The ideal of a ‘one-stop shop’ for logistics solutions has been bandied about as the next major trend for the last few years, but it seemed never to really materialize. Great in theory but tough to do in real life.

Have things changed? Is the Strategic 3PL Partner an idea whose time has come?

Well, yes and no.

“Every day more of the supply chain functions are being outsourced,” says Bob Bianco, President, Menlo Worldwide. “When you look at the complexity of the supply chains, the regions and product lines companies deal in now, it all plays into the need for end-to-end.”

But defining exactly what a ‘one-stop-shop’ looks like, where the role of a ‘strategic’ player starts and the form it takes, remains hotly debated.

“It really is a holy grail,” says Joe Gallick, Senior Vice President, Sales, Penske Logistics. “If the notion connotes a 3PL who is able to provide all the necessary components of complete logistics solutions anywhere in the world from the point of production to the point of consumption, then it is still a real stretch.”

“I think that the one-stop-shop is too broad a concept,” agrees Tom Sanderson, President and CEO, Transplace. Transplace is a U.S. based logistics provider with an international division.

But Sanderson says ubiquity doesn’t really matter—it is still very possible to be a strategic player with a customer even if you don’t handle every aspect of the supply chain or act as the sole provider. Everything depends on what the customer wants. “For example, Del Monte is one of our clients and we manage almost all their business within North America, but they want to hold the transportation contract themselves,” says Sanderson.

Take that concept one step further and you have the Lead Logistics Provider (LLP) or 4PL concept—the ultimate strategic role.

The role of a LLP is to oversee all the necessary logistics functions and coordination efforts, but that doesn’t necessarily include the execution of all or even any of the functions themselves. This seems to be the direction many 3PLs are taking. They are contracted to assume responsibility for a customer’s entire supply chain and then proceed to find tactical providers for specific services.

“It’s a bit like the fox guarding the hen house,” says Keith Goldsmith, Senior Vice President, Business Development, North America, CEVA Logistics. “We have one pharmaceutical client who loves the services we can offer but still wants us to be a 4PL—we find the best provider and if the best happens to be part of CEVA, then great,” says Goldsmith. If not, the client expects them to go outside.

Why outsource anyway?

Companies outsource in different ways and for different reasons. Most 3PLs agree that customers absolutely are looking for their providers to play a more strategic role, but they don’t start that way. Instead, relationships tend to evolve. “We do see RFQs that are strategic,” says Goldsmith, “but they’re still really an anomaly.”

“We see a lot of bid opportunities that speak to this question, but most customers don’t jump in right away,” agrees Dave Bouchard, Managing Director International, Ryder. He says that although the bid is framed up to answer the whole end-to-end need, usually a portion gets outsourced and once the 3PL has proven themselves to be world-class, then confidence builds and the relationship grows.

An exception to the rule can be companies spun off from larger parents and lacking any independent logistics capabilities. Menlo gives the examples of Phoenix Brands, a consumer products company, spun off from Unilever. Rather than trying to build their own logistics supply chain system from scratch, Phoenix Brands decided to outsource to the experts, leaving their own management free to concentrate on manufacturing and marketing.

Phoenix Brands has brought Menlo in at the highest strategic levels. “We sit at their table and help with their business strategy,” says Bianco. “We handle everything from forecasting, to telling the plants what to make, how much to make and how to make it. We also ship the product, manage the inventory and deliver the product to the customer.” Bianco feels that this type of example, where a company comes and asks for them to take on the entire supply chain function right from the start, is most unique.

A major reason businesses choose to outsource their supply chain is because of the demand for strong, flexible technology systems with end-to-end management capability. One of Saddle Creek’s customers, Jurlique, an Australian-based manufacturer of high-end skin-care products, was looking for help in expanding globally into the American marketplace. “High on their list of priorities were strong warehouse management capabilities,” says Steve Cook, Vice President, Sales & Marketing, Saddle Creek Corporation.

Generally, mid-sized companies seem to be more comfortable outsourcing the entire supply chain continuum than larger Fortune 50-type companies. Very large companies tend to want to maintain some element of control over their supply chain simply because it is such an integral part of their business, and they are more likely to have the resources that enable them to effectively manage aspects of their own supply chain. “The supply chain for these companies is so fundamental that they just haven’t gotten comfortable at that level of outsourcing,” comments CEVA’s Goldsmith.

Keys to a successful relationship

Like any good relationship, there are some basic elements that need to be in place if the partnership is to succeed.

 First, among all the players, is the issue of trust. “Companies have to go through that validation process; you need that level of trust,” says Cook. That level of trust only comes after a provider has proven to the customer that they can operate flawlessly.

It’s a process of shared risk, where the customer allows the 3PL into their business and the 3PL demonstrates their capabilities. Over time, an interdependent relationship evolves. “There’s no magic line where one day you’re not strategic and the next day you are,” says Goldsmith.

It always helps to have a clear understanding of why the customer is choosing to outsource.

“The relationships that are the most effective occur when the company is clear up-front about what is driving their need for outsourcing. Is it to reduce costs? Is it to improve quality of service? Is it to implement a change to their supply chain?” explains Cindi Perdue Hane, Vice President, Strategic Planning and Marketing, Corporate Logistics and SCM, Schenker.

Ground rules must be established early in the game, typically in the form of metrics or benchmarks. Without agreed upon standards, best established long before any shipment is moved or bill of lading is printed, partnerships are unlikely to succeed.

The benchmarks are used to clearly define what the shipper wants and what the provider can provide. They also set the standards against which the service levels will be measured. As the relationship progresses, these measures must be revisited and redeveloped.

Tied into this is the need to collect data, which according to Scott Hagan, Vice President, Business Development, Mallory Alexander International Logistics, “is the most important element and often the most difficult to get.” Others agree, saying that what data to collect and propagate is always a big initial question.

“What we strive to develop with our customers is a relationship whereby we are integrated enough to understand their supply chain objective and have a strong enough relationship to quickly identify where the opportunities are that would be mutually beneficial to our companies,” says Perdue Hane.

“You must bring proactive solutions to the customer and drive them in a direction they may not see,” says Bianco. The customer is not coming to the 3PL simply for a tactical solution, but also for expertise and guidance in long term planning and design.

In order to work at the highest strategic levels, partnerships between shippers and providers should meet the business goals of the 3PL as well as the customer. As a result, 3PLs will often look for customers to help them strengthen or grow in a certain area, effectively entering a market on the strength of their customer. “On a global scale, customers are asking for help in bringing their products in; they want us to take the logistics processes we do domestically and do them on an international scale,” says Gallick. “We are looking for customers with a global footprint because this is an area that is strategically important to us,” he adds.

Every time a provider becomes involved in a shipper’s business, lessons are learned and expertise developed. This hands-on experience can then be used to refine services, tactics or other elements of the supply chain. “The learning goes back into our strategy and [for us] is the biggest benefit from strategic outsourcing,” says Goldsmith of CEVA.

Technology

The global market is terribly complex, with different regulatory and political issues, but customers are still looking for a significant level of  one stop service from their 3PLs regardless of geographic location. The strong players are able to do this, primarily through their technology systems (3PLs on average spend approximately 9 percent of total net revenues on information technology).

“We are constantly investing in new functionalities—supply chain visibilities, warehouse management, total landed costs systems—in order to ensure that we stay best-in-class,” says Menlo’s Bianco.

There is some tension between the idea of a big, global system that can do anything for any customer in any location, and the demand for more flexible, customized systems targeted directly to a customer’s more local specific needs.

“Sometimes we hear the expectation that we have the ‘mega-system’ installed and waiting for our customers to give us their orders. We are a customer-driven company and to have such as system would be limiting our ability to provide the solutions they ultimately need,” says Schenker’s Perdue Hane. She does say, however, that Schenker is working on some standardization ideas that will enable to company to offer flexible, modular systems more efficiently.

Other providers are making this shift as well. “Before most of the work was in customized solutions, building what the customer wanted,” says Bianco, “But now we are moving toward more standardized work, which requires a change in mindset for our customers.”

DHL Global Service Parts Logistics, a division of DHL that handles aftermarket strategies such as product repair, returns and exchanges, is in the process of implementing a global system to support their global infrastructure. “There is a high level of integration involved in linking our customers to the system,” says John Farrell, President, Global Service Parts Logistics, DHL. Farrell explains that DHL already has strong regional systems, but that they plan to migrate customers to the global system, a process that will take 2 to 3 years.

It’s a good thing for both the provider and the customer. Many businesses use technology advances from their 3PL as the motivator to upgrade and standardize their own systems, which ultimately makes them more efficient and effective.

Mergers and acquisitions--are customers better off?

The world may be getting smaller, but 3PLs are definitely getting bigger. The recent spate of mergers and acquisitions has resulted in mega-3PLs with massive global footprints and a complete continuum of services. But are customers better off?

A study recently released by Armstrong & Associates looks at the size of the 3PLs operating in the market and the scale of their services. Armstrong calls the very largest player Tier 1 Global Supply Chain Managers and reports that they usually have net revenues of over $1 billion, serve over 100 countries and have 4,000 or more employees. Tier 2 players are not defined by size, but by the scope of their operations and they tend to be important continental players. “These are generalizations, but what we’ve found is that the most satisfied customers are the ones not involved with Tier 1 global supply chain managers, but those that are working with the Tier 2 3PLs,” says Dick Armstrong, Chairman, Armstrong & Associates Inc.

Mergers work best when they are made for strategic rather than wholly financial reasons. “There are many examples where a merger built out the capabilities of a 3PL, but there are also examples of where it just created a bigger bureaucracy and where the size made it difficult to synergize services and cultures,” says Ryder’s Bouchard.

Many companies have been acquiring smaller geographic specialists to expand their services globally in pursuit of strategic advantage. A good example would be Schneider National, who recently acquired a transportation company in China. John Ferguson, Vice President, International, Schneider Logistics, says Schneider is extremely strong in the domestic transportation portion of the equation, but that they needed to address the ‘first mile’ of the chain. “We backed into the China market by acquiring a Chinese transportation company that allowed us to control the first mile in China with our own technology, which ensured us visibility, which is so key,” says Ferguson.

The ultimate hope is that the acquisition of a company will provide the customer with a better end product. “There is a significant expectation in the global marketplace that mergers will provide more end-to-end solutions,” says Farrell.

But not all players aim to be all things to all people. Many have chosen to focus on a very specific niche and to gather the expertise needed by customers operating only in that specific arena. There will always be room for the smaller supply chain managers, those that Armstrong calls Tier 3 players and defines as functional or geographic specialists, because they usually serve a specific market need.

One thing is certain. No matter how you define it, or what you name it, shippers are asking for more from their 3PLs. Survival in the competitive global marketplace requires that a company to keep a laser-like focus on its core competencies. At the same time, supply chains have become increasingly complex, demanding an extremely high level of logistics knowledge and expertise. Almost all 3PLs say that this, coupled with escalating demand for lower costs, will continue to drive companies to outsource and to look for partners that can handle most if not all of their supply chain functions.

“Our customers don’t want to be gurus of transportation, they just want to make sure their products are on the shelf,” says Sanderson. wt