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Supply Chain Challenges

3PL Innovation Requires Shipper Commitment

Alex Stark | August 04, 2016

If you ask 3PLs and their shipping customer to characterize the relationships, you’ll likely get very different answers.

According to the 2016 State of Logistics Outsourcing Study, 74% of shippers say they have formal plans to manage 3PL relationships, while only 42% of 3PLs say such plans exist.

43% of shippers describe their 3PL relationships as strategic, while just 31% of providers put the relationships in that category.

75% of shippers say 3PLs contribute new and innovative ideas, while 88% of providers tout 3PL innovation as a key strength.

shippers want more 3PL innovationThis “Innovation gap” is actually getting smaller, and that’s a good thing. There is more agreement that 3PLs are coming to the table with new ideas. But it remains clear: Shippers are demanding more value-driving logistics innovation from their 3PL partners and seek improvement in this area.

This sets up a conflict. If users are demanding 3PL innovation, yet 3PLs judge that only 31% of their customers manage them like strategic partners, how does the provider gain the strategic context needed to suggest breakthrough innovation?

If 3PLs are treated as tactical partners delivering a commodity service, with cost control in daily execution as the main goal, can they ever get close enough to drive strategies that align with the customer’s long-term business plans?

Download the Free KANE eBook, Managing Logistics Outsourcing Relationships


The Embedded 3PL

One idea that’s been discussed more than it’s been implemented is that of the “embedded 3PL,” where a 3PL representative is actually located on the customer’s premises and works as a seamless part of that shipper’s supply chain organization.

Often, a 3PL’s prime representative to the shipper is a Strategic Account Manager (SAM) located within the 3PL’s sales organization.

A SAM’s goal is closeness to the customer – a good thing. The theory: closeness leads to access, access leads to information, and information leads to more opportunities to add value through new services.

But close is still too far. The goal of the 3PL should be to work hand-in-hand with the customer to develop the strategy, not just get close enough to hear about it.

Brain Drain

One of the reasons users crave 3PL innovation is because, over the past several years, shippers have had to trim their own organizations in response to cost control measures. For those key positions that are left, a shortage of qualified people has made it tough to fill these slots with top-notch supply chain talent.

This provides even further impetus for shippers to focus on how to become great 3PL customers. Perhaps it’s time to consider:

  • Sharing of long-term business plans. Trusting a 3PL with sensitive data may be scary, but it’s a necessary pre-requisite to enlisting the 3PL as a strategic contributor.
  • Longer-term contracts. Real change may involve 3PL investments in engineering resources and systems enhancements to develop and implement ideas. Such investments can be hard for a 3PL to rationalize in the context of a short-term contract.
  • Providing a wider view of the total supply chain flow. A 3PL with a view of the whole supply chain has a broader scope in which to identify and carve out savings. 

Check out our paper, “Managing Logistics Outsourcing Relationships,” where we examine the embedded 3PL concept and what may be needed to drive true 3PL innovation in a logistics outsourcing partnership.