Inaction By Logistics Service Providers Of E-Commerce Immediacy Megatrend

Tom Craig, Supply Chain Consultant from LTD Management recently attended and moderated at our eft 3PL Supply Chain Summit in Chicago. Below is a follow up from the event through his eyes and the main things he gathered.

E-commerce Immediacy is a global megatrend.  It is in its early stages.  But it is happening worldwide--in the US, China, India, Germany, Singapore--and more.  It is rapidly growing and expanding.

This is a paradigm change to both selling and to supply chain management.  Interesting point is how many companies are consciously ignoring what is happening.

Many of the providers who are involved with and handling e-commerce immediacy are not the usual suspects, not brand names.  They risk being left behind by this rapidly developing business.  Why should leaders in e-commerce immediacy selling and who are building their business success by using other providers then let these providers who sat on the sideline get involved with their business--especially with a dominate position?  

It is interesting that logistics providers--especially the big name providers for parcel, trucking, warehousing, 3PLs, and across the service spectrum--have closed their eyes to this new opportunity.  Do they not understand how to deal with this business disruptor? Do they underestimate the velocity of e-commerce immediacy market?  Are they so locked into their business models?

More interesting are the providers who have benefited from e-commerce--and did so just because they were there, not because they changed their business.  And now they are doing nothing to lead and participate in immediacy.

The E-Commerce Immediacy issue is interesting. Almost all the stories do not involve traditional service providers--and that includes 3PLs, not just the big name providers. That is the story out of the gate--companies not using the usual suspects. Will it continue? Will today's leaders be tomorrow's followers?

These are more than short-sighted views and inaction. Transactions, activity, and volumes may not meet their internal thresholds.    But that misses the bigger picture.  Things are changing.  Doing nothing--standing still--is not a viable option.  They may learn the message--lead, follow, or get out of the way.

Logistics Outsourcing And The New Supply Chain

Outsourcing has gotten a lot of attention over the years as to its role and importance in supply chain management. Its purpose has been based on reducing costs. Much of its success has been based on anecdotal stories.

The reality has been that the savings have been more phantom than real and is not a sustainable business model. It has outlived its purpose and is now being looked at as a supply chain risk and being an impediment for a dynamic, agile supply chain that compresses time, increases inventory velocity, drives service, and creates competitive advantage. The competitive advantage issue is important as companies, industries, and markets fight against commoditization of their businesses.

The shortcomings with supply chain outsourcing reside with both 3PLs and with their manufacturing/retail/wholesale customers. Logistics service providers provide a functional role within some niche of the supply chain. They are not supply chain practitioners. They are forwarders, truckers, warehouses, or whatever service. Their abilities to fit in changing supply chains, especially with integrated processes and technologies are challenging.

These firms were selected based on RFPs and the resultant bids. The RFPs have a slant based on each customer's view of itself, its operation, and its needs. Too many times these views are not valid. Also the views are a snapshot. Customers' businesses change for many reasons. So the role of the outsourced service can change. And adapting to the changes is not easy, for both the buyers and seller of the outsourcing.

For all the outsourcing, there are no statistics on the benefits and results. What were the purposes of outsourcing? Were these purposes achieved? If not, why? What metrics were used? Was there governance? And so on.

There are no data on the percent and number of relationships that were canceled before contract expiration--or divorces. Also, there are no figures on how many 3PLs got additional business as a way to avoid the hassle of the bids and installing new providers.

The primary selection criterion has been low price. It is not service performance selection. That is a significant--and flawed--difference for supply chains trying to service customer demands and create separation for competitors.

Strategic firms have supply chains that are competitive leaders. They outsource areas to complement and build that leadership. Reactionary firms have commoditzed their businesses and have monolithic, one-size-fits-all supply chains. They outsource in the wrong ways and for the wrong reasons.

Logistics outsourcing is based on low cost bids. Does this create an underlying weakness? What happens when costs cannot be lowered enough? What happens when service becomes the key factor, such as with the new supply chain?

The new supply chain uses logistics outsourcing. But the role and positioning has changed.

That new supply chain that drives blue ocean opportunities for the new e-commerce, global e-commerce, and multichannel requires outsourcing providers to be selected and to operate based on service and performance. They must fit into the integrated supply chain, both as to process and technology. It is no longer about a logistics function. It is about compatibility with where customers are going and how to get there.

Out with the old. In with the new supply chain and its outsourcing.

One other note. Go through various directories and searches concerning 3PLs--in North America, Asia, Europe--you name it. See how few brand and differentiate with supply chain management. They position themselves to play to a functional role. They do not strongly present the bigger picture of the supply chain. That limits them as to what they do and where they are going.

comments powered by Disqus