Strategic Assessment Collaboration and Trust are Keys to Strong Future Supply Chains
“Past performance does not guarantee future results.” This disclaimer, found on many a financial prospectus, applies equally to most every type of business in the current economy. Supply chain is no exception. A long-term perspective in the current recession reveals that the last two decades represent exceptional conditions that are unlikely to return. Unprecedented factors including rapidly multiplying global manufacturing capacity, free trade agreements, ready access to credit, and enhanced IT capability fostered significant commercial growth and in turn, the genesis and expansion of the third-party logistics industry. This study, now in its 14th year, has documented much of that growth. Today, however, the conditions that delivered us to today’s 3PL marketplace are quickly changing. As this study explores in depth in both the Economic Volatility and Supply Chain Orchestration chapters, the logistics industry is now experiencing excess capacity, price pressures, plant shutdowns, financing constraints, consolidation, a shrinking supplier base and diminished consumer demand. All this has shippers questioning old assumptions and seeking to reinvent themselves and the ways they go to market. In the near term, they need to cut costs. Longer term, they’re seeking to understand what the “new normal” will be and how to adapt their businesses and supply chains. A significant part of this re-evaluation is the role 3PLs can play in helping shippers attain the more agile, adaptable and efficient supply chains that will help them weather future fluctuations in market conditions, both ups and downs.
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Perceptions and Realities Or at least, 3PLs would like shippers to consider them for that role. 3PLs are seeing volumes decrease and are also seeking short-term and long-term strategies to contain costs and retain and build business with shippers. They don’t want to be stuck with underutilized assets, but they do want to provide the agility, capacity and supply chain expertise needed to support shippers’ increasingly complex logistics needs. The results of this year’s research show that many shippers don’t necessarily think of 3PLs in a strategic capacity. But as reported in the chapter, Supply Chain Orchestration, they’re now open to hearing ideas from 3PLs – 60% of shipper respondents say this is the time to re-evaluate relationships with their 3PLs and possibly drive them deeper. Already, shippers are turning to transportation providers for innovation, such as mode shifts or inter-modal solutions. But 40% of shippers surveyed want their 3PLs to remain execution-focused, and nearly as many say 3PLs lack the business expertise that would encourage them to increase outsourcing. Just a few approach their 3PLs to collaborate on strategies to cope with the recession; others take the opposite tack, asking for price concessions without additional business commitments. One shipper comments that keeping their 3PLs in business was not one of his company’s key performance indicators (KPIs). This stance will push logistics toward commodity status and negate any opportunity to tap 3PLs’ innate supply chain expertise. Those aren’t the only issues standing in the way of more collaborative, strategic relationships among shippers and 3PLs. As explored in the IT Capability Gap chapter, a gulf persists between shippers’ expectations of 3PL IT capabilities, and their satisfaction with those capabilities.