Like all businesses, transportation companies must manage risk, enhance the customer experience, and ensure operational excellence. Like other business segments, they balance cost, product and services quality/safety, and customer service. But a fundamental shift is underway for third party logistics (3PL) providers. Customers still expect them to offer product-related services. But now, they are also demanding information-related services—a change that has crucial ramifications for the 3PL market and the companies they serve.
According to a recent white paper, published by IDC Manufacturing Insights, this shift began as more and more shippers moved away from owned logistics resources, prompting the significant growth of the 3PL industry. Then, physical movement of freight was the point of it all. But as 3PLs became intermediaries for the shippers, a new role emerged. They became the hub for shipment, delivery, and inventory information for their customers. As this became the case, customer expectations of integrated business-to-business capabilities increased.
Consider the example of a consumer products company that wanted to use sensors and inventory management analytics to extend the definition of inventory on hand to incoming shipments. This put significant pressure on the 3PL to provide shipment and in-transit information in real time for:
- Integrated departure and arrival times
- Anticipated trip time initially, followed by real time location and arrival times using sensor technology
- In-transit stock to be added to available inventory levels, based on order fulfillment and shipment arrival times
- Linkage to mobile tools in destination distribution center
The net result for this consumer products company was a material reduction in order cuts and a corresponding increase in overall customer service performance.
Yes, there were some initial challenges—from discomfort with the new process to data accuracy, unreliable delivery performance to drop-lot integration—but once the company and 3PL worked through the learning curve of necessary process changes, the company realized a significant ROI.
In another example, a customer asked its 3PL to integrate a business-to-business platform. In place of direct customer connections, the customer wanted the 3PL to act as an intermediary between the company and its other supply chain partners. This customer required:
- The ability to support varied communication protocols, both domestically and internationally
- The ability to handle large volumes of data exchanges, as well as large numbers of connections
- Improved information flow and real time visibility of data, as well as data exchanges with partners and customers
While these new capabilities in business-to-business integration have become a distinctive differentiator for this 3PL, they have also enabled the 3PL to collect incremental service revenue and maintain a premium price for their services.
These are just two examples of how traditional freight providers are being asked to provide sophisticated information services as a condition of doing business. For many 3PLs, this represents both an opportunity and a challenge. On one hand, companies must quickly adapt their services to handle data and communications requirements that may not be a current core competency. But for the 3PLs who can make new data sources and technologies available to their customers, new opportunities can appear that will both broaden business appeal and generate incremental sources of revenue.