No one downplays the importance of the logistics services provider – unless it's the management of the LSP itself by taking a narrow view of just what their company should offer customers. In other words, says Adrian Gonzalez, head of the Adelante SCM supply chain consultancy, it's dangerous for a provider to see itself as involved solely in transportation and logistics. Speaking with SupplyChainBrain Editor in Chief Russell Goodman, at the annual conference of the Transportation Marketing and Sales Association, held this year in Dallas, Gonzalez said 3PLs can sell themselves short – and right out of business – if they fail to see the ever widening panoply of services offered by the competition, not least from start-ups that never saw themselves as providers of logistics services in the first place.
Q: Speaking at the conference here, you maintain that logistics services providers must have what you term a 'broader perspective' of the industry and on what they should bring to the table. So make that case right here. Why do you say that?
A: Gonzalez: I think when you look at what's happening in the marketplace, both from the standpoint of the competitive landscape as well as from what LSPs' customers – manufacturers and retailers – are looking for, it's truly very different today than many years ago.
Q: How so?
A: Gonzalez: So if you ask a 3PL what business are you in, the most common answer is, we're in the transportation industry or in the integrated logistics business. We bring transportation, warehousing, freight forwarding and brokerage. And that's all true, all relevant and all important, but there's so much more.
Q: What more is there that they are overlooking?
A: Gonzalez: When you look just recently at what Uber did, launching Uber Rush, where they are slowly getting into the logistics business, that’s an emerging competitor in the industry. I think for logistics services providers to ignore the reality that’s changing in the industry, where you see the merging of business models, namely the coming together of technology with services and with consulting and the different, broader value proposition that different types of companies are bring to the market – LSPs really have to broaden their value proposition in order to compete effectively moving forward.
Q: Your talk about the value proposition leads me to ask about operational excellence. That's a given in the LSP industry, or at least it should be. No one wants to deal with anybody who isn't excellent. But the question is, isn't there a need for something else now, something more? How can a logistics services provider truly differentiate itself from the other companies that, quite frankly, are also operationally excellent?
A: Gonzalez: Operational excellence is the ticket to the dace. Without operational excellence, if you don't provide it, you won't get the RFP, you're not going to get that call. You're not going to be in business for very long. So the expectation of shippers is that, if you’re a brand name service provider, you're going to provide that operational excellence. So to your point, how does the LSP differentiate itself? There are a number of different areas. One is on the technology front. A lot of manufacturers and retailers, when they look to their LSPs, they're looking to them not only as providers of logistics services but as providers of timely, accurate and complete supply chain and logistics information. So they’re able to take that information in and make smarter decisions faster. So LSPs can differentiate themselves on the technology that they bring to the table and the data quality that they can provide to their customers. On the people front, there are a lot of conversations these days about a talent shortage in the industry, and that's something that manufacturers and retailers are struggling with. And quite frankly, LSPs are as well. But LSPs already have a strong bench of domain experts that can provide insights, advice and best practices to their customers. One of the things you hear customers say is, tell us something we don't already know. So that's the people side of the equation.
I think where the other area comes in is around the risk management side of things. It's the reality that LSPs can play an important role in helping customers mitigate the different supply chain risks they experience today.
Q: You mention the advice people are looking to get from their partners in logistics services. Is it fair to say that to some degree they are looking for leadership from these partners?
A: Gonzalez: Exactly. I've been looking at this market for more than 16 years, and the number one complaint that customers have of their 3PL partners is that they are not proactive enough. What they're looking for is that thought leadership, looking for them to take charge, tell us something we don’t already know that will help us to get to next level of growth, to the next level of performance.
That's what they look for a 3PL to do. Now it takes two to tango, so if you’re talking to 3PLs, they would say you’re preaching to the choir because we want to be viewed as partners. But if customers only view us as a supplier and not as a partner, then we're not going to be able to fit that role because if our business is going to be put out to bid every year, if it's very short term in nature, if it's focused on cost only, it's difficult get that alignment. So it really requires both sides, the LSPs to project themselves and put themselves out as strategic partners, as someone who can provide that thought leadership, but the customer has to also be receptive to allowing LSPs to play that role.
Q: We've been speaking about the needs the customers have and their expectations of the service provider. Let's look now from the perspective of that logistics services provider. What specifically are its needs and what are the threats that LSPs are facing these days?
A: Gonzalez: First, as we mentioned, you’re seeing the convergence of business models. We're seeing technology companies, as an example, that started out providing some kind of software and now are providing managed transportation services. Or we're seeing consulting firms that started out providing knowledge and advice and now they've partnered up with a cloud or SaaS TMS and they're also providing managed transportation services. So that’s a 3PL today. You have this competition coming from many different angles.
I think the biggest threat that I see emerging is the fact that as companies are beginning to view logistics as a competitive differentiator or use it as a lever to differentiate in the marketplace, they begin to view it as a core competency. As they start viewing it that way, my hypothesis is that they will be less inclined to outsource. They want to be able to control that and keep it in house. So one of the big challenges that 3PLs should be thinking about is, how do you convince customers that they can still keep control and have visibility even if they outsource?
Q: Are you suggesting that a number of companies that years ago decided logistics was an expense they didn't want and wasn't a core competency, so they outsourced it, are now rethinking that proposition and considering whether they want to reestablish an internal logistics department to run these operations?
A: Gonzalez: Exactly. It used to be thought that outsourcing was a one-way street: once you outsourced you rarely ever brought it back because you lost the people and you lost the technology. So, again, for most manufacturers, they would say our core competency is product development; for retailers, it's building stores and investing in merchandizing. But when you look at what’s happening now with omnichannel, when you look at the Amazons of the world investing in trucks, even the Googles of the world investing in trucks and other assets, the calculus that companies are making is that we need to do this because it's a fast-changing environment. We need to have better control and visibility of what's happening in our logistics operations so we can maximize customer service and enhance loyalty. Their perception, their belief, is that by bringing it back in house they can have better visibility and control. I think that's where the risk is because 3PLs need to convince their customers that you can still outsource and still be in control and have the visibility you need to make better decisions faster and reach your strategic objectives.
Q: OK, you've established the threat to the LSP. What about the opposite? What do we have in terms of opportunity for LSPs?
A: Gonzalez: I think one of the biggest opportunities out there – and I've been researching this for the past few years and there's certainly a lot of conversation about it today – is around supply chain risk management. It not only elevates the conversation beyond supply chain and logistics, it really is something that reaches the C-level suite, the CEO, the CFO. When you look at all the research out there, a lot of companies, a lot of executives, recognize the strategic importance of risk management, yet they also recognize that they don’t do a very good job at it. When you ask those executives what can they do to improve risk management, one thing that ranks very high is building strong relationships with extended supply chain partners, namely LSPs. So this is an opportunity for a lot of 3PLs – if you can say we are in the risk management or risk mitigation business. Tell a story around that lens and back it up with capabilities and assets; be able to help companies manage different risks and recover from disruption much more quickly and with much less impact. That's a real opportunity that LSPs can act on. And that, again, broadens the conversation, it broadens the value proposition beyond just saying we provide transportation services, freight forwarding and so forth.
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