I recently spoke with a logistics service provider that was at a crossroad: do they continue to develop their own IT systems in-house or should they implement third-party solutions instead?
A decade ago, deciding which direction to take was relatively easy because there were few third-party solutions available that met the needs of the 3PL market. The only real option was to take the in-house route. But today there are many more third-party solutions available, and the move by software vendors away from proprietary platforms to more open, standards-based architectures (along with the emergence of software-as-a-service solutions) has opened up new possibilities.
For 3PLs that continue to develop their own solutions, the decision is primarily driven by two key factors that are inherently linked:
- IT as a Competitive Differentiator: Having the ability to offer customers different and more targeted and enhanced functionality than their competitors, such as better visibility and business intelligence tools. Here is how one 3PL put it to me: If we and most of our competitors were using the same vendor’s TMS, then how can we differentiate if we’re all basically offering the same capabilities to customers?
- Faster, More Responsive Innovation: Having full control of the innovation cycle versus being at the mercy of a software vendor’s release schedule. Simply put, when new functionally is required, either by a customer or an internal request, 3PLs want to enable it as quickly as possible. In many cases, developing the functionality in-house is faster than submitting a new feature request to a third-party vendor and keeping your fingers crossed that it gets included in the next release, which could take six months or more.
These points are echoed in what the IT Manager at the service provider I spoke with communicated to me:
We built our system because we believe it is vitally important to align our software around our processes and not the other way around. Being able to cater to changes in business direction and develop our software with future business direction in mind is paramount to how effective our systems are today.
But should developing and maintaining software be a core competency for 3PLs? Are they in the software business or the logistics services business? The answer to these questions is what drives other 3PLs to take the third-party solutions route. Simply put, they make the strategic decision that investing time, money, and resources in developing and maintaining IT systems is less important than investing in other areas of their business.
In short, there are many valid reasons for 3PLs to continue down the in-house development path, and equally valid reasons for taking the third-party solutions route. There are pros and cons to each. But unlike a decade ago, where closed and proprietary IT platforms ruled the day, 3PLs have another option today: they can take both roads.
In other words, they can implement third-party solutions, which are now being developed on open and standards-based platforms, to satisfy their basic functional requirements, while also leveraging the same development tools and platforms as their vendors to develop their own intellectual property that they can plug in (via web services, for example) to their third-party solutions.
In my opinion, this relatively new road that has opened up is an option that all 3PLs should consider when they are standing at that IT crossroad.
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