Those who think trucks, trains, ships and planes define the 3PL market may be in for a surprise. Marketing myopia may have been defined more than 50 years ago, but it still ails many a logistics organisation. Third party logistics providers that consider their activity to be rooted in traditional transport and the physical carriage of goods may go the way of the American railroads, which failed to see how aircraft and the private motor car would so drastically affect their transportation market and rob them of so much of their market share. Confusing the need with the means has been the undoing of many companies. The 3PL sector has at least three levels of change to consider and a possible makeover, sooner than some may think.
What Market Are 3PLs Really In?
Marketing buffs will probably already know where the term “marketing myopia” originated. It was the title Theodore Levitt gave to the marketing paper he published in 1960 in the Harvard Business Review. Like other valuable contributions to marketing or other fields, Levitt’s premise was simple. He suggested that businesses are more likely to prosper if they focus on meeting the needs of customers, instead of selling products. When Levitt made his insight public, manufacturers often dictated what the market would receive, leaving customers with little other choice than “take it or leave it”. Today, customer-driven business might seem self-evident, but there is still room for marketing myopia. Any enterprise runs the risk of falling in love with a solution and failing to notice that the market and customer demand moves on, eventually making the solution obsolete and leaving the enterprise without clients.
The first thing for any 3PL to do is to understand the nature of its market and the need it meets. As a general definition, a 3PL helps a company to get its offering, conceived in place A, into the hands of its customers in place B. A 3PL can also help to bring a company the resources it needs to make its offering in the first place. It is tempting to immediately map these ideas onto physical warehousing, kitting and localisation services, truck fleets, railroad wagons, and the like, with their armies of operators, drivers and maintenance staff. The trap is to assume that because this is often true today, it is the only solution for meeting customer needs, and that it will continue to be as valid tomorrow. The solution is to back up, figuratively speaking, to the general definition of the need and see how overall trends and developments in the world could make this need map onto other, different solutions.
In addition, companies may also have to contend with a new form of marketing myopia. While concentrating on customer needs is essential, it is no longer sufficient. Other stakeholders have come to the fore since the original marketing myopia burst onto the business scene. Ecologists, workers’ rights groups, and other activists now exert pressure on companies to change practices deemed irresponsible, immoral, or unwholesome (watch out for those diesel fumes!). Enterprises are increasingly wary of suppliers that fall foul of these other stakeholders, because they know they risk being tarred with the same brush.
Changes in How Goods Are Moved Around
Let us ease into the possible transformations facing 3PLs with this first level of change, the change in the way goods are transported. Assuming we are dealing with physical goods (anything from machine parts to dogfood), we can examine the following axes of change.
- Ecology. Even if the high-performance, long-distance electric truck is not yet among us, the all-electric passenger car is already actively marketed. Companies like Tesla have shown how their ecologically friendly vehicles can perform as well or even better than their combustion-engine rivals. There is even talk of electric passenger aircraft. Why should trucks be left out? 3PLs who are currently vested in diesel-engined fleets may want to take notice.
- Labour costs. The workforce is the biggest operational expense for many businesses, with social and insurance charges in addition to employee salaries. Reducing the number of human operators in transport and warehousing is constantly on companies’ minds. Truck manufacturers have been experimenting with multiple radio controlled trailers so that one driver can handle greater transport volumes. Daimler AG even has a truck with driverless operation, a logical extension of the automated, lights-out warehouses already in existence today.
- Labour availability. Cost is not the only factor. In a number of regions, the logistics workforce is also getting older, without new, young recruits to bring the average age back down. If 3PLs cannot find people to replace those who retire, automated and operator-less solutions may be the only option left.
- Granularity. Moving iron ore around still only makes sense if you do by the ton. On the other hand, consumer goods are ripe for personalized, individual delivery to their destination from the distribution centre. In some countries, they use bicycles as a delivery vehicle. In others, the drone or UAV (unmanned aerial vehicle) has already been trialled. If your 3PL company does not offer drone delivery in such regions, it is possible that a competitor will, saving itself labour costs while giving end-customers better service.
Changes in Who Moves the Goods Around
There is another solution to the labour challenges for 3PLs. They can subcontract to a vast market of casual labour comprised of private individuals who have a car for transporting car-sized goods, or who will provide other logistics services on an as-needed basis. This is the phenomenon of uberisation. In this case, a company no longer hires people or owns resources, but instead provides a platform to bring customers and individual workers together, as well as a mechanism for billing customers and paying workers. Uber started this with taxis, using digital technology and the ubiquitous smartphone to bring taxi fares and taxi drivers together, any time, any place. The company has since branched out into other areas, and its approach has been used by other businesses too.
In the world of logistics, 3PL company DHL has run Uber-style delivery operations by contracting out smaller jobs to people who use a DHL smartphone app to offer to do local deliveries. Retailer Walmart has started a pilot that uses driver services from Uber and Lyft (an Uber competitor) to deliver groceries. Walmart’s announcement of the test service in a blog post from its chief operating office, Michael Bender, had two items of note for 3PLs. The first was Walmart’s stated policy letting customers guide the company in how to offer and expand the service. This almost sounds like the ghost of Theodore Levitt speaking. The second was the way in which Walmart completely circumvented conventional 3PL services. A Walmart employee simply requests an Uber or Lyft driver to deliver the groceries to customers who then pay a standard delivery of charge of US $7 to US $10.
What Walmart is doing for groceries, H&M or Primark might start doing for apparel, Walgreens for pharmaceuticals, and so on. As the saying goes, if you can’t beat them, join them. 3PLs may have to reinvent their business model in these cases, if they want to continue serving such customers, possibly becoming the Uber of their logistics sector for needs ranging from massive bulk transport down to individual, end-customer deliveries.
Changes in How Goods and Offerings Are Supplied
This may be the biggest game changer for 3PLs. It attacks one of the biggest assumptions that many 3PLs make, which is that they will continue to be hired to move physical goods around. However, that assumption may come unstuck if customers now consume services instead of products, and if physical products are transferred digitally or virtually over the Internet, instead of in pallet loads, bags or boxes.
- Cloud services. Capital expenditure and long term investment in resources such as industrial machines, vehicles, and computers and IT equipment is being shunned, as new business models built on services are being developed. Cloud computing itself is a prime example. IT vendors deliver less physical IT equipment and more virtual services to their customers. Users often no longer connect to onsite servers via their desktop PCs, but log into their cloud applications via their mobile devices. Cars are available for hire by the minute now in a number of large cities in different continents. All you need is your credit card (and a driving licence, of course.) You might be amazed at the variety of items available to rent nowadays for consumers, but once you recover from the shock, expect similar models to arrive soon afterwards for businesses. Cloud services have not yet dissociated themselves from all physical supports, but they are changing what is supplied to whom and how.
- 3D printing. Why physically ship a product over thousands of miles, when you can simply send it over an Internet connection? 3D printing is revolutionising the design industry, and could do the same for other sectors too. Essentially, a product is represented as a digital data file that details its shape and dimensions, however complex these may be. The 3D printer can print out a solid replica of that object from the file. If the file is in Sydney and the object is needed in Tokyo, it may be a matter of only minutes before the need is satisfied. No physical goods are shipped, unless you count the supplies of plastics, resins, metals, or ceramics used by the 3D printer at the far end of the “shipment”. The Hershey’s Company, fabled manufacturer of sweets and snacks and founded in 1894, even has 3D printers that print out exquisite shapes in chocolate, possibly making its temperature-controlled physical warehousing and shipments things of the past.
Is It Time to Reinvent the 3PL?
If your company is a 3PL, take heart. Many companies have had to reinvent themselves to keep up with changes in their market. There is a substantial base of general business information and case studies on enterprises that got it right or got it wrong, helping organisations like yours to better understand what should be done. The case of Netflix and Blockbuster is frequently cited. Blockbuster unwisely clung to a dwindling market of physical DVD and video rentals, while Netflix grew to greatness by meeting the same end-customer need online. Elsewhere, oil companies are investigating alternative energy sources, as global warming and peak oil scares increase.
Some forward-looking companies maintain that reinvention of their business is not a one-off event, but a continual process, so that they can always be ahead in the vanguard and never behind in the dust. Whichever way you approach matters, if you still want to be in business a few years from now, your 3PL business could look very different, even taking on a completely new identity.
Focusing on customer needs may be simple (asking them what they want is one way), but not necessarily easy. Periods of doubt have plagued many companies, who could not seem to get their act together to provide solutions that were successful in their markets. Apple, IT vendor extraordinaire, spent years floundering in consumer and business markets, until Steve Jobs came back with a focus on one of the most basic customer needs of all, which was for products that were easy and intuitive to use. Will there be a similar insight for 3PLs, perhaps “get products and services into the hands of end-customers as easily and as cost-effectively as possible”? That leaves the door wide open to many different options, including business as usual for resources that still require physical shipping (anything from lumber to minerals and food products), but also the provision of cloud services and the role of an intermediary between customers and new forms of workforces. Which doors your 3PL company opens and walks through is then up to you.
Great job done.
Glad you enjoyed it.
Interesting article – I thought you might take the discussion down the path that the largest 3PLs provide the least transparency and their aim is to demolish the spot freight markets and as much as possible shift volume to dedicated controlled fleets (not necessarily owned) where there is no price volatility and overall average costs for shippers are higher but the profits are also steadier and more predictable for the 3PLs … Thanks,
Thomas Moran, CEO, FreightRun.com
Hi Thomas, Yes it’s certainly tough for the smaller operators. Transport is a low margin industry and it’s hard for the smaller players to compete sometimes.
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Very impressed with your article. But please think about the other side of token, the regulation,limited to open compettion. Here in Korea drving a commecial transportation vehicle is required to obtain the licience.
I think a licence would be required in most if not all Countries. Do you think that limits competition in some way?
Hi. But I think that is the case in most countries surely? Commercial vehicles and drivers need to be licensed.
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