Executive Briefings

Evolving the 3PL-Shipper Relationship

Analyst Insight: The talk in outsource circles these days continues to revolve around the need for bigger and better collaboration and innovation. Some articles talk about the end of outsourcing, but what they mean - and a better way to put it - is to think about the end of outsourcing relationships as we know them. - Kate Vitasek, faculty, University of Tennessee's Center for Executive Education. and Founder, Supply Chain Visions

The recently published 2013 17th Annual Third-Party Logistics Study in general reveals an industry that's successful, growing and healthy. For example, the study, based on surveys of more than 2,000 industry executives, says that despite challenging business conditions, "aggregate global revenues for the 3PL sector continue to rise, and far more shippers (65 percent) are increasing their use of 3PL services than returning to insourcing (22 percent) some 3PL services." In addition a vast majority of shippers and 3PL providers, for the most part, view their relationships as successful. That's great as far as it goes, but there also is something a bit troubling here because the measure of success is couched in terms of year-over-year incremental benefits, including logistics cost reductions, inventory cost reductions and logistics fixed asset reductions. In other words the transaction-based bean-counters still largely rule.

Then there's innovation, an acknowledged critical driver of growth. Creating the conditions for continuous innovation in the shipper-3PL relationships is becoming harder all the time. Demonstrating innovation by adding technology, improving execution, offering new services and by introducing process improvements does not take innovation far enough - basically it maintains the status quo and avoids risk.

When it comes to innovation, changes are needed in the traditional 3PL-shipper relationship. What is truly innovative - and even disruptive given the usual approach - is to base the relationship on the joint pursuit of mutually-targeted outcomes rather than micro-managing transactions each quarter or year for the lowest possible cost.

The 3PL study is highly illustrative on this point:  "Many 3PL-shipper relationships are not set up to support innovation. They are tactical rather than strategic, offer insufficient visibility and are limited by metrics, contract terms, and risk mitigation strategies. Most 3PL respondents (89 percent) believe they are ready to innovate, but just 53 percent of shippers agree. 3PLs and shippers each see themselves as the largest sources of innovation within their relationships."

That reveals a potentially serious long-term problem in the way 3PLs and shippers think about each other and the nature of their business relationships. Real collaboration and trusting relationships at the human and operational level, not just at the latest technology and software level, are what will lead to the type of disruptive innovations that revolutionize a market, enhance and stabilize the value chain and make the relationship a partnership.

And here's another aspect about the evolution of innovation to consider. In addition to market and operating innovations, go the whole nine yards by innovating the business model to adopt Vested Outsourcing's outcome-based approach for creating long-term value creation.

                                    The Outlook

As companies like Dell share their story of wild success by using the Vested approach, you will see more and more companies begin to adopt progressive approaches such as Vested Outsourcing.


Keywords: 3PL, third party logistics, logistics management, logistics services, transportation management, warehouse management, supply chain management

The recently published 2013 17th Annual Third-Party Logistics Study in general reveals an industry that's successful, growing and healthy. For example, the study, based on surveys of more than 2,000 industry executives, says that despite challenging business conditions, "aggregate global revenues for the 3PL sector continue to rise, and far more shippers (65 percent) are increasing their use of 3PL services than returning to insourcing (22 percent) some 3PL services." In addition a vast majority of shippers and 3PL providers, for the most part, view their relationships as successful. That's great as far as it goes, but there also is something a bit troubling here because the measure of success is couched in terms of year-over-year incremental benefits, including logistics cost reductions, inventory cost reductions and logistics fixed asset reductions. In other words the transaction-based bean-counters still largely rule.

Then there's innovation, an acknowledged critical driver of growth. Creating the conditions for continuous innovation in the shipper-3PL relationships is becoming harder all the time. Demonstrating innovation by adding technology, improving execution, offering new services and by introducing process improvements does not take innovation far enough - basically it maintains the status quo and avoids risk.

When it comes to innovation, changes are needed in the traditional 3PL-shipper relationship. What is truly innovative - and even disruptive given the usual approach - is to base the relationship on the joint pursuit of mutually-targeted outcomes rather than micro-managing transactions each quarter or year for the lowest possible cost.

The 3PL study is highly illustrative on this point:  "Many 3PL-shipper relationships are not set up to support innovation. They are tactical rather than strategic, offer insufficient visibility and are limited by metrics, contract terms, and risk mitigation strategies. Most 3PL respondents (89 percent) believe they are ready to innovate, but just 53 percent of shippers agree. 3PLs and shippers each see themselves as the largest sources of innovation within their relationships."

That reveals a potentially serious long-term problem in the way 3PLs and shippers think about each other and the nature of their business relationships. Real collaboration and trusting relationships at the human and operational level, not just at the latest technology and software level, are what will lead to the type of disruptive innovations that revolutionize a market, enhance and stabilize the value chain and make the relationship a partnership.

And here's another aspect about the evolution of innovation to consider. In addition to market and operating innovations, go the whole nine yards by innovating the business model to adopt Vested Outsourcing's outcome-based approach for creating long-term value creation.

                                    The Outlook

As companies like Dell share their story of wild success by using the Vested approach, you will see more and more companies begin to adopt progressive approaches such as Vested Outsourcing.


Keywords: 3PL, third party logistics, logistics management, logistics services, transportation management, warehouse management, supply chain management