3PLs and the IT Gap: Perception or Reality?

That is the question I addressed last week at the CSCMP Annual Global Conference during the “Expert’s View of the 3PL Industry” panel session. I began by showing a chart that appears every year in The State of Logistics Outsourcing report (now in its 15th year) produced by Dr. John Langley at Georgia Tech. The chart I used was from the 2009 report, but the just-published 2010 report (co-sponsored by Capgemini, Panalpina, and eyefortransport) contains a similar chart.

The chart shows a gap, which narrows a bit in some years and expands in others, between the IT capabilities shippers expect from 3PLs and their satisfaction with those capabilities.

The 3PL IT Gap (Source: "The State of Logistics Outsourcing, 2009 Third Party Logistics Report," Dr. John Langley, Georgia Tech and co-sponors; click to enlarge)

For years, software vendors like Oracle and SAP (previous sponsors of the report) have been pointing to this gap as evidence that 3PLs need to invest more in technology. And, to be fair, so have I and other industry analysts. But somewhere along the way, the gap took on a different meaning: it created the perception in the market that 3PLs are not innovative when it comes to technology. And that is simply not true, at least for a cross-section of service providers, both large and small, that view technology as a strategic asset and competitive differentiator.

In my presentation, which you can view and download below, I highlight several examples from this past year of 3PLs that have patented their own solutions; are leveraging social media in interesting ways; are collaborating with academic institutions on IT research; are streamlining their processes using the iPhone; and are providing clients with a business intelligence platform.

3PLs and IT Gap: Perception or Reality

Some 3PLs actually have more IT people and spend more in R&D than many software companies!

So, the “gap” suggests 3PLs are way behind the technology curve, while these examples show otherwise. How do you reconcile this difference?

The answer is that there are multiple gaps, or at least three.

The second gap is the one that exists internally at 3PLs. It is the gap between their outdated, inflexible, and non-scalable legacy infrastructure and the new platforms they are investing in today. It is between the 10 WMS and 5 TMS systems customers have forced them to support and the single, common platform they are trying to migrate toward.

The third gap is arguably the most difficult one to close: the gap between the IT capabilities customers want from their 3PLs and how much (little) they’re willing to pay for it. When you expect (demand) your 3PL to reduce costs year after year, when you put your business out to bid year after year, when you dictate to them how to run your operations instead of what outcomes you expect, then (as we tell our kids when there’s one lollipop left in the bag), “You get what you get and you don’t get upset.”

The point is that the “IT gap” chart in the Langley report only tells part of the story. Yes, there are many 3PLs that are behind the technology curve, that see no difference between investing in a TMS and buying another truck (actually, the truck usually wins out). But in many ways, the gap between customer IT expectations and their satisfaction is the symptom, not the problem. The root cause is that 3PL-customer relationships aren’t structured for innovation and investment, as I’ve discussed many times in other postings related to performance-based outsourcing (see “Have an Economist Negotiate Your Next 3PL Contract” and other examples). Close this gap and the others will follow.


  1. Adrian,

    I was actually presenting the findings from the report at CSCMP, and one of the questions from the audience (unfortunately I do not know the name or organization of the person who asked the question) concerned this very point on the IT gap. However they were looking at the 2010 data which actually had the smallest IT capability gap since this question was first asked in 2002.

    I think your ‘perception of non-innovation in IT’ based argument could be a strong reason for there being a substantial gap in the first place. But why has this gap narrowed? Is it all because the 3PL’s have got better in terms of IT? I would guess that partly it could also be because shippers have got more realistic in what they expect from their 3PL provider in terms of IT capabilities. They now do not expect to be given so much individualisation without actually paying for it for example and therefore their expectations are less.

    Chris Saynor
    CEO, eyefortransport

  2. Chris,

    Thanks for the comment. You raise an interesting point and question. I agree that customers today are more flexible when it comes to IT and 3PLs–i.e., they are more willing to let the 3PL use its preferred solution. At the same time, 3PLs are becoming more selective in which customers they take on. If a prospective customer insists that a 3PL must use a specific IT solution, which ultimately translates into increased costs for the 3PL, the service provider is more likely to walk away from this opportunity than accept it.

    We’ll just have to wait and see if this year’s narrowing is just a single data point or if the narrowing continues in the years ahead.


  3. That was exactly my point of view when I entered the industry of 3pl that there is not much involvment of cutting edge technology, but when I entered I realized the fact that this industry uses cutting edge and dedicated softwares than any other industry on earth!

    Thanks for bringing this to board!