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  First Thoughts

    Dan Gilmore


    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




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