Transactional relationships are so last century. Today's shippers are looking to develop closer, more strategic partnerships with their logistics service providers. Here are some things to consider.
Art van Bodegraven was, among other roles, chief design officer for the DES Leadership Academy. He passed away on June 18, 2017. He will be greatly missed.
"We're goin' to the chapel, and we're gonna get married," sang the Dixie Cups in their 1964 mega-hit. The song was covered by such giants as the Beach Boys and the endearingly rowdy Bette Midler. Today, we talk a lot about deeper relationships among supply chain partners and entering a redefining era of collaboration.
Clearly, the old model of relationships with logistics service providers (LSPs)—which could best be characterized as adversarial transaction management—is facing a sea change, although it will be with us in some degree for a long time to come. More and more, though, service providers and their clientele (or suppliers and their customers) are goin' to the chapel to establish a broader, more intense, and more strategic relationship.
Why do we bring this up? Because it has implications for the way companies choose their LSP partners and build working relationships with them. Although dozens (at least) of excellent guides for building LSP relationships have been published, many were written some time ago and do not reflect the realities of business today.
Supply chains are changing, thanks to sourcing shifts, right-shoring initiatives, growth in e-supply chain activity, and the emergence of mobile transactions. Then there's the trend toward closer collaboration and sophisticated relationships, as well as the possibility that older models might need a little burnishing to shine in the (relatively) new century.
So, we thought it might be useful to put a few items on the table that are not found in the older approaches or could benefit from additional emphasis. They are as follows:
• Vesting is not about three-piece suits. Maybe, as a service relationship is being contemplated, this is the time to assess whether the work and commitment involved in constructing an outcome-based relationship is the right approach. In the universe of options for incentivizing high performance, performance targets have been the norm, often accompanied by some form of gainsharing.
Outcome-based metrics and targets don't ignore traditional performance indicators but provide the possibility of much more robust options, including asset utilization, customer satisfaction, and revenue generation. There is a growing body of implementation success stories, involving a number of supply chain innovators and leaders. The conceptual train left the safe station of academic research quite some time ago.
• Golf is not a relationship; it is a contest. Enlightened business developers from the last century saw the value of investing in business relationships. In them days, to quote the late poet and light-heavyweight boxing champion Archie Moore, a solid relationship was thought to be built on a foundation of social activities—golf and drinks, dinner and drinks, drinks and drinks—all designed to make the buying and selling of transactions easy and pleasant.
Today's relationships begin with an authentic exchange of mutual personal interest between the parties. The seller is ultimately committed to the success of the client and the individuals with whom he or she interacts. The service provider, overall, is focused on the mutual gains that result from working together to serve the customer's customers.
It is not about drinks (although Mr. Jack Daniel and/or Mr. Robert Mondavi might join the festivities at some point); it is about mutually beneficial continuous improvement. It is not about unit price; it is about value-adding. And speaking of value, shared perspectives and values are critical starting points in building the relationship.
Communications, trust, and open books are the lubricants that keep the marriage together.
• Beware the cost-plus trap. "Everybody knows" nowadays that cost-plus is the invention of Satan, a safety net that becomes an entitlement and a disincentive to improvement. And yet ...
Truth is, almost no request for proposal (RFP) is well enough constructed and written to be fully descriptive and complete. As a consequence, the service provider that is forced to quote a price (too-often purely transactional) can get burned, with relationships getting strained on both sides when the provider loses money and the customer balks at a proposed price increase.
It can make good business sense—and great relationship sense—to begin a contract with a cost-plus arrangement for a defined period, during which the service provider can learn enough to be able to develop a fair price quote and commit to cost improvement targets, performance objectives, and the like. That way, "everybody knows" that the ultimate cost and performance targets will be based on solid experience, and "everybody knows" that all targets and objectives will be changing, and maybe changing often, over time.
• Any contract over 20 pages long is only a collection of loopholes. It is tempting to try to put everything that everyone can think of in a service provider's contract, especially when the buyer's legal department gets involved. Look, they're only doing what they think their responsibilities are: 1) to safeguard the company against any possible event in which the service provider might have a hand, and 2) to nail the service provider to the wall with no hope of escape in every imaginable dimension of price and performance.
That level of adversarial contest amounts to trying to determine, on paper, which party has the most power— who can crush the other. Not a great way to reinforce the idea of a high-trust relationship, we would contend. A few years ago, we facilitated a workshop for a mixed group of customers and service providers that dealt with what relationship ingredients were most important. The two groups spontaneously expressed a stunning level of agreement. The telling "aha!" moment was the further agreement that very few of the relationship-critical elements could be reduced to effective contractual language.
So, we are all in favor of brief contracts with frequently changing addenda regarding price, cost, metrics, and performance.
• Learn your prospective partner's deep secrets. The nature of the service provider business has been changing for the past several years. We have long ago left behind the idea of service companies with a few focused product offerings. Today, the scope and range of services (and genuine capabilities) available from a service provider are staggering.
There has been a huge shift from small family-owned and -operated companies to larger and larger merged operations, which also grow through functional expansion. The really major players have become, or have been acquired by, massive global corporations.
The logical questions include those related to the possibility that a behemoth will swallow up the candidate. Or whether the candidate will over-reach and make an acquisition that strains its resources during the integration process.
Perhaps even more ominous would be a recent infusion of cash to support growth by a private equity firm. Those are generally accompanied by an infusion of board-level participation by representatives of the ostensibly "hands-off" new ownership. Soon to follow? Strong suggestions—even ham-handed demands—for top-line improvements, soon, and at double-digit levels. That can lead to detrimental behaviors in both the selling and execution processes.
Of course, general investigation of a candidate's overall financial status is only prudent in nearly all cases. Sheer economic necessity can sometimes lead to an overemphasis on sales.
AT THE END OF THE DAY
The world has changed and is continuing to change. Being smart about that is up to you, although in a decent world, the experienced service provider has a responsibility to give impartial guidance to the rookie buyer.
The real point is that the demand of sorting out service provider solutions is more complex and nuanced than following a checklist. And for optimal—and mutual benefit—outcomes, you've got to get beyond and behind the practices, processes, and perspectives of the past.
Jeremy Van Puffelen grew up in a family-owned contract warehousing business and is now president of that firm, Prism Logistics. As a third-party logistics service provider (3PL), Prism operates a network of more than 2 million square feet of warehouse space in Northern California, serving clients in the consumer packaged goods (CPG), food and beverage, retail, and manufacturing sectors.
During his 21 years working at the family firm, Van Puffelen has taken on many of the jobs that are part of running a warehousing business, including custodial functions, operations, facilities management, business development, customer service, executive leadership, and team building. Since 2021, he has also served on the board of directors of the International Warehouse Logistics Association (IWLA), a trade organization for contract warehousing and logistics service providers.
Q: How would you describe the current state of the contract warehouse industry?
A: I think the current state of the industry is strong. For those that have been focused on building good client relationships over the years, I think it’s a really exciting time. Coming out of all the challenges of the past few years, I think there’s a lot of opportunity for growth and deeper partnerships. It’s fun to see the automation and AI (artificial intelligence) integration starting to evolve [in a way that’s] similar to what we saw with WMS (warehouse management systems) in the early 2000s.
Q: You are now president of your family firm. Is it an advantage having grown up in the business as opposed to working elsewhere?
A: I definitely believe it was an advantage growing up in the business. Whether it’s working with family or someone else in the industry, there’s always an advantage when you have mentors[to guide] you. I’ve been blessed to have several mentors, some in the industry, others just in life, and I’m thankful that they were willing to mentor me and that I was willing to listen to them.
Q: What are the biggest challenges currently facing 3PLs, and how are you addressing them?
A: Labor and legislation are both tough right now. The two seem to have a lot to do with each other, and it can make it tough to find and retain people. So I think we’ll see more and more automation of processes industrywide.
Q: Third-party service providers often must handle a wide variety of products for a lot of different clients. Does this variety make it difficult to invest in automation and other new technologies?
A: It can make things more difficult when looking at certain automation, but it’s in the “difficult” that a lot of opportunities lie. It would be tough to find a single solution that fits every client’s needs, but there are always opportunities to improve in certain areas. It just takes a bit of vision and commitment, and a willingness to invest in your own long-term success.
Q: As a 3PL, what do you look for when selecting the clients you work with?
A: Quality relationships that will last a long time. When both parties are happy and working together in the same direction, everyone wins.
Q: You’ve been a board member of the International Warehouse Logistics Association since 2021. Why is your involvement with this organization important to you?
A: I think it’s important to understand what’s happening in the industry. IWLA is a great resource for staying up to date and getting a solid education when it comes to the latest logistics trends. I also think it’s important to give back and pass along what we’ve learned to those just getting started in the business. As important as it is to have a mentor, it’s just as important to mentor and help others.
“While there have been some signs of tightening in consumer spending, September’s numbers show consumers are willing to spend where they see value,” NRF Chief Economist Jack Kleinhenz said in a release. “September sales come amid the recent trend of payroll gains and other positive economic signs. Clearly, consumers continue to carry the economy, and conditions for the retail sector remain favorable as we move into the holiday season.”
The Census Bureau said overall retail sales in September were up 0.4% seasonally adjusted month over month and up 1.7% unadjusted year over year. That compared with increases of 0.1% month over month and 2.2% year over year in August.
Likewise, September’s core retail sales as defined by NRF — based on the Census data but excluding automobile dealers, gasoline stations and restaurants — were up 0.7% seasonally adjusted month over month and up 2.4% unadjusted year over year. NRF is now forecasting that 2024 holiday sales will increase between 2.5% and 3.5% over the same time last year.
Despite those upward trends, consumer resilience isn’t a free pass for retailers to underinvest in their stores by overlooking labor, customer experience tech, or digital transformation, several analysts warned.
"The 2024 holiday season offers more ‘normalcy’ for retailers with inflation cooling. Still, there is no doubt that consumers continue to seek value. Promotions in general will play a larger role in the 2024 holiday season. Retailers are dealing with shrinking shopper loyalties, a larger number of competitors across more channels – and, of course, a more dynamic landscape where prices are shifting more frequently to win over consumers who are looking for great deals,” Matt Pavich, senior director of strategy & innovation at pricing optimization solutions provider Revionics, said in an email.
Nikki Baird, VP of strategy & product at retail technology company Aptos, likewise said that retailers need to keep their focus on improving their value proposition and customer experience. “Retailers aren’t just competing with other retailers when it comes to consumers’ discretionary spending. If consumers feel like the shopping experience isn’t worth their time and effort, they are going to spend their money elsewhere. A trip to Italy, a dinner out, catching the latest Blake Lively and Ryan Reynolds films — there is no shortage of ways that consumers can spend their discretionary dollars,” she said.
Editor's note:This article was revised on October 18 to correct the attribution for a quote to Matt Pavich instead of Nikki Baird.
The market for environmentally friendly logistics services is expected to grow by nearly 8% between now and 2033, reaching a value of $2.8 billion, according to research from Custom Market Insights (CMI), released earlier this year.
The “green logistics services market” encompasses environmentally sustainable logistics practices aimed at reducing carbon emissions, minimizing waste, and improving energy efficiency throughout the supply chain, according to CMI. The market involves the use of eco-friendly transportation methods—such as electric and hybrid vehicles—as well as renewable energy-powered warehouses, and advanced technologies such as the Internet of Things (IoT) and artificial intelligence (AI) for optimizing logistics operations.
“Key components include transportation, warehousing, freight management, and supply chain solutions designed to meet regulatory standards and consumer demand for sustainability,” according to the report. “The market is driven by corporate social responsibility, technological advancements, and the increasing emphasis on achieving carbon neutrality in logistics operations.”
Major industry players include DHL Supply Chain, UPS, FedEx Corp., CEVA Logistics, XPO Logistics, Inc., and others focused on developing more sustainable logistics operations, according to the report.
The research measures the current market value of green logistics services at $1.4 billion, which is projected to rise at a compound annual growth rate (CAGR) of 7.8% through 2033.
The report highlights six underlying factors driving growth:
Regulatory Compliance: Governments worldwide are enforcing stricter environmental regulations, compelling companies to adopt green logistics practices to reduce carbon emissions and meet legal requirements.
Technological Advancements: Innovations in technology, such as IoT, AI, and blockchain, enhance the efficiency and sustainability of logistics operations. These technologies enable better tracking, optimization, and reduced energy consumption.
Consumer Demand for Sustainability: Increasing consumer awareness and preference for eco-friendly products drive companies to implement green logistics to align with market expectations and enhance their brand image.
Corporate Social Responsibility (CSR): Companies are prioritizing sustainability in their CSR strategies, leading to investments in green logistics solutions to reduce environmental impact and fulfill stakeholder expectations.
Expansion into Emerging Markets: There is significant potential for growth in emerging markets where the adoption of green logistics practices is still developing. Companies can capitalize on this by introducing sustainable solutions and technologies.
Development of Renewable Energy Solutions: Investing in renewable energy sources, such as solar-powered warehouses and electric vehicle fleets, presents an opportunity for companies to reduce operational costs and enhance sustainability, driving further market growth.
A real-time business is one that uses trusted, real-time data to enable people and systems to make real-time decisions, Peter Weill, the chairman of MIT’s Center for Information Systems Research (CISR), said at the “IFS Unleashed” show in Orlando.
By adopting that strategy, they gain three major capabilities, he said in a session titled “Becoming a Real-Time Business: Unlocking the Transformative Power of Digital, Data, and AI.” They are:
business model agility without needing a change management program to implement it
seamless digital customer journeys via self-service, automated, or assisted multi-product, multichannel experiences
thoughtful employee experiences enabled by technology empowered teams
And according to Weill, MIT’s studies show that adopting that real-time data stance is not restricted just to digital or tech-native businesses. Rather, it can produce successful results for companies in any sector that are able to apply the approach better than their immediate competitors.
“ExxonMobil is uniquely placed to understand the biggest opportunities in improving energy supply chains, from more accurate sales and operations planning, increased agility in field operations, effective management of enormous transportation networks and adapting quickly to complex regulatory environments,” John Sicard, Kinaxis CEO, said in a release.
Specifically, Kinaxis and ExxonMobil said they will focus on a supply and demand planning solution for the complicated fuel commodities market which has no industry-wide standard and which relies heavily on spreadsheets and other manual methods. The solution will enable integrated refinery-to-customer planning with timely data for the most accurate supply/demand planning, balancing and signaling.
The benefits of that approach could include automated data visibility, improved inventory management and terminal replenishment, and enhanced supply scenario planning that are expected to enable arbitrage opportunities and decrease supply costs.
And in the chemicals and lubricants space, the companies are developing an advanced planning solution that provides manufacturing and logistics constraints management coupled with scenario modelling and evaluation.
“Last year, we brought together all ExxonMobil supply chain activities and expertise into one centralized organization, creating one of the largest supply chain operations in the world, and through this identified critical solution gaps to enable our businesses to capture additional value,” said Staale Gjervik, supply chain president, ExxonMobil Global Services Company. “Collaborating with Kinaxis, a leading supply chain technology provider, is instrumental in providing solutions for a large and complex business like ours.”