In today’s fast-moving logistics environment, the pressure is often on to achieve lower costs, faster delivery, and operational flexibility. Logistics outsourcing is frequently “sold” on the dollars and hours it saves a business compared to its in-house operations. Third party logistics providers (3PLs) invest in technology like cloud-based transport management and robot-operated warehousing, so that client enterprises pay less to reap the benefits of efficiency and speed. Clients can then use the extra time and effort they no longer need to spend on logistics to focus on their strategic business goals.
Yet those business goals are also a key consideration in logistics and logistics outsourcing. The 2017 Global State of Logistics Outsourcing Study from Capgemini Consulting indicates 3PLs now want to become “collaborative partners that take on greater accountability and control”. 3PLs should then make sure they also know about and align with their clients’ business objectives. But how many of them can claim to integrate their clients’ business goals into the initial outsourcing agreement – and from then on, into their daily operations?
The Need to Keep the End in Mind
When the outsourcer does not know what the client’s business goals are, it cannot shape its services and operations accordingly. Neither the client nor the logistics services provider make the most of the logistics outsourcing agreement. The relationship is fragile. The client is more likely to shop around and switch to another provider for lower costs, better delivery performance, or additional services. Whether this brings any deeper business benefit is another matter. On the other hand, a step back by the 3PL to understand each client’s business goals and then embed those goals in its operations can improve matters significantly.
Beyond the Table Stakes of Trust
But suppose a 3PL already reliably and honestly executes according to an outsourcing contract: is that enough for successful logistics outsourcing? Trustworthiness and trust are indeed huge factors in outsourcing relationships. Clients understandably feel nervous about handing over critically important logistics operations to an entity outside their control. A relation of trust is essential in the transfer of goods to another organization’s depot and in giving instructions for a third party to make shipments on the client’s behalf to the client’s own valued customers. A logistics outsourcing relationship plagued by mistrust or an absence of trust will founder. Trust is however table stakes. It is necessary for a logistics outsourcing relationship to work, but does not propel it to a higher level.
The Technology Trap
Technology is only valuable to a business if it helps the business meet its objectives. This does not prevent some clients and logistics outsourcers from believing that better technical specifications automatically mean greater business advantage. However, doing something useless a hundred times as fast still produces the same useless result.
Instead, the starting point must be the client’s business goals. Any technology offered by a logistics outsourcer must then increase the chances of or performance in reaching those goals. Confusion between the power of technology and business results required may well be a factor influencing the “IT Gap” that is tracked in the study by Capgemini Consulting (see above).
The IT Gap is defined to be the difference between the percentage of 3PL users confirming that 3PLs should have IT capabilities, and the percentage of the same users indicating they are satisfied with 3PL IT capabilities.
For 2017, the scores were 91% and 65%, respectively, with a large proportion of 3PLs possibly in an information technology trap of their own making, rather than in a state of enlightenment driven by their clients’ business requirements.
Logistics Outsourcing and Business Goals
Confusing a logistics outsourcing agreement with a business goal can also undermine a relationship. Logistics outsourcing is not a business goal. It is a means to an end or part of an overall business strategy to achieve a business goal. The client must therefore define its business goals and communicate them (possibly under non-disclosure) to its logistics provider, if the provider is to take those goals into account. Business objectives will vary from one client to another, so 3PLs need to avoid any unjustified assumptions. For instance, even if cost reduction is a common motivation for moving logistics operations out to a third party, some clients will see increased delivery quality, improved timeliness, or access to new markets as more important goals.
Client, First Know Thyself
Enterprises may have a less than perfect understanding about why they want to go the outsourcing route. They may not understand their logistics operations or spend, and hope somebody else can shed light on the matter. In other cases, they may seek to avoid the effects of logistics problems they have already met in their business activity by handing off the responsibility for their logistics to a third party. Trying to outsource logistics on this basis alone means that business goals are ignored. Such enterprises would do better to address their questions or issues, possibly with the help of independent consultants, before entering discussions with a 3PL. They will then know how to compare the outsourcing services on offer with what they currently have and see how problems can be solved, to then move up a level to investigating how they could also better meet their business goals.
Company Forgetfulness, the Problem Every 3PL Faces
At the beginning of a logistics outsourcing relationship, there should be management agreement between a 3PL and its client about the business advantage to be gained by the client. Unfortunately, this knowledge may evaporate rapidly in a 3PL at the operations level. Metrics, indicators, and technology become the be-all and end-all. Opportunities for better business collaboration remain unidentified or unexploited. Those present at the start of the outsourcing agreement, whether from the client or the 3PL organisation, may move on and those who replace them may know nothing of the previous goals. While they may still know what to do, as per the contract, logistics outsourcers may end up no longer remembering why they do the things they do for their clients.
Improvements Through Keeping Client Business Goals in Mind
Given the importance of a client’s business goals to optimising the results of logistics outsourcing, these goals must be integrated into the 3PL’s operations in a way that makes them easy to remember and work with. The 3PL can then accomplish several things. It can check that its services and activities are aligned with the client’s goals. It can make recommendations for changes or problem resolution in the light of the client’s goals. Finally, by keeping the client’s business goals in mind, it can better identify opportunities to improve service and performance, thus increasing client loyalty and protecting its own margins into the bargain.
It is important to remember that 3PL staff “at the sharp end” in warehousing and shipping may have excellent feedback to offer about how the 3PL’s activities and the client’s business objectives stack up. They see many of the situations, issues, and opportunities involved at first hand.
Practical Ideas for Embedding Client Goals in 3PL Activities
Pragmatism rules. If a client and its 3PL already have a simple, effective way to keep the client’s business goals top of mind in the 3PL’s daily operations, that is what counts. Otherwise, whether you are a client or a 3PL, the following pointers may help to get you started.
- Make clear information about the client’s business goals flow from the client to the 3PL. Sometimes this seems so obvious that it never happens. Make it into an action item that must be addressed, with follow-on checks for updates.
- Hold regular review meetings between the client and the 3PL, with “Contribution to client business goals for this week (month, other)” as a standing item on the meeting agenda.
- Integrate client business objectives in quality improvement loops a 3PL may already be using: for example, the PDCA (plan–do–check–adjust) cycle.
- Deploy a mobile app to send reminders and surveys about client business goals to 3PL employees in warehouses, loading bays, and so on. If an operations team has decision-making autonomy about changes to client services, the mobile app can also be the way to send information on changes back up the management tree.
- Use a process management software application, in which routines and processes are defined with steps, handoff checkpoints from one employee or team to another, and comparison with client business goals included in those steps and checkpoints.
If current IT deployment allows client business goals to be included or emphasised without additional software or systems being required, so much the better. Alternatively, cloud-based process management software is both available and affordable, while a mobile app is likely to work best when it is clear and simple, helping to keep investments in any specific development efforts moderate too.
Sound business reasons are fundamental to logistics outsourcing success, but further than this, client business goals should be embedded into the 3PL operations too. This is for everybody’s sake. The more a logistics outsourcer knows about the business priorities of its client, the better it will be able to collaborate and the more it will become an extension of the client’s organisation for the client’s logistics.
Technology is a means and not an end, to be applied after the business goals and strategy have been properly defined and communicated.
However, it also offers a way to reinforce 3PL knowledge of clients’ business objectives at a company level, for example, through process management applications that record information and ensure continuity of awareness of a client’s business goals, no matter how 3PL teams change or evolve.
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