SCM World Study Finds 3PLs Resist Innovation

Between January and May of this year, SCM World fielded a six-question survey in order to understand the supply chain community’s perception of global third party logistics providers (3PLs).

Barry Blake is Vice President of Research at SCM World, says there were few surprises in their findings…with one exception.

“The disconnect between 3PL performance levels and their reluctance to embrace new technologies was something we hoped would change by now,” he says.

The results are in, with 557 respondents globally, and the story emerging from the data is compelling – third-party logistics providers are seen as fast and fairly reliable, but not innovative.

Furthermore, supply chain managers question the value received for the cost of 3PL services.

Blake asked respondents to rate 3PLs on the following metrics:
• Reliability. Does the service provider execute flawlessly, meeting all expectations of the agreement?
• Speed. How quickly does the service provider solve problems and respond to challenging circumstances?
• Innovation. Does the service provider bring you innovative ideas and solutions based on its understanding of your needs?
• Value for money. Do you view your investment in the service provider as having been worth the cost?
• Scale of impact. How vital is the service provider to your overall strategic needs?

With a few exceptions, most 3PLs score pretty strongly (over 50% of respondents rated them “good” or “excellent”) at the aggregate level when it comes to the basics such as reliability. However, customers don’t seem completely confident that they are receiving the degree of value expected for the money they are paying for 3PL services.

Moreover, the 3PL community collectively struggles to deliver innovative solutions in the eyes of their customers. The message coming across loud and clear through the survey data and follow-up discussions with logistics professionals is that 3PLs need to do a much better job understanding the businesses of their customers if they are to move up the innovation curve.

This cuts both ways, say SCM World researchers. Unless a shipper “incentivizes” its 3PLs to focus on innovation, it is difficult for the 3PL to make the necessary investments to support it.

“Innovations don’t typically sprout overnight, nor even during the yearly tender cycle between parties,” says Blake.

He also noted in an interview that shippers and 3PLs should have a one-on-one discussion about risk mitigation.

Overall, the major expectation for logistics service providers is cost savings. This entrenched focus essentially commoditizes logistics services, creating a self-perpetuating cycle in the marketplace where logistics service providers resist investing in innovation since their customers don’t yet believe that innovation will drive cost savings more effectively than traditional methods.

“This pushes logistics services further towards commoditization,” Blake concludes. “Both sides need to come together if logistics service innovations are to take root and see the light of day.”

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