To hear shippers tell it, third-party logistics service providers (3PLs) need to come to the table with fresh and innovative ideas they could proactively implement to improve service levels, response times, and overall efficiencies.
To hear third-party logistics providers tell it, shippers need to open their upstream organizational channels so 3PLs can glean the strategic intelligence they need to proactively implement fresh and innovative ideas.
It's the logistics world's version of "cognitive dissonance." And while it hasn't kept freight from moving, it has become a source of frustration on both sides.
In the 2010 edition of the annual "Third Party Logistics Study" by the noted academic C. John Langley Jr. with Capgemini Consulting, the Swiss 3PL Panalpina, and the U.K. publication eyefortransport, only 68 percent of shippers surveyed said their 3PL partners were delivering "new and innovative ways" to improve logistics effectiveness. By contrast, 95 percent of 3PLs said they were bringing new ideas to the shipper relationship. Despite the apparent disconnect, nearly 90 percent of shippers said they were generally happy with their 3PL relationships.
Two years later, some shippers say little has changed. Speaking on a panel earlier this month at the Georgia Logistics Summit in Atlanta, Mark Holifield, The Home Depot Inc.'s senior vice president, global supply chain, declared that 3PLs "need to rise to the challenge to bring real value and solutions" to shippers.
Holifield is not alone in that assessment. An executive of a large consumer products manufacturer, who asked not to be identified, said at the conference, "we're looking to 3PLs to bring new ideas to the relationship. But innovation has been lacking from the 3PL space."
Both executives said they take pains to bring their 3PLs into the strategic loop. The consumer products executive said the company's senior management meets regularly with high-level 3PL counterparts and provides a 23-point checklist that outlines its strategy for its 3PL partners. Holifield said Home Depot annually holds two-day meetings with its leading 3PL partners to discuss strategy and execution.
A different view
Not surprisingly, 3PLs take a different view. In a white paper issued late last year, Scranton, Pa.-based Kane is Able Inc. said 3PLs understand the consequences of broad strategic decisions because of their experience working in and around the customer's business, yet shippers don't capitalize on the insights the providers can offer. Shippers "often don't leverage this understanding, and limit 3PL involvement to execution, not problem solving," according to the Kane paper.
The paper cited an example of a large consumer goods company that designed a point-of-purchase display that initially took 28 hours to assemble and was inefficient to ship. The firm's 3PL—which the paper did not identify—then suggested changes that would cut assembly times in half and would improve the truck loading process for better cube utilization, all the while preserving the basic look of the display.
The changes, which were adopted, saved the shipper hundreds of thousands of dollars, according to the paper. "But these dollars could have been saved from the outset with a zero investment by inviting a 3PL representative to participate in early-stage meetings," the paper said.
The solution, according to the Kane paper, lies in more widespread implementation of the "vested outsourcing" model developed several years ago by the University of Tennessee's Center for Executive Education. Under the model, a contract between a shipper and service provider is structured to clearly articulate the relationship's objectives and the mutual rewards for achieving them. The goal is to give the provider the freedom to determine the best way to solve the customer's problems. To do that, the shipper must invite the 3PL to embed one or more of its employees at a customer's designated site.
"An onsite relationship manager 'embedded' within the client is a good start for building a stronger relationship and can lead to better results from the 3PL," supply chain guru Kate Vitasek, a major proponent of the vested outsourcing concept, said in the Kane white paper. "There's a fear factor that must be overcome in relation to sharing forward-looking plans. But companies that have invested to become more strategically and structurally aligned with their partners are seeing the benefits of that investment."
Roadblocks to change
Shippers may say they want their 3PLs to offer innovative solutions, but as David Howland, vice president of land transport services for APL Logistics, has seen, the shipper's own organization often resists the kinds of changes 3PLs propose.
Howland once suggested to a customer, a U.S.-based manufacturer, that it could save about $300 per southbound container by utilizing a new route that linked Los Angeles and Mexico City through Mexicali, located near the U.S. border and a relatively short hop from Mexico's capital. No longer would the customer need to use the traditional southbound gateway of Laredo, Texas, which would require a circuitous move east before heading into Mexico.
But Howland ran into a roadblock trying to convince the shipper's Mexican employees to execute the strategy because it resulted in a change in the way traffic would be cleared and handled once it entered Mexico. After much back and forth, he brokered a deal where the two geographies would split the $300-per-container savings.
Howland said APL Logistics' strategy could have been implemented more quickly and cleanly if he could have proposed it to the customer's top executives instead of going through the shipping department. And it is not an isolated case, he said. Many traffic departments are resistant to change because it could impact their jobs and, in Howland's words, "disrupt their world."
In an e-mail to DCVELOCITY, Howland said, "we had to find a way to break through their current thinking to find a way to satisfy all parties." At some shippers, he added, "there is a layer of protectionism of a group, department, or individual that keeps you from getting to what would ultimately be a better solution for the customer, and you have to keep working to find a way around or through that roadblock to success."
Third-party logistics executives know that when it comes to this issue, they need to tread lightly for fear of angering the customers that are their bread and butter. "Why would I question the customer's motives?" asked Jim Butts, senior vice president of C.H. Robinson Worldwide, Inc., a major 3PL. "Our customers are really smart and they make rational decisions. We have to assume that what they do in this area is a rational decision."
Butts surmises that shippers may not want to let 3PLs get too close out of concern that they will lose the objectivity that comes with being a third party. He also said that the reason may be as basic as "us not being welcome in someone else's organization, because it is someone else's organization."
Still, Butts doesn't believe 3PLs like C.H. Robinson are cast out in the wilderness with virtually no visibility into the strategies of their customers. "I don't think we are on the outside looking in," he said.