At the age of 12, I harbored dreams of a career in the NBA.
Alas, topping out at 5-foot, 8-inches and lacking a dependable jumpshot, playing point guard professionally, it turns out, wasn’t really my core competency.
Now this may be a little controversial, but there are lots of 5-foot, 8-inch point guards with suspect jumpshots in the world of global trade.
That is, many companies spend time and money playing around in areas that aren’t core competencies. There’s a domino effect when different stakeholders focus too much on areas outside their strengths.
So, allow me to prescribe a new world order:
- Third-party logistics providers should consider outsourcing technology development to software vendors.
- Carriers should consider outsourcing sales to 3PLs, freight forwarders and non-vessel-operating common carriers.
- Shippers should consider outsourcing logistics management to logistics services providers
This is, of course, a broad generalization – particularly the last one. But let’s go through these one by one.
3PLs have spent much of the last two decades evolving from entities that sat at the hub of global trade – the travel agent of cargo movement, if you will – into entities that are technology providers to shippers, as much as services providers.
The role of the 3PL is not just to secure capacity in various modes, or to handle warehousing and distribution, or customs clearance. It’s to provide the systems that automate and link these disparate but related processes.
3PLs that understand this evolution have taken one of two tracks. They either see themselves as the entity that must develop the technology and then supply it to their customers, or an aggregator of best-of-breed external software systems that they can repackage (or white label) to their customers.
The first basket of 3PLs sees the technology itself as part of the differentiation. Providing proprietary systems, usually highly customizable, is a way to separate oneself in a highly competitive (and some might say, commoditized) market.
The second basket sees the application of the technology as more important than the technology itself. 3PLs are, after all, logistics services providers, and the act of managing those systems and customer relationships is what determines whether the technology investment is worthwhile or not.
I’ve spoken with many 3PLs in the first basket, and this is not intended as a swipe at any of them, but I’d ask whether their true strength lies in writing code and constantly upgrading systems to keep pace with market demand. Some of those 3PLs would undeniably say, “Yes, that is one of our strengths.”
But in this new supply chain world order, the capital and human resources required to be half-IT provider and half-logistics services provider would not be considered the most efficient use of those assets. I don’t mean to get all Adam Smith here (http://bit.ly/1kMCVMX
), but the top supply chain software companies spend up to half of their revenue on technology development. Their raison d’etre
is to build products for others to use. They spend every waking moment trying to make that product better.
Logistics companies come at software development from another angle. They spend every waking moment thinking about how they can serve their customers better. Sometimes that means getting them better technology. But is their return on investment from technology the same as their return on investment from services?
This goes both ways, by the way. Some software companies verge into managed services – that is, helping the companies that use their systems use those systems better. Is that their core competency? Probably not, but they see providing services as a way to improve the ROI from their systems development. For those software companies providing managed services, it might be as simple as assembling a team loaded with supply chain management expertise. That’s less expensive than spending 50 percent of revenue on technology R&D.
In the meantime, carriers of all stripes ought to be offloading sales to companies that do it better than them. Maybe keep strategic accounts in-house as part of a key account management program, but why keep monolithic sales forces focused only on low-volume accounts or transactional business? Why not let 3PLs and other re-sellers do the bulk of this heavy lifting?
Ocean carriers, in particular, seem to bemoan the impact of middlemen stripping away their margin, but that margin erosion would be easier to stomach if less was spent on sales teams. Are sales a core function of operating a network of containerships? The airlines certainly don’t believe it is, long ago passing that work on to freight forwarders.
Carriers have traditionally struggled to develop and maintain IT infrastructure at the same pace as logistics companies, much less the software vendors. So wouldn’t it be better to let those more technologically advanced and customer relationship-oriented logistics companies handle sales?
And finally, there are the shippers. There is an argument to be made both ways here. Should shippers captain their own logistics management vessel? Or are they better off focusing on their core competency – whether that be manufacturing, merchandising, or selling goods – and letting 3PLs manage the intricate nature of their increasingly complex supply chains?
I can be convinced either way on this one, but I tend to believe that every shipper needs help somewhere – whether that’s with tough-to-manage geographic locations, tricky regulatory documentation, or capacity procurement; even having a partner to assist in supply chain scenario planning.
Though my new world order may sound absolute, the point here is get you thinking about what is core and what is not, and to think about passing those functions that aren’t core on to companies that live and breathe those functions.
It’s a lesson I learned long ago: I get paid to write, not to shoot the basketball.
This column was published in the July 2014 issue of American Shipper.