bby Darren Palfrey, Chief Operating Officer, Gravity Supply Chain
The digital transformation sweeping through the supply chain management industry presents both exciting opportunities and major headaches for medium-sized third-party logistics (3PLs). Logistics providers can now leverage technologies to help their customers significantly reduce the costs and complexities of managing their global supply chains. But for medium-sized organisations, that is easier said than done. The industry giants can offer technologies they develop in-house to provide shippers with real-time visibility over their entire supply chains. As a result, shippers have come to expect this service from all their logistics providers. That is creating a 3PL Technology Gap between what shippers demand, and what most medium-sized 3PLs are able to deliver. Closing this gap is critical to longterm growth. So, the primary question for medium-sized 3PLs is: “do we build our own technologies, or buy from an outside developer?” Figuring out the answer requires you to examine the benefits and challenges to both approaches.
3PLs represent a veritable warehouse of market information and strategic insights for their customers. This data can help shippers meet their core challenges of managing volatility and fragmentation in their global supply chains. Facilitating that effort transforms a 3PL from being just another service provider into a true strategic business partner.
The widening 3PL Tech Gap
The largest companies like DHL and FedEx now provide shippers with a compelling mix of technology, expertise, and managed services. These companies have thousands of employees and can afford to invest in developing their technology products and services, and are able to scale to work with businesses of any size. They can not only offer their customers end-to-end supply chain solutions, they can also lead the installation and user training processes for their customers, and are responsible for ongoing maintenance, troubleshooting and rolling out new features.
Medium-sized 3PL companies typically do not have the same budgetary or manpower resources at their disposal. They continue to rely on outdated technologies and processes, like legacy systems and manually updating spreadsheets, that were never designed to manage the complexities of today’s global supply chains.
Imagine the competitive advantages you could gain by providing your customers with real-time input to their demand planning and sales forecasting functions. Or mine your wealth of data to create new product bundles, value-added services, and delivery options based on actual consumer needs. Doing this requires first determining whether you want to develop the solutions in-house, or partner with a third-party developer.
The maturation of public cloud computing, also known as Software-as-a-Service (SaaS) platforms, makes the development process easier and more cost effective than it would have been just a few years ago. Using online tools to develop your solutions eliminates the need for you to spend money and time installing and maintaining the necessary IT systems. You should also consider making your solutions available to customers in the cloud to reduce their CAPEX and OPEX.
There are downsides to this approach. You are still responsible for the entire development process. That will likely require you to hire additional IT staff with expertise in software engineering and application development. You will also have to regularly train your sales team on how to sell your solutions to customers, handle all customer service-related issues, and ensure future updates that offer new features and functionalities roll-out to customers on-time and without disrupting their businesses.
Buy, don’t build
Alternately, you can offload all those costs and risks by partnering with a vendor that provides your customers with a customisable cloud platform and the expertise to guide them to how best to incorporate these new functions and capabilities. The vendor leads the effort to quickly ramp up your customers with the right solutions and technologies that address their unique needs. The vendor can deliver a system that provides a complete, live view of global supply chains, produces reports, and offers dashboards that provide shippers with real-time information and enables them to communicate instantly with their supply chain partners 24/7 anywhere in the world.
Mitigating partnership risks
There are no guarantees about the longterm viability of a vendor’s products, or even the vendor itself. Consider these three key criteria during the evaluation stage:
1. Industry expertise: Look for an executive leadership team that has experience in helping companies manage their supply chains. They will understand first-hand the challenges you face.
2. Ease of implementation: It is critical that the solutions provider oversee the implementation and on-going maintenance and update of processes for your customers. They’re the software developers, you’re the logistics provider.
3. Immediate cost-savings: The benefits of cloud computing are negated if you or your customer have to install and manage expensive systems on-premises. So, look to a cloud platform provider that does not require you or your customers to make a significant upfront investment in hardware or software. Ideally, you can first take the product for a test drive to conduct your due diligence. Ask the provider if you can also invite any of your internal stakeholders or customers you would like to participate.
There is a third option, but I do not recommend it: Build new modules for your existing ERP system to automate processes such as tracking shipments. This approach cannot possibly scale with your customers’ evolving needs. You will lose them to competitors that are able to roll out new features and functionalities in just weeks.
Closing the 3PL Technology Gap is critical to your long-term growth and success. Your customers are placing a heavier reliance than ever on outsourcing, and that comes with fragmented responsibilities and a loss of control. To make up for it, they need better insight into their supply chains. If you can help shippers advance their capabilities and gain greater visibility and agility, you will win the lion’s share of this new business demand.
About the Author
Chief Operating Officer Darren Palfrey has nearly 20 years of experience in the supply chain industry, and too often found himself recently asking “why, in an age of cloud computing, Big Data and powerful mobile devices do companies still rely on outdated tech to manage their supply chains?” Too often the answer was the same: “Because we’ve always done it this way”. Darren cofounded Gravity to change that.