Supply Chain Strategy Doesn’t Deliver

by: Mike Valentine

Executive Summary

The past decade has seen a popular strategy among mid-sized to large logistics service providers. Many providers pursued a common strategy of expanding logistics capabilities across the supply chain spectrum.  Providing end-to-end supply chain services was seen as the next frontier for growth.  Corporate strategists chose this approach based on the idea of selling integrated solutions.  The underpinning premise stipulated that integrated solutions, those that address and link adjacent segments of the supply chain, could be sold bundled to create a lowered cost of sales for customer acquisition and penetration.

After more than a decade, the strategy has failed to deliver.  Companies pursuing the end-to-end strategy have not lowered the cost of sales nor achieved above-market revenue growth.  This article will investigate the suppositions on which the strategy was built, the realities encountered, and the applicability of learnings to future strategies.

Strategy Assumptions

Logistics service providers came into the 21st century riding a wave of growth provided by the surge in outsourcing.  Outsourcing in this period was mainly driven by two business trends.  The first trend arose from the evolution of companies looking to further lower their cost structures through outsourcing warehousing and transportation management activities previously run in-house by company personnel.  Secondly, the services already outsourced to logistics providers, namely international freight and ground transportation, were seeing a rise in overall global volumes fueled by manufacturers and shippers flocking to low-cost country sourcing.  These business trends contributed to overall growth in the logistics market, lifting the fortunes of all players.  However, as these trends reached their natural saturation point in the mid-2000s, logistics providers searched about for the next phase of growth.

A common strategy was struck upon, providing services that stretched end-to-end across the supply chain.  By offering all services on the supply chain menu, the reasoning went, would enable more ways to penetrate existing customers as well as acquire new ones.   Selling integrated solutions consisting of multiple services bundled together would increase the size of individual deals, thus achieve a lowered cost of sales and accelerate revenue growth.

With the newly-minted strategy in place, logistics companies began executing a strategy to string together services across the supply chain; from international freight to warehousing to road transportation.  This triggered a wave of acquisitions and was a primary cause of consolidation in the industry.   Companies scrambled to acquire specific services in the supply chain they lacked in either capability or scale.  Examples include DHL acquiring Exel, C.H. Robinson buying Phoenix International, UTi acquiring Standard Logistics and several ground transportation companies, Geodis purchasing OHL, Kintetsu acquiring APL Logistics, and XPO Logistics buying New Breed, Pacer, Con-Way, and multiple ground transportation firms. 

Curiously, some CEOs publicly attributed the acquisition trend to market pressures from customers demanding integrated solutions.  Nonetheless, most logistics providers that pursued the strategy were indeed able to go to market with integrated solutions for sale.  Some companies integrated the acquired services, others kept them operationally independent.  Some kept their sales teams separated by service, others invested in cross-training each salesperson to sell all services.  Regardless of approach to internal integration, they were all ready to unleash the combined salesforce upon customers with the shiny new object; integrated solutions.

Where the Strategy Fails

With the strategy firmly in place, logistics service providers have been offering integrated solutions for over a decade.  They have been selling integrated solutions to customers in all industries.  The results have fallen short of the expectations for being a gateway to lowered cost of sales and accelerated revenue growth.

It turns out the assumptions underpinning the strategy can run astray on three key counts (see Figure 1).  First, customers often won’t consider putting all of their supply chain eggs in the proverbial same basket.  Many companies have policies, stated or unstated, that prevent them from putting the entire supply chain, or large swathes of it, in the hands of one provider.  This rebuffs the efforts to sell integrated solutions.  Not to say providers don’t experience customers buying multiple services, but rarely does a large customer place any of their supply chains entirely with one provider.

Failure Points

Root Cause

Customer doesn’t want to buy from a single provider

·   High risk of supply chain in hands of single provider

Customer doesn’t want to buy bundled pricing

·   Growing Purchasing influence in buying decisions

·   Different decision makers for different parts of supply chain

Customer wants best-in-class capabilities in each area of supply chain

·   Increased competition requires superior service and quality in all areas of supply chain

Figure 1 – Failure Points in End-to-End Strategy

The second failure point of the end-to-end strategy is that the customer doesn’t want to buy bundled pricing for an integrated solution.  The Purchasing function within global corporations has evolved to having direct influence, if not ultimate say, over decisions on indirect procurement of logistics services.  Oftentimes, providers find their bundled pricing for an integrated solution rejected by the customer with a directive to break out the pricing into separate pieces per supply chain service.  Other cases exist where the decision makers are different over different portions of the supply chain.  Multiple decision makers can be unaligned in objectives leading also to the refusal of bundled pricing.  The net effect is each service must stand on its own for price scrutiny.  Preference for unbundled pricing frustrates attempts by the provider to use their strongest service to subsidize those adjacent services with a cost structure not as competitive.  At this point, the ability for a single provider to be best in cost for each service shrinks drastically.

The final reason that disrupts the strategic assumptions is increasingly customers want best-in-class service capabilities in each segment of their supply chain.  As product markets become more narrowly defined and lead time expectations continue to shrink, the quality and delivery of each segment of the supply chain is more critical.   Decision makers in logistics are not typically satisfied to sacrifice quality or service in order to go with a single provider, especially given cost savings in such a decision are often minimal.

The end result has been the failure of the strategy to deliver accelerated revenue growth at a lower cost of sales.  Having more services to sell has been successful in creating more possible entries into a new customer.  That has proven true, having a breadth of services gives a better chance to sell a service to a given customer.  However, if the services are sold as standalone, providers cannot capture a larger deal, comprised of multiple services, with a single salesperson in a single sales opportunity.  In that case, there is no economy of scale in cost of sales.

On the face of it, large global logistics providers should not be any worse off from attempting to sell integrated solutions.  They just don’t gain a strategic advantage but can still slog their way to revenue growth.  The hidden downside is that the strategy often creates a large amount of wasted energy.  The distraction from acquisition integration headaches, cross-division infighting over P&L impacts, and turf wars among specialized salespeople all detract focus from winning and implementing business.  The cumulative effect of all the factors mentioned means the end-to-end strategy fails to deliver. 

What Next?

As laid out above, integrated supply chain services have failed to deliver because the approach is at conflict with the buying behaviors of customers.  Moving forward, logistics providers can apply the learnings to future strategy setting.  Interestingly, the learnings can be applied by both large global providers and specialized providers alike.  Both types of companies can leverage the realities of customers’ buying behaviors to their benefit, however it is the specialized providers who have an inherent advantage.

The fact that customers, on whole, don’t prefer integrated solutions but rather desire multiple providers in their supply chains means providers must work with other logistics providers in the best interest of their mutual customers.  Capitalizing on this reality is best done by ensuring ease of integration with the customer and other providers.  That ease of doing business must be built on the back of IT and process integration.  Logistics providers that can seamlessly work with the systems of the customer and other providers will be positioned well.  A specialized provider by definition has nurtured this capability from inception. 

The reality of the customer buying behavior in driving unbundled pricing means that each service needs to stand on its own cost merit.  It is unusual to be best cost at everything, as large global providers usually have a dominant strength rooted in one or two areas of the supply chain.  Meanwhile, the focus that specialized providers maintain often give them a cost advantage in their chosen crafts.

Lastly, a focus on ensuring key services remain best-in-class through a continual improvement culture will address the third phenomenon identified in buying behavior.  Having best-in-class capabilities typically bring with it superior service and quality.  However, large global providers often have operations that are generalists as they cannot specialize across all industry verticals.  Whereas, specialized providers have an inherent advantage in that their focus on one or two services in one or two industries typically drives a best-in-class capability.

Failure Points


Key Learnings

Customer doesn’t want to buy from a single provider

Multiple providers must work together in a customer’s supply chain

Ensure ease of integration (process and IT) with other providers and customer

Customer doesn’t want to buy bundled pricing

Need to be cost competitive in each service provided

Focus on core competencies to maintain cost competitiveness

Customer wants best-in-class capabilities in each area of supply chain

Increased competition requires superior service and quality in all areas of supply chain

Drive continuous improvement on best-in-class capabilities

Figure 2 – Key Learnings from End-to-End Strategy Failure

In summary, providers that remain best-in-class in their core services and are an accommodating partner in the supply chain ecosystem are best-suited to win future business.  These key learnings align well with the business model of specialized providers who are hyper-focused on adding value to a particular portion of their customers’ supply chains.  Specialized providers continue to win business with a focused strategy, acquiring new customers based on proven best-in-class capabilities.  First, they stick to only one or two services and avoid entanglement in the arguments around the risk of one single provider.  In addition, unbundled purchasing decisions favor their pricing, which is strongly competitive in their particular area of focus.  Lastly, the best-in-class search usually leads to their doors as the specialists in their specific area.

While the specialized providers are well-suited to capitalize on the learnings from the lost decade of end-to-end strategy, the learnings can apply to all logistics providers.  Company strategists that can incorporate these learnings into the next evolution of corporate strategy deployment will be the ones that pull ahead with profitable growth into the future.

ABOUT THE AUTHOR:  Mike Valentine is Senior Vice President, Strategy Program Management at syncreon, a specialized logistics provider focused on the Automotive and Technology industries. syncreon enjoys strong revenue growth by continually enhancing its best-in-class services of complex, value-added, contract logistics.  

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