Manufacturers across all industries are attempting to reconfigure their supply chains into demand-driven value networks. With logistics outsourcing continuously on the rise, it only makes sense that the logistics service provider (LSP) industry becomes skilled at the execution of these demand-driven capabilities to help their customers make the transition faster, with less cost, and with a better chance of success.

Demand-driven supply chains require more dynamic execution of the basic logistical functions, such as transportation; pick, pack, and ship; and freight forwarding. We found that while most of the leading LSPs are more than capable of executing these necessary tactical activities, very few LSPs are involved in the demand-driven decision processes. Other than in a handful of situations, LSPs are in standby mode, waiting for instructions from their customers' supply chain departments. The customers' supply chain organizations, in concert with their suppliers and customers, hold the reins, assessing, re-planning, and making the necessary adjustments. These changes get handed down to the LSP that is ready and willing to perform.

The characteristics of these new demand-driven supply chains are more dynamic, requiring more real-time integration and faster execution. While the LSPs perform these more dynamic tasks well and with efficiency, they are still not being asked to orchestrate outside of these extended execution activities.

Some of the key findings of our research include:

• The evolution of the LSP taking on more advanced, responsible roles in the supply chain is just beginning.  The decisions service providers are expected to make tend to stay in the realm of execution tasks. Most companies today are not ready to integrate their LSPs at a level that requires the service provider to make key demand-driven supply chain decisions.

• The LSP's role and process sophistication increases with time. The longer the LSP is involved with a customer, the more complexity, integration, management, and responsibility the LSP is asked to take on.

• LSPs are beginning to specialize in supply chain network design and optimization. Globalization has forced companies to reassess their supply chain networks. The leading LSPs are specialists in the cost-benefit analysis and, potentially, redesign of these networks.

• A few LSPs are ready to take on more complexity and responsibility than their customers allow them to. From investment in talent to technology, a few of the leading LSPs are more than capable of performing very advanced supply chain management beyond the basic functions. Culture, legacy, and fear are the key inhibitors to the advancement of the customer-provider relationship.

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