Every year since 1996, Professor John Langley of the Georgia Institute of Technology has published a report called “The State of Logistics Outsourcing” that highlights trends and issues in third-party logistics. Over 1,600 logistics executives participated in last year’s survey. According to the report, “One area warranting particular scrutiny is a 3PL’s planned technology investments: the gap between user IT expectations and 3PL’s ability to meet those expectations has persisted over several years of the study.”
A 3PL that is unable to exchange timely, accurate, and complete data/information/documents with its customers, relating to planning, execution, and performance measurement, will not have happy customers. Therefore, what B2B communication capabilities should a prospective 3PL customer look for? To answer this question, I interviewed Lori Brofford at Sterling Commerce and Chris Jones at Descartes Systems Group. Both companies provide B2B communication solutions to customers in various industries, including logistics service providers.
My key premise was that 3PLs need advanced electronic data interchange (EDI) capabilities to communicate effectively with customers. I asked Ms. Brofford what she looks for in a 3PL to help insure they can do this well, and she highlighted four things:
- Security – Is the 3PL, for example, ISO/IEC 17799:2005 certified? This standard establishes “guidelines and general principles for initiating, implementing, maintaining, and improving information security management in an organization.”
- Availability – How often is a 3PL’s EDI solution up and running? Customers should include this metric as part of their 3PL performance dashboard.
- Reliability – How well does the 3PL perform against its B2B communication requirements? Does the 3PL reliably use the documents your company specifies (e.g., advanced ship notices, freight invoice, shipment schedule, UCC128 container labels)? Do they execute these transactions in the required timeframe? For example, you might require a 3PL to send advance ship notices to both you and your customers within a certain timeframe. Receiving an ASN after the goods have arrived is useless, but this is a common problem. Both Descartes and Sterling Commerce gave examples of customers whose 3PL partners are only 50 to 60 percent compliant in this area. Companies can’t expect a 3PL to automatically achieve high reliability; they really need to assign people to track compliance on an ongoing basis and work with 3PLs to improve in this area.
- Flexibility – A 3PL should support various transport and communication protocols-e.g., File Transfer Protocol (FTP), Hypertext Transfer Protocol Secure (HTTPS), frame relay, and Virtual Private Networks (VPN). Flexibility, which may be even more difficult for a 3PL to achieve than reliability, should not require customers to download software.
The other point both Sterling Commerce and Descartes made is that EDI “standards” are far from standard, which often leads to data quality problems. If a 3PL is using a B2B communication technology supplier, and that supplier runs a single instance multitenant network, data quality problems can be greatly reduced (for an explanation of why this is so, you can read my colleague’s recent posting on “More Questions About Software-as-a-Service“).
Chris Jones of Descartes made some additional points. First of all, B2B communication does not only occur between the 3PL and the shipper. A 3PL’s B2B strategy needs to include the ability to communicate with other trading partners like carriers, suppliers, and customs agencies. Non-asset based 3PLs, for example, subcontract transportation to third-party carriers, who in turn need to communicate effectively with 3PLs.
This point leads directly to his second point: B2B communication needs to be more than just EDI. A 3PL must have the ability to address what Mr. Jones calls “high tech, low tech, and no tech” scenarios. EDI is the “high tech” scenario, and it’s commonly used by large companies. But if a 3PL is managing your transportation operations in China, for example, it’s unlikely that the Chinese carriers they’re using are EDI-enabled. Some of those carriers might have the ability to exchange information via web forms (“low tech”), while others still rely on phones and faxes (“no tech”). Those “low-tech, no-tech” transactions then need to be converted into real time B2B data, which means the 3PL (or their B2B technology partner) needs a robust trading partner on-boarding process.
Another reason why a 3PL’s B2B strategy needs to encompass more than EDI is that many communication requirements extend beyond the defined EDI transaction sets. For example, customs agencies around the world are beginning to require importers and carriers to electronically submit additional pre-shipment data (e.g. “10+2” regulations). These data sets are currently outside the EDI transaction world. Another example is proof of delivery, which may include, in addition to a 214 EDI message, signature capture and document scanning information.
The bottom line: when companies evaluate the technological capabilities of potential 3PL partners, they need to think beyond software applications like warehouse management or transportation management systems. They also need to consider and understand a 3PL’s B2B communication capabilities, taking into account factors such as security, availability, reliability, flexibility, and “high tech, low tech, no tech” on-boarding capabilities.