The 3PL industry is currently at a juncture where stakeholders are being forced to reconsider the way they do business. The year on year increase in customer dissatisfaction of logistics outsourcing has pushed many players into a defensive corner. But the picture is not all that bad. The costs of logistics and inventory are decreasing, contract renewal rate for logistics outsourcing remains good, and the emergence of cutting-edge technologies like 3D printing, drone delivery and augmented reality is opening up a wide vista of opportunities.
The coming few years are likely to be decisive for the future of 3PL. The industry is going through a quiet revolution, which makes it an exciting time to be in the logistics outsourcing business. An increasing number of companies are embracing advanced technologies to ensure a faster, better and more reliable service. The road ahead is not without risks, as is the case with every new development, but for those who are willing to adapt to the changing market, there are opportunities galore.
After a lackluster 2014, optimism is back in the market. A recent survey conducted by ETF has revealed that 3PL service providers are quite optimistic regarding their company’s business prospects in the next 12 months. They are also optimistic regarding the general economic situation in the next 12 months. In 2015, the US economy has been projected to grow by 3.5%. From 2016 until 2019, the growth rate is projected to average 2.5% annually. This bodes well for the 3PL industry as a sound economy means higher volumes of shipment.
But in order to catch the market, logistics outsourcing companies need to look where things are happening or are going to happen. This means investing in emerging markets and new technologies. And this is exactly why it is so exciting to be in this business in 2015.
New markets are opening up everywhere. China has been the fastest-growing market in the last decade and it continues to lead the pack. After China, other regions that have growth potential, according to 3PL and supply chain executives, are North America, Asia (not including China and India) and Western Europe, in that order. Other emerging markets include South America (not including Mexico), India, Eastern Europe, the Middle East, Africa and Mexico.
China, despite its high level of complexity, including a difficult regulatory environment and stiff competition from local providers, still has the potential to become the biggest 3PL market in the world. But other regions are also growing fast and although they are not going to be as big as China, they still offer plenty of opportunities for those who are well positioned to exploit these emerging markets. Even North America and Europe, which are well-established markets, have plenty of room for growth.
Most 3PL companies still conduct the biggest amount of their business in Europe (38.5%) and North America (35.8%). But at the rate the emerging markets are growing, the picture is likely to change significantly within the next few years. Always on the lookout for new opportunities, large logistics outsourcing executives know this and many of them are already investing in those regions. When the time comes to reap the rich rewards, these companies will no doubt become the “early birds”. It’s why at Cerasis, although we are mainly focused on North American transportation management, we’ve already identified affiliate partners to serve our current customers and future prospective customers’ needs. Further, we have put into our 10 year vision to offer more and more services in these emerging markets. It’s simply our core value to continuously improve. Markets clearly change, and as a leader, we must have flexibility to even change our own strategies to meet the demands of customers.
Technology has always been the driving force behind the growth of the 3PL industry. Some of the technologies that are likely to transform the market in the near future include 3D printing, internet of things (IoT), drone delivery, driverless vehicle and augmented reality. Many of the emerging technologies are still in the testing phase, but there can be little doubt that they will have significant roles to play in the future. And the future is not very far down the road; it’s just around the corner.
These and other new technologies are expected to cut transportation, storage, labor and other costs significantly. They are also expected to ensure faster and higher quality service, resulting in increased customer satisfaction. For example, drones can be used to deliver merchandise to remotely located customers within a fraction of the time it takes to deliver the same by road and at a significantly lower cost. Similarly, driverless vehicles will cut the costs associated with the driver.
Some cutting-edge technologies are already busy transforming the market. Large logistics outsourcing providers have been using sophisticated and expensive systems like global positioning systems (GPS), warehouse management systems (WMS) and transportation management systems (TMS) for several years now. These applications are continually being improved to provide faster, better, more reliable and cheaper service. The latest versions of WMS and TMS are designed to allows companies to respond to the dynamic market in real time, saving cost and time. And as the Internet of Things gets built out, those systems will seamlessly talk and offer the end user actionable insights or simply execute autonomously those logistics functions which the systems together know need to get done.
Technology: Proven to Get ROI in Logistics, However….Adoption is Not Quite What You’d Think
However, not all companies have been so enthusiastic about adopting new technologies. Smaller companies are taking their own sweet time to embrace these technologies. The reason is simple enough: they have been deterred by high costs of implementation and maintenance. But the more they procrastinate, the further they will fall behind. Today’s highly competitive market has no room for those who refuse to change; they will be wiped out. But for those who are willing to invest in cutting-edge technologies, there are plenty of opportunities.
It is not hard to understand why. Today’s technology-savvy customers (manufacturers and retailers) are more favorably predisposed towards logistics outsourcing companies that are technologically advanced. Advanced technologies ensure higher quality service. The ETF survey has found that 32% of manufacturers and retailers interviewed expect their 3PL companies to have at least some expertise or knowledge of augmented reality. Similarly, 30% expect their 3PL to have at least some expertise or knowledge of drone delivery.
And 3PL companies are starting to rise to meet the challenge. Already, a number of 3PL companies are using augmented reality and a few have even started experimenting with drone delivery. Considering the emerging markets, availability of technologies and the need to increase customer satisfaction, there is plenty of room for growth in the 3PL industry. The companies that are quick to invest in those markets and technologies have the highest potential for growth and the future belongs to them.
Today begins our three part series on Vested Outsourcing as a rising trend in the process of logistics outsourcing. We will first cover what is Vested Outsourcing, and then we will talk about some benefits, and finally end talking about companies who have successfully employed this logistics outsourcing model.
One big change that is occurring for logistics is in the area of logistics outsourcing. Many logistics service providers and their clients will start to look at other outsourcing methodologies, such as Vested Outsourcing. In fact, there is a phenomenal book out by authors Kate Vitasek and Karl Manrodt, of the University of Tennessee titled, The Vested Way. Originally Ms. Vitasek and Mr. Manrodt set out on a simple research project, but the result was an entirely new way of looking at not only logistics outsourcing, but a paradigm shift in all of outsourcing. We live in a world where we constantly ask “what’s in it for me?” But that is not the path to success, according to Vitasek and Manrodt. The book and the movement is based on both partnership and collaboration as the genesis and breeding ground where innovation meets business success. In this book, the authors reveal how theory in collaboration and partnerships meet in practice. They share how successful relationships have taken Nobel Prize winning academic concepts and applied them in real life situations to achieve extraordinary results. And most importantly The Vested Way provide insights into how you can take theory and actual cases and apply them to your own relationships to help you achieve results you are hoping for. Definitely worth a read at only 69 pages available on the Kindle and paperback.
From Vitasek and Manrodt, they not only registered “Vested” but also define it formally as:
In the traditional model of logistics outsourcing (and most outsourcing) there are some logistics service providers and the customers have the mentality: It’s just business. Nothing personal, but I have to focus on what’s in it for me.
Diametrically opposed to the “What’s in it for me mentality” is vested outsourcing to create a collaborative relationship where both parties work together to achieve mutually agreed upon desired outcomes. An example would be where a logistics service provider, carrier, or a manufacturer is tasked with introducing new innovative practices that improve the operation, such as being more flexible in changing inventory levels, and reducing costs for their client. The client then shares a percentage of the value derived with the logistic service provider in this logistics outsourcing model. This creates a win-win solution for both parties. Some companies are using Vested Outsourcing as a way introduce lean principals, (such as Lean Six Sigma, Kaizen and Kanban) across company boundaries and to target overall waste in the supply chain.
It’s a change in perspective from “how?” to “how much?” In traditional 3PL relationships, the provider determines HOW to execute a particular task and presents a cost for those services. A better logistics outsourcing model is for shipper and 3PL to collaborate in evaluating the current supply chain to determine HOW MUCH time and cost can be taken out and HOW MUCH incremental revenue can be added with the right kinds of changes.
In short, this is not just lip service, this is a true partnership in the logistics outsourcing environment. This attitude of “What’s in it for me” is the basis for the game most business relationships are built on, a zero sum game where one party wins at the expense of the other. Yet in today’s rapidly evolving world, this mindset leads to rigid, “us vs. them” relationships that can’t withstand a landscape that demands constant change and adaptation (such as in the very rapidly volatile and ever changing world of logistics and supply chain).
Imagine if, instead of the relentless pursuit of “winning” at all costs, the focus was on building an anticipatory vision, accelerating innovation and increasing competitive advantage? What if your business relationships didn’t have to be “win-lose,” but could truly be “win-win”? This is possible in a logistics outsourcing model if a logistics service provider not only simply views themselves as a strategic partner but sets up their business model to support it.
More specifically, moving away from logistics service providers from being partners only in lip service to partners as set forth in the logistics service level agreement before the logistics outsourcing engagement and execution begins. This is a move for logistics service providers to create business models and contracts with customers that support real partnerships aimed at solving real problems—and not just choose any person to drive a truck, pick product, or count inventory.
Vested outsourcing takes the concept of partnership to new heights because it digs deep into fixing some fundamental flaws associated with how companies purchase outsourced services. It adds order through “rules” and follows a structured process to help companies achieve true partnerships with the power to deliver transformational results.
If you are looking for a logistics service provider to mimic a vested outsourcing environment, then you should look out for one that allows for the following:
Vested outsourcing is a hot new trend in all of outsourcing, but also in logistics outsourcing. Believe it or not, many logistics providers have put this methodology or idea into practice with great success. Make sure you tune into the next blog to check out what are some of the main benefits of applying a vested outsourcing lens to logistics outsourcing. Have you currently employed Vested Outsourcing in your career? What were your results?
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