recoup any investments it might make in order to fulfill a client's special requests. It's not unusual for customers today to ask their 3PLs to provide special services not normally associated with logistics, like custom packaging, contract manufacturing or final assembly, says Robert Koerner, president and CEO of Total Logistic Control (TLC), a third-party logistics company based in Zeeland, Mich. Third parties are willing to accommodate these demands, but they also want assurances that they won't do it at a loss.
Better yet, locking in long-term business can free up a 3PL from having to respond to a lot of requests for proposals (RFPs). Third parties have come to dread RFPs not just because bidding wars tend to promote low margins, but also because they're a drain on resources. "From the 3PL's point of view, preparing a good proposal can take a lot of time and resources," says C. John Langley Jr., a professor of supply chain management at the Georgia Institute of Technology who conducts an annual study of trends in 3PL use. "[B]ig proposals can be expensive for 3PLs."
Going for value
Along with targeting customers in specific industries, 3PLs say they're looking for clients willing to move beyond the conventional customer-supplier relationship and work with them as partners. "We trend toward customers who take a more collaborative approach," says Bob Bassett, vice president of sales and marketing for Menlo Logistics in San Mateo, Calif. "We try to sort that out in the process early on because relationships based on a non-collaborative approach don't work."
Herb Shear, chairman and CEO of GENCO, a third-party logistics service provider based in Pittsburgh, agrees. The relationships most likely to succeed, he says, are partnerships in which the two parties work together to build "value-added" supply chains. "If we don't have a value proposition for the customer, then all the work is at low margins and it's not profitable," says Shear. In most cases, that value proposition comes from the third party's ability to bundle services together to create what's known as an end-to-end supply chain solution. In essence, it takes over full responsibility for moving the client's freight from the plant to the end customer's doorstep. In fact, in Shear's view, there are really only two types of customers—transactional and partnering—and he prefers the ones willing to partner. If a 3PL is going to offer suggestions for improvements, it will need to be intimately acquainted with its client's supply chain operations, he points out. That means the client must be forthcoming about its warehousing, distribution and supply chain activities. "With partnership customers, you can work [toward] continually improving the supply chain and driving costs out," he says. "The transactional customer doesn't want to work with you and doesn't want to give you anything back in return."
Though it might come as a surprise to some, third parties say they're finding their best partnering prospects among medium-sized companies, not the giant corporations. The mid-sized enterprises are willing to collaborate, says Koerner of TLC, while the larger companies tend to focus on the bottom line. "For most of the big Fortune 100 companies, it becomes about cost. It's not necessarily about the value," he says. "From a selectivity perspective, we're spending more time with the Fortune 500 customer."
Internal affairs
It's one thing to talk about partnerships, of course, and another to make good on the talk. But it's pretty clear that the third parties are backing up their rhetoric with action. The respondents to Lieb's study, for example, reported that they had undertaken a number of initiatives aimed at fostering collaborative arrangements with customers. These included forming executive sales teams to focus on key accounts, setting up customer advisory councils to hash out industry-specific problems, and inviting key customers to join the company's board of directors.
Lieb's study also indicated that 3PLs were investing in technology to support these collaborative relationships— systems designed to provide visibility of items as they move through the supply chain, for example, or to measure transportation and warehousing performance and offer suggestions for improvement. "Systems with the right functionality can give you the information to take costs out," says Koerner. "It's becoming a business of data," adds Shear. "Customers are expecting us as 3PLs to become more strategic, so we've got to become very good at managing and analyzing data. Give me visibility of data and you make good management decisions."
In the end, however, 3PLs say their major selling point isn't technology but expertise. An experienced third party can help its clients re-engineer their supply chains, improve customer service and cut costs. Of course, that assumes the client is receptive to their suggestions and willing to make changes. "The 3PL can't be ... effective," says Bassett of Menlo, "unless the customer is willing to embrace process change in [its] organization."
State of transition
For all the 3PLs' efforts to promote strategic relationships, there will always be holdouts. Some companies simply aren't interested in anything beyond outsourcing a single function—warehousing, say, or freight management—at a fixed price. Others remain wary of letting an outsider manage something as critical as their supply chain.
"Selling the value proposition of the 3PL continues to be a challenge," admits Hoiland. "There's an apprehension to letting go. If they hire a 3PL to handle their supply chain, they can save on capital costs. But to give up and lose control, it's too great a risk."
For the time being, at least, those "transactional" customers should still be able to find a 3PL when they want one. After years of searing growth, the 3PL market has softened slightly (the CEOs who participated in Lieb's study projected growth of 10.5 percent in North America next year). That should help keep the 3PLs' ambitions in check. Although they'll continue to be choosy about their customers, they won't be foolhardy. "We have better discipline today to walk away from a customer who's all about price," says Koerner, "but the reality says you've got to eat, too."
E-commerce activity remains robust, but a growing number of consumers are reintegrating physical stores into their shopping journeys in 2024, emphasizing the need for retailers to focus on omnichannel business strategies. That’s according to an e-commerce study from Ryder System, Inc., released this week.
Ryder surveyed more than 1,300 consumers for its 2024 E-Commerce Consumer Study and found that 61% of consumers shop in-store “because they enjoy the experience,” a 21% increase compared to results from Ryder’s 2023 survey on the same subject. The current survey also found that 35% shop in-store because they don’t want to wait for online orders in the mail (up 4% from last year), and 15% say they shop in-store to avoid package theft (up 8% from last year).
“Retail and e-commerce continue to evolve,” Jeff Wolpov, Ryder’s senior vice president of e-commerce, said in a statement announcing the survey’s findings. “The emergence of e-commerce and growth of omnichannel fulfillment, particularly over the past four years, has altered consumer expectations and behavior dramatically and will continue to do so as time and technology allow.
“This latest study demonstrates that, while consumers maintain a robust
appetite for e-commerce, they are simultaneously embracing in-person shopping, presenting an impetus for merchants to refine their omnichannel strategies.”
Other findings include:
• Apparel and cosmetics shoppers show growing attraction to buying in-store. When purchasing apparel and cosmetics, shoppers are more inclined to make purchases in a physical location than they were last year, according to Ryder. Forty-one percent of shoppers who buy cosmetics said they prefer to do so either in a brand’s physical retail location or a department/convenience store (+9%). As for apparel shoppers, 54% said they prefer to buy clothing in those same brick-and-mortar locations (+9%).
• More customers prefer returning online purchases in physical stores. Fifty-five percent of shoppers (+15%) now say they would rather return online purchases in-store–the first time since early 2020 the preference to Buy Online Return In-Store (BORIS) has outweighed returning via mail, according to the survey. Forty percent of shoppers said they often make additional purchases when picking up or returning online purchases in-store (+2%).
• Consumers are extremely reliant on mobile devices when shopping in-store. This year’s survey reveals that 77% of consumers search for items on their mobile devices while in a store, Ryder said. Sixty-nine percent said they compare prices with items in nearby stores, 58% check availability at other stores, 31% want to learn more about a product, and 17% want to see other items frequently purchased with a product they’re considering.
Ryder said the findings also underscore the importance of investing in technology solutions that allow companies to provide customers with flexible purchasing options.
“Omnichannel strength is not a fad; it is a strategic necessity for e-commerce and retail businesses to stay competitive and achieve sustainable success in 2024 and beyond,” Wolpov also said. “The findings from this year’s study underscore what we know our customers are experiencing, which is the positive impact of integrating supply chain technology solutions across their sales channels, enabling them to provide their customers with flexible, convenient options to personalize their experience and heighten customer satisfaction.”
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
National nonprofit Wreaths Across America (WAA) kicked off its 2024 season this week with a call for volunteers. The group, which honors U.S. military veterans through a range of civic outreach programs, is seeking trucking companies and professional drivers to help deliver wreaths to cemeteries across the country for its annual wreath-laying ceremony, December 14.
“Wreaths Across America relies on the transportation industry to move the mission. The Honor Fleet, composed of dedicated carriers, professional drivers, and other transportation partners, guarantees the delivery of millions of sponsored veterans’ wreaths to their destination each year,” Courtney George, WAA’s director of trucking and industry relations, said in a statement Tuesday. “Transportation partners benefit from driver retention and recruitment, employee engagement, positive brand exposure, and the opportunity to give back to their community’s veterans and military families.”
WAA delivers wreaths to more than 4,500 locations nationwide, and as of this week had added more than 20 loads to be delivered this season. The wreaths are donated by sponsors from across the country, delivered by truckers, and laid at the graves of veterans by WAA volunteers.
Wreaths Across America
Transportation companies interested in joining the Honor Fleet can visit the WAA website to find an open lane or contact the WAA transportation team at trucking@wreathsacrossamerica.org for more information.
Krish Nathan is the Americas CEO for SDI Element Logic, a provider of turnkey automation solutions and sortation systems. Nathan joined SDI Industries in 2000 and honed his project management and engineering expertise in developing and delivering complex material handling solutions. In 2014, he was appointed CEO, and in 2022, he led the search for a strategic partner that could expand SDI’s capabilities. This culminated in the acquisition of SDI by Element Logic, with SDI becoming the Americas branch of the company.
A native of the U.K., Nathan received his bachelor’s degree in manufacturing engineering from Coventry University and has studied executive leadership at Cranfield University.
Q: How would you describe the current state of the supply chain industry?
A: We see the supply chain industry as very dynamic and exciting, both from a growth perspective and from an innovation perspective. The pandemic hangover is still impacting decisions to nearshore, and that has resulted in a spike in business for us in both the USA and Mexico. Adding new technology to our portfolio has been a significant contributor to our continued expansion.
Q: Distributors were making huge tech investments during the pandemic simply to keep up with soaring consumer demand. How have things changed since then?
A: The consumer demand for e-commerce certainly appears to have cooled since the pandemic high, but our clients continue to see steady growth. Growth, combined with low unemployment and high labor costs, continues to make automation a good investment for many companies.
Q: Robotics are still in high demand for material handling applications. What are some of the benefits of these systems?
A: As an organization, we are investing heavily in software that will allow Element Logic to offer solutions for robotic picking that are hardware-agnostic. We have had success deploying unit picking for order fulfillment solutions and unit placing of items onto tray-based sorters.
From a benefit point of view, we’ve seen the consistency of a given operation improve. For example, the placement accuracy of a product onto a tray is far higher from a robotic arm than from a person. In order fulfillment applications, two of the biggest benefits are reliability and hours of operation. The robots don't call in sick, and they are happy to work 22 hours a day!
Q: SDI Element Logic offers a wide range of automated solutions, including automated storage and sortation equipment. What criteria should distributors use to determine what type of system is right for them?
A: There are a significant number of factors to consider when thinking about automation. In my experience, automation pays for itself in three key ways: It saves space, it increases the efficiency of labor, and it improves accuracy. So evaluating which of these will be [most] beneficial and quantifying the associated savings will lead to a “right sized” investment in technology.
Another important factor to consider is product mix. With a small SKU (stock-keeping unit) base, often automation doesn’t make sense. And with a huge SKU base, there will be products that don’t lend themselves to automation.
With any significant investment, you need to partner with an organization that has deep experience with the technologies that are being considered and … in-depth knowledge of the process that is being automated.
Q: How can a goods-to-person system reduce the amount of labor needed to fill orders?
A: In most order picking operations, there is a considerable amount of walking between pick faces to find the SKUs associated with a given order or set of orders. Goods-to-person eliminates the walking and allows the operator to just pick. I have seen studies that [show] that 75% of the time [required] to assemble an order in a manual picking environment is walking or “non-picking” time. So eliminating walking will reduce the amount of labor needed.
The goods-to-person approach also fits perfectly with robotic picking, so even the actual picking aspect of order assembly can be automated in some instances. For these reasons, [automation offers] a significant opportunity to reduce the labor needed to fulfill a customer order.
Q: If you could pick one thing a company should do to improve its distribution center operations, what would it be?
A: Evaluate. Evaluate the opportunities for improving by considering automation. In my experience, the challenge most companies have is recognizing that automation is an alternative. The barrier to entry is far lower than most people think!
Toyota Material Handling and its nationwide network of dealers showcased their commitment to improving their local communities during the company’s annual “Lift the Community Day.” Since 2021, Toyota associates have participated in an annual day-long philanthropic event held near Toyota’s Columbus, Indiana, headquarters. This year, the initiative expanded to include participation from Toyota’s dealers, increasing the impact on communities throughout the U.S. A total of 324 Toyota associates completed 2,300 hours of community service during this year’s event.
The PMMI Foundation, the charitable arm of PMMI, The Association for Packaging and Processing Technologies, awarded nearly $200,000 in scholarships to students pursuing careers in the packaging and processing industry. Each year, the PMMI Foundation provides academic scholarships to students studying packaging, food processing, and engineering to underscore its commitment to the future of the packaging and processing industry.
Truck leasing and fleet management services provider Fleet Advantage hosted its “Kids Around the Corner Foundation” back-to-school backpack drive in July. During the event, company associates assembled 200 backpacks filled with essential school supplies for high school-age students. The backpacks were then delivered to Henderson Behavioral Health’s Youth & Family Services location in Tamarac, Florida.
For the past seven years, third-party logistics service specialist ODW Logistics has provided logistics support for the Pelotonia Ride Weekend, a campaign to raise funds for cancer research at The Ohio State University’s Comprehensive Cancer Center–Arthur G. James Cancer Hospital and Richard J. Solove Research Institute. As in the past, ODW provided inventory management services and transportation for the riders’ bicycles at this year’s event. In all, some 7,000 riders and 3,000 volunteers participated in the ride weekend.