As usual at the CSCMP conference for 2019, we had the release of the annual 3PL study. The report is now in its amazing 24th year, all under the leadership of my friend Dr. John Langley of Penn State.
A few weeks ago, I did a general summary of the 2020 study, focusing on the core survey results from shippers and 3PLs across the globe (see State of the 3PL Union 2019).
Gilmore Says.... |
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| Shippers are becoming more flexible with their networks and are increasingly willing to discuss ways to optimize their inbound and outbound networks. |
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Highlights of that data included that total logistics expenditures directed to outsourcing came in at 52%, slightly higher than the year before, and that dreaded "IT Gap" continues on, with shippers saying 3PL IT capabilities are critical but finding those capabilities often lacking.
The report also again featured three "focus topics," and that is what I will review this week.
Use of Analytics in Shipper-3PL Relationships
I think studies relative to use of analytics in the supply chain are always difficult to pull off, in part because that terms means different things to different people. As a result, I think the use various types of analytics is overstated, and I will argue that is the case in the report here as well, as I will discuss in a moment.
The 3PL Study tries to address this by providing some term definitions. For example, "analytics" is defined as "information resulting from the use of mathematical and statistical methods to transform data into insight."
So, is a spreadsheet showing 3PL costs versus target an analytic? I would say Yes, and clearly excel today is overwhelmingly the leading analytic tool in supply chain.
The report finds 39% of shippers say their use of analytics for planning with 3PLs was significant, with 36% modestly using such analytics, and 25% not at all.
My guess is that the vast majority of those analytics are indeed basic spreadsheets, perhaps in some cases with a graphical front end such as Tableau, not what we might call advanced analytics, with sophisticated mathematics and correlations.
Along the same lines, the survey found 16% of shippers and 21% of 3PLs said they are using the highest form of analytics, which the reports calls "Cognitive/AI/machine learning." That is defined by identifying patterns of activity, with "self-learning feedback loops, where the resulting cognitive applications may become smarter over time through continuing interactions with data and humans."
Sorry, I have been in a number of 3PLs, and I don't think any of them are using cognitive and AI tools for planning with their shipper clients, let alone 21% of them.
With that off my chest, the report cites an example where advanced analytics are being used, involving the current availability of software that provides what it says is powerful insight to transportation and 3PL pricing teams.
"With the benefit of historical shipment and rate/price information and data relating to cost, margins and profitability, prescriptive analytics may be developed that can help pricing discussions to quickly focus on a range of proposals that would be profitable for suppliers and acceptable to prospective customers," the report says.
Some 3PLs have such tools to help them in negotiations with shippers, but only at the top end of the 3PL pyramid, in my opinion.
And similar to and maybe related to the "IT gap" referenced above, the report also finds there is an "analytics gap." That's because 95% of shippers agree that analytics capabilities are a necessary element of 3PL expertise, but only 26% of them are satisfied with those capabilities.
Those data points are part of the graphic below from the report, which to me is most notable for finding that only 58% of shippers say they have carefully defined KPIs to carefully measure 3PL performance. Can that possibly be accurate? Seems very low.
Views on Analytics in Shipper-3PL Relationships
The report also notes some challenges around analytics in shipper-3PL relationships in areas such as data accuracy and timeliness, and says both sides often coming to the review table with different numbers. (Now that I agree with completely.)
The report has a number of good recommendations on steps that can be taken by shippers and 3PLs in terms of improving the use of analytics for mutual benefit, most around putting more structure to the process.
My question: how many shippers and 3PLs really have time and the discipline to do it the right way?
Supply Chain Finance
The second focus topic is one I like a lot: supply chain finance. The report defines that as "the ability to model and manage the financial impacts of operations decisions, within and outside the company's control."
The report says this is emerging as a "must have" supply chain capability – in part because of a better understanding today of all the elements that drive supply chain costs – though we'll note there still remains no generally accepted definition of "total landed costs." In fact, the report finds only 57% of shippers calculate total landed costs – we're not sure what the other 43% are doing.
However, the report says, supply chain leaders are taking total landed costs in whole new directions. That includes something the report says is a new, more dynamic model that involves strategically thinking about how changing suppliers will affect the supply chain.
Companies are "hiring teams of people to provide real-time analysis so they can make timely adjustments to their supply chain, and there is a series of levers companies can pull in real time to decrease volume, if needed, or add product based on their projected total costs."
I suspect not too many companies have reached this level – though perhaps Toyota has. The report says the company has created a "virtual war room" of about 150 employees mapping out the impact of various US trade policy scenarios in regards to sourcing decisions.
The report says use of Blockchain and Global Trade Management technologies is rising to improve supply chain finance management in a global economy.
It's a decent discussion, but I think the report missed an opportunity to dig into some other areas of supply chain finance that companies are developing, such as the complex interplay of inventory, cash flow and shareholder value – and the need for strong supply chain finance understanding in terms of boosting career potential.
Greening of the Supply Chain
It's no surprise, but the report notes that with the increasing focus by many companies on Corporate Social Responsibility and reducing CO2 emissions, 3PLS are under increasingly pressure to help clients meet their environmental targets.
Shippers are "are becoming more sophisticated with how they look at carbon emissions, miles per gallon, data and efficiency metrics," the report notes, adding that this "is forcing more sophistication on behalf of the logistics providers to demonstrate and document their greening efforts."
How are 3PLs going to get there? The study found 77% said they expect to launch optimization initiatives, such as route optimization tools; 40% said they plan to invest in alternative fuels; and 27% plan to launch initiatives related to autonomous vehicles or platooning technologies, as part of an oddly limited number of choices it appears the survey offered.
The report spends some time on the topic of optimization, noting that shippers are becoming more flexible with their networks and are increasingly willing to discuss ways to optimize their inbound and outbound networks to minimize the number of trucks on the road and maximize utilization.
Yet at the same time, the report notes that a shipper's own business rules can inhibit network optimization. For example, shippers may require deliveries on certain days or within narrow time windows, which limits the level of optimization 3PLs can provide.
The report covers developments in alternative fuel vehicles as well as improvements in diesel engines, and there are rapid developments in both areas. Just this week, Nikola Motors claimed a breakthrough in battery technologies that is said will give heavy duty trucks a range of 600-800 miles, versus maybe 300 at best now. We'll see.
Any reaction to this data from the 3PL report or the special topics? Let us know your thoughts at the Feedback section below.
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