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  First Thoughts

    Dan Gilmore

    Editor

    Supply Chain Digest



 

 
Aug. 3, 2017

Shipper and 3PL Supply Chain Innovation - Who Should Do What?

More from SCDigest's Excellent Benchmark Study that Sheds Light on Increasingly Important Topic

It seems to me we are at the juncture of two very powerful trends:

1. Continued growth in the use of outsourced logistics: study after study finds the percentage of logistics spending going to outsourcing continues to grow. For example, the annual 3PL study from Dr. John Langley released last fall found that 58% of shippers indicated they planned to increase their use of outsourced logistics services in 2017, versus just 26% of shippers saying that they were returning to insourcing of logistics activities.

Gilmore Says....

But given the trends of a growing percent of logistics being outsourced and the need for innovation, doesn't that status quo have to change?

What do you say?

Click here to send us your comments
 

2. A focus on supply chain innovation: CEOs increasingly understand innovation is where the money is. That means innovation in the supply chain as well, both to improve processes and service to customers and to support innovation coming from elsewhere in the company. This is of course most notable in efulfillment (drones, etc.) but far beyond that as well, and the Internet of Things is likely to create many opportunities for companies to develop new products and services that require supply chain support.

Earlier in 2017, with sponsorship from JDA, SCDigest conducted a survey of shippers and 3PLs, hoping to get some insight into how each side thinks about innovation. It is some of the best survey data we have ever generated.

I wrote a column then summarizing some of the key findings (See Thoughts on Supply Chain Innovation in Shipper-3PL Relationships) and promised then to do a part 2. That time has finally come.

As I reported in part 1, shippers definitely see innovation as an important component of what a 3PL brings to the table.

"3PLs need to anticipate where the market and logistics trends will be and work to develop services and innovative solutions around those trends that are sustainable and replicable," one shipper commented.

But shipper views of 3PL innovation capabilities are not strong. As shown in the chart below, just 2% of shipper respondents view 3PLs overall as having high process innovation capabilities, iand just 7% view 3PL technology innovation capabilities as high.


"Although we're 14 months into our relationship, I find that, many times, I have to lead the 3PL horse to water - AND make him drink," one shipper wittily commented relative to 3PL innovation capabilities.

Another noted that "We really need 3PLs to innovate on technology to lower the transactional cost of fulfillment activities."

All that said, 3PLs can only innovate, obviously, in relationships that are supportive of them doing so. The would it seem most likely to be in gainsharing or the even more advanced "vested outsourcing" types of relationships, and as I reported last time I was surprise at the very small percentages of these types of arrangements that are currently being used.

On a similar vein, 41% of shippers say they are highly prescriptive with 3PLs - in other words, "just do what we tell you," with 26% of shippers saying they welcome 3PL innovation and 33% saying it varies by specific relationship (see chart below).

 


One shipper commented that "We want them [3PLs] to learn and understand our business; then we seek out suggestions to improve and innovate."

One 3PL respondent was very positive on this topic, commenting that "Client relationships vary greatly, but the trend is for more collaborative relationships in both procurement and supply chain strategy."

That's good to hear.

An interesting question on this innovation topic is what should be the role of 3PLs in bringing emerging technologies (robotics, drones, IoT, 3D printing, etc.) to the market. This is actually a more interesting and nuanced issue than some may consider, and is not un-related to the relative lack of 3PL use of automated distribution facilities.

Why is that the case? Because the contacts with shippers are generally not long enough to ensure a payback from that investment in materials handling systems. And in general, 3PLs are not much interested with bringing costly new technologies to market without a client that has committed to paying for it.

But given the trends of a growing percent of logistics being outsourced and the need for innovation, doesn't that status quo have to change? Should shipper-3PL contracts really be the barrier to more robotics in the DC?

As shown in the chart below, 50% of shippers do not see 3PLs as a driver of advanced technology adoption, versus just under a quarter who would like to see 3PLs do more in this area, and 26% who say it just depends on whether it will impact cost or service.

 

 

I will note there are some signs of change going on, notably the investment DHL has been making in things like augmented reality via smart glasses and use of robots in the DC.

There is a lot more, but think I will end it here.

There are several ways to access this excellent data and insight. The best is actually all the data and comments in sort of Excel form, which will give you the full breadth of all the responses. That can be found here.

Or you can download the slides we used during a Videocast announcing results of the research, which have the pretty charts but only cover a subset of the data. You can find that here. Or better yet, download both.

Overall, I think we need a new model that better encourages 3PL innovation, which means evolving the nature of contracts - but I am not optimistic that will happen any time soon. I also believe 3PLs themselves must put more dollars in an innovation budget.

What do you think?

What are your thoughts on innovation between shippers and 3PLs? Are contracts a major issue? What needs to change? Let us know your thoughts at the Feedback button or section below.


Your Comments/Feedback

Srihari

Senior Consultant, Infosys
Posted on: May, 22 2016
Great article. I am a little suprised not to see BNSF in the mix while I understand their financial mode/operation is a little different. 

That would only give a complete perspective with all the players in the pool.

Mike O'Brien

Senior editor, Access Intelligence
Posted on: May, 26 2016
Surprised to see Home Depot fall off the list; thought they were winning with Sync?

Julie Leonard

Marketing Director, Inovity
Posted on: Jun, 27 2016
Using the right tool for the right job has always been a best practice and one of the reasons, we feel, that RFID has never taken off in the DC as exponentially as pundits have been forecasting since 2006. While these results may seem surprising to those solely focused on barcode scanning, the adoption of multi-modal technologies in the DC makes perfect sense for greater worker efficiency and productivity.

Carsten Baumann

Strategic Alliance Manager, Schneider Electric
Posted on: Aug, 19 2016

The IoT Platform in this year's (2016) Hype Cycle is on the ascending side, entering the "Peak of Inflated Expectation" area. How does this compare to the IoT positions of the previous years, which have already peaked in 2015? Isn't this contradicting in itself?

Editor's Note: 

You are right, Internet of Things (IoT) was at the top of the Garter new technology hype curve not long ago. As you noted, however, this time the placement was for “IoT Platforms,” a category of software tools from a good number of vendors to manage connectivity, data communications and more with IoT-enabled devices in the field.

So, this is different fro IoT generally, though a company deploying connected things obviously needs some kind of platform – hoe grown or acquired – to manage those functions.

Why IoT generically is not on the curve this year I wondered myself.

 

 

Jo Ann Tudtud-Navalta

Materials Management Manager, Chong Hua Hospital, Cebu City, Philippines
Posted on: Aug, 21 2016

I agree totally with Mr. Schneider.

I have always lived by "put it in writing" all my work life.  I am a firm believer of the many benefits of putting everything in writing and I try to teach it to as many people as I can.

This "putting in writing" can also be used for almost anything else.  Here are some general benefits (only some) of "putting in writing":

1. Everything is better understood between parties involved.  There are lots of people types who need something visual to improve their understanding.
2. Everyone can read to review and correct anything misunderstood.  This will ensure that all parties concerned confirm the details of the agreements as correct.  This is further enhanced by having all parties involved sign off on a hard copy or confirm via reply email.
3. Everything has a proof.  Not to belittle the element of trust among parties involved, it is always safest to have tangible proof of what was agreed on.
4. There will be a document to refer to at any time by any one who needs clarification.
5. The documentation can be useful historical data for any future endeavor.  It provides inputs for better decisions on related situations in the future.
6. This can also be compiled and used to teach future new team members.  "Learn from the past" it is said.

There are many more benefits.  Mr. Schneider is very correct about his call to "put it in writing".





Sandy Montalbano

Consultant, Reshoring Initiative
Posted on: Aug, 24 2016
U.S. companies are reshoring and foreign companies are investing in U.S. locations to be in close proximity to the U.S. market for customer responsiveness, flexibility, quality control, and for the positive branding of "Made in USA".

Reshoring including FDI balanced offshoring in 2015 as it did in 2014. In comparison, in 2000-2007 the U.S. lost net about 200,000 manufacturing jobs per year to offshoring. That is huge progress to celebrate!

The Reshoring Initiative Can Help. In order to help companies decide objectively to reshore manufacturing back to the U.S. or offshore, the nonprofit Reshoring Initiative's free Total Cost of Ownership Estimator can help corporations calculate the real P&L impact of reshoring or offshoring. http://www.reshorenow.org/TCO_Estimator.cfm

Robert

Transportation Manager, N/A
Posted on: Aug, 30 2016
 Good article!  I am sending this to my colleagues who work with me.  We have to keep this in mind.  Thanks!

Ian Jansen

Mr, NHLS
Posted on: Sep, 14 2016
SCM is all about getting the order delivered to the Customer on date/ time requested because happy Customers = Revenue. Using the right tools to do the right job is important and SCM is heavily dependent on sophisticated ERP systems to get right real data info ASP.

I've worked in a DC with more than 400,000 line items and measured the Productivity of Pickers by how many "picks" per day.

I've learned that one doesn't have to remind Germany about your EDI orders.

Don Benson

Partner, Warehouse Coach
Posted on: Sep, 15 2016
Challenge - to build and sustain effective relationships at the level of the organizations that are responsible for effectively coordinating and colaborating in an otherwise highly competitive environment 

Jade

Admin, Fulfillment Logistics UK Ltd
Posted on: Oct, 02 2016
Of course we all need to up our game. We need to move with the times, and always be one step ahead of what the future will bring.

Mike Dargis

President of asset-based carrier based in the Midwest, Zip Xpress Inc. (at ZipXpress.net)
Posted on: Oct, 03 2016
Thanks for the article, but I know there's a lot more to this issue than just the pay rates. Please check out my blogs on the subject at www.zipxpress.net.

Blaine

Inventory Specialist, Syncron
Posted on: Nov, 16 2016
Lora, great article! I agree that companies choose the 'safe' solution more often than not. My solution is a bolt-on for legacy ERP's and we even face challeneges of customer adoption. Most like to play it safe and choose an ERP upgrade, which is more costly, time consuming, and has lower ROI across the board. Would love to learn more about your company, we are always looking for partnerships.

Blaine
blaine.schultz@syncron.com

Bob McIntyre

National Account Executive, DBK Concepts LLC
Posted on: Nov, 21 2016
This is a game changer in GE's production and prototyping.  It also has huge implications across the GE global supply chain with regard to the management of their support and spare parts network. 

Kai Furmans

Professor, KIT
Posted on: May, 22 2017
I am referencing to the comment that leasing of warehousing equipment (beyond forklift trucks) is a vision for 2030.
Just recently in Europe, such a business model has started, see here: https://next-intralogistics.de/

I am following with a lot of interest, how the business develops.

Stuart Rosenberg

Supply Chain Consultant, First Choice Supply Chain
Posted on: Jun, 05 2017
If we limit the standard on judging or determining the best supply chain to just three calculations it does not tell the entire picture.  Financial performance metrics are valuable as they capture the economic consequences of business decisions.  But supply chain managers make decsions and use organizational resources that impact a company's financial well being.  Where is a firm's earnings over a period of time determined by sales less product costs and general/adminsitrative costs?  Where is the metric for determining the sources and uses of cash from three perspectives - operational, investment and financial?  Where are these supply chain metrics: on-time delivery, lead time, response time to customers, product returns, procurement costs, network distance, inventory carrying costs, forecasting accuracy, sourcing time, etc,.  Without knowing the results of all these supply chain calculations the there must be a question as to the accuracy of the 25 top supply chains.

Dustin Calitz

Project Commercialization Manager, Mondelez
Posted on: Jun, 06 2017
I feel this ranking misses the mark in SC. It does not seem to consider a key indicator in days inventory on hand, which is key to determining a SC company's ability to forecast, manage inventory costs and reduce aged stock. In additiion I realize it's difficult to understand what goes into the customer survey, but would I assume specific metrics are being asked. For examples customer's opinion on service level differentiation and the ability to deliver the right product on time, which should then be allocated a bigger weighting than 10%. It would also be interesting to take a view of the above list's SKU portfolio complexity, seasonality and launches/promotions. I would again assume some companies on the list above have a far more complex SC to manage and lead, ultimately requiring a lot more innovation within a SC to stay ahead of competitors, and ultimately satisfy their customers demands.  I understand above metrics are difficult to measure, as mentioned in the article, but they somehow need to be considered to give a true reflection. 

Michael Hurd

Lean Consultant, Unemployed
Posted on: Jun, 10 2017

A Very Good Article...

While some feel that lean is a scam that pushes for more out of the personnel and out of the companies through reduction of waste and adding value for the customer, there are several things to remember:

1) Lean methodologies are designed and implemented to reduce time wasting, so this may seem that you are working harder as an employee.

2) Lean methdoligies only work when everyone from the janitor to the owner of the company get involved and back the program.

3) Lean methods are there to make you work smarter not harder, although it may feel you are working harder.

4) YES... Sometimes lean methodologies fail! This is due to project overun or taking on too large a problem and trying to fix it all in one go and not taking the smaller problems that are associated with the large problem and fixing them first. Sometimes fixing the small problems leads to resolution of the larger problem.

Akhil

Director Supply Chain , skuchain
Posted on: Jul, 31 2017
The Supply Chain technology is not considered a problem because traditionally supply chains are thought to be cost centres unlike sales functions. The tendency, in general, to limit expenses and cost cutting on upgrades for technology and for talent have been hindering progress for the businesses. Supply chains lack real time visbility and above all trust across the value chain (not that the participants are dishonest) rather it's about the cascading effects referred to as the bull-whip effect which causes higher magnitudes of disruptions. 

Supply chain real time information should top the list .

Another problem is that of multi homing as so much data is available across several feeds of IOT/Email/Internet /Mobility/ERP that organisations tend to have issues around finding a single platform to collate them for meaning analysis. 

Blockchain (if deployed appropriately) can be a great solution for solving the issues around the supply chain.

 
 
 
 

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