My colleague Clint Reiser and I recently interviewed twelve logisticians at manufacturing, retail, and distribution companies ranging in size from very large to very small. Our focus was on four key dimensions that should logically correlate with how well a Third Party Logistics (3PL) provider is able to perform. Those dimensions include a 3PL’s IT capabilities, their ability to execute, their ability to drive continuous improvement, and their ability to bring innovative solutions to the table.
One of the things we were looking to understand is what those terms mean to logisticians. For example, how do logisticians define “robust IT capabilities” for a 3PL? And do they see a link between a 3PL’s IT capabilities and the other key dimensions?
When it comes to 3PL IT capabilities, what companies look for depends partially on their size. Smaller shippers want timely and accurate visibility to shipment statuses, and they want those statuses to be automated, not based on the 3PL manually entering data into their visibility system. Smaller shippers sometimes feel that they are being lied to; automated visibility systems help to ensure honesty.
Large shippers have more detailed requirements. A logistics manager at one of the largest hi-tech firms in the world wants to clearly understand what carriers are doing and wants them to communicate through EDI. His firm wants to know when a shipment is booked, when it actually ships, when it arrives at a port, when it clears customs, who tendered the shipment to the last-mile carrier, and they want proof of delivery. His company wants this milestone visibility in their visibility system; they don’t want to have to link to a bunch of different carrier systems.
A different shipper also pointed to a 3PL’s ability to provide good business intelligence (BI) analysis. Before working with their chosen 3PLs, for example, this shipper knew how much they had shipped, but not on a lane-by-lane basis. Now they have the ability to drill down into historical data. And in places where they are not using standard metrics, their 3PL has the ability to quickly pull data out of their transportation management system (TMS) and respond to their information analysis requests.
Looking over my interview notes, it surprised me that the logisticians we talked to focused much more on transportation than warehouse systems. Only one respondent talked about warehouse automation. If I was outsourcing warehousing, I would demand that the 3PL have a warehouse management system (WMS) and I would not consider working with a provider that was not using a labor management system (LMS) based on engineered labor standards and supported by industrial engineers.
The logisticians we interviewed see a link between a 3PL’s IT capabilities and their ability to execute and innovate. For example, one shipper saw a correlation between a 3PL’s ability to accurately hit delivery windows and their use of GPS and visibility systems. Another shipper that requires drivers to perform value added services upon delivery pointed to the need for asset-based 3PLs to have on-board computers or other systems that provide drivers with specific instructions on what they need to do when they arrive at a customer site. Another respondent is looking for IT innovation in order for his company to get more granular details on how their trailers are being loaded.
Interestingly, logisticians see this correlation between IT capabilities and other key dimensions as being bidirectional. In other words, it is not just possessing good IT capabilities that allows a 3PL to execute or provide continuous improvement; the reverse can also be true. One shipper praised a 3PL for its continuous improvement processes. The shipper said problems were inevitable, but what they respected was that when problems arose, their 3PL had an excellent ability to do a root cause analysis and then put in place a new plan for execution. Here a continuous improvement methodology was seen as being primary, with IT capabilities (digging into the data) and execution (a new standard operating procedure) being linked to that key capability.
This was probably the biggest insight that Clint and I got from the interviews: That these key dimensions – IT capability, ability to execute, continuous improvement, and ability to innovate – were seen as highly interrelated. When asked about one dimension, respondents frequently pointed to another dimension as causing or being correlated with good performance in the dimension they were asked about.