A blog post by Lisa Harrington
“I am fed up seeing all the metrics from my Head of Supply Chain on efficiency. I want to hear about what we’re doing to get new customers, get to market faster. I don’t want to hear about efficiency. I want to hear about growth.” CEO, Fortune 500 company
There is a conversation going on in transportation logistics right now that has the potential to change the responsibilities of every leader in the industry.
A Fortune 500 CEO addressing his Vice-President of Supply Chain sums it up best, “I’m sick and tired of hearing about cost-cutting and efficiency improvements. Talk to me about growth, new customers, and how I can take my business to the next level.”
This conversation exemplifies the transformation happening in the industry. Incremental efficiency and cost-reduction gains―like getting the load delivered cheaper or faster―are no longer enough. No longer the benchmark against which in-house logistics teams and their third party logistics service providers (3PLs) are measured.
Instead, the c-suite expects more―far more. They expect their supply chain staff and service providers to use data and analytics, and the process and service improvements they can engender, to improve corporate profitability.
That’s a tall order. But it is the new order of the day.
To be sure, efficiency will always be an absolute requirement in supply chain. But forward-thinking logistics leaders will drive their operations to produce much more than that. They will use their data analytics to improve pricing, align customers with organizational goals, offer new, more tailored customer-specific services, drive supply chain insight―all with the focus on profit improvement.
What does it take to accomplish this new mission? Collaboration.
But not the collaboration of old―the arms’ length variety. A new type of collaboration. One that sees players as part of a profit-engine ecosystem, where everyone works to “grow the pie” collectively. This type of collaboration is vastly underutilized today.
The effect of collaboration on pricing
Let’s talk about the 3PL sector and this new insight-driven collaboration. Specifically, let’s discuss pricing and the bid/tender management process.
For 3PLs, getting contract pricing right is essential. Unfortunately, it’s not that easy to do. In fact, according to senior executives at several leading 3PL firms, scope creep can account for up to 18% of profit loss. Considering that the total North American 3PL Market expanded to $199.6 billion in 2016, this is a lot of money walking out the door.
Building a bid price involves getting good price information from many sources―carriers, warehouse operations, labor, and so on. It also involves collecting accurate and complete operational data from your customer―the shipper. The more accurate and complete the entire costing data set is, the less risk of losing money or shaving margins through scope creep, incomplete or inaccurate information. The result: a contract bid price that is win-win for all parties. You avoid the scope creep trap. You as a 3PL are more profitable.
For example, a major top 10 global freight forwarder relied on Microsoft Excel to qualify and score bid opportunities, yet the process of consolidating dozens of spreadsheets―each of which was so large it took three minutes to load―was so cumbersome that the bid data had changed by the time the team made a go/no-go decision. (To learn how Lanetix automated this process with its collaboration solution, Click here)
By using the real-time, automated collaboration to gather higher-quality data, 3PLs can make fact-based decisions. Rather than decisions based on suppositions, aggregates and averages. This enables them to take back some of the 18% profit hemorrhage.
Customer alignment improves with collaboration
Collaboration is evolving. it’s no longer a 1:1 relationship but a 1:many relationship. Technology now enables end-to-end collaboration that can be carefully orchestrated down to a very granular level, in real-time.
Strategic goals like maximizing trade lane services or penetrating a vertical are often considered secondarily to gross profit margin, even if the former are the defined goals of the business. Lack of visibility is an issue in that scenario, and opening up your streams of information to external sources gives you the chance to clearly see when and how those strategic directives are being met.
And thanks to advances in the cloud and cloud-based solutions, this new kind of collaboration is achievable by any sized 3PL―small or large.
Collaboration leads to opportunities for innovation
Now let’s talk about innovation. Commoditization continues to be a major concern for logistics service providers. Those who don’t innovate and provide a point of differentiation―true value―will see their margins driven into the ground.
Collective, orchestrated collaboration, using the new automation and analytics tools, frees the 3PL up from the burden and cost of manually managing these interactions. This enables the 3PL―together with its customers and suppliers―to concentrate on improving the business at hand, process by process. And, more importantly, putting the newfound time, resources and energy into innovation. Innovation for profit.
That goes directly to the heart of the CEO’s admonition about supply chain managers focusing on the wrong thing – cost-cutting versus profitability Gaining transformational benefits, instead of incremental cost reductions that make little sustained difference.
For example, using Lanetix’ Conversations, a logistics service provider identified an opportunity to turn customer compliance requirements into an opportunity for service differentiation; they developed an initiative―and organized their vertical teams―to differentiate themselves from their competitors by turning a hindrance in a sales cycle to a strategic source of differentiation.
By Lisa Harrington, Senior Research Fellow, Robert H. Smith School of Business and President, the lharrington group LLC