3PLs look outside for IT
While third party vendors have made progress in creating technology that serves the global supply chain, research continues to show that custom-built, proprietary systems abound in the 3PL and freight intermediary market.
This raises an important question: In today’s technology market, should 3PLs continue to build and maintain proprietary technology?
Greg Aimi, research director at AMR Research, doesn’t think so. ‘Today 3PLs specifically should look to outsource IT where possible and focus on competing on service,’ he said. ‘Just 10 years ago, the same was not true. The software market for logistics and distribution has matured significantly in that time frame causing the answer about ‘building it yourself’ to change in many cases.’
Aimi points to logistics networks, or platforms, as one specific segment of the logistics technology arena that has more appeal to 3PLs than ever before.
‘Customers are telling 3PLs which global logistics platforms to operate on,’ he said. But that’s not necessarily a bad thing. ‘3PLs can standardize on one platform and service multiple, if not many, customers. A 3PL can even standardize on one but operate on many platforms if necessary to serve customer preferences,’ he said.
Logistics technology vendors, such as Toronto-based Descartes Systems Group and GT Nexus in Oakland, offer single instance, multitenant global logistics networks that allow trade participants to electronically exchange information and manage supply chains activities, including crucial functions such as transportation procurement, transportation management and global trade management.
‘Many global 3PLs use Descartes’ Global Logistics Network (GLN) and some use value-added applications provided by Descartes on top of that,’ said Ed Ryan, executive vice president of field operations at Descartes.
‘Today 3PLs really need to standardize on a network unless they want to replicate the 4,000-plus carrier connections the GLN provides to users. A lot of service providers who build their own applications use our GLN network to connect them to the logistics community,’ Ryan said.
‘Single instance, multitenant global logistics networks delivered on-demand have proven to be an extremely effective way to provide global supply chain visibility and freight spend management,’ said John Urban, president of GT Nexus.
GT Nexus reports similar growth in 3PLs signing up to use its platform. ‘3PLs are migrating to GT Nexus because they can differentiate themselves in the market by using the same platform that the world’s biggest importers and exporters have successfully used for nearly a decade now,’ Urban said.
Houston-based CEVA Logistics makes for an interesting case study in how a global 3PL implements third-party logistics networks and experiences a return on investment.
‘We take a ‘customer defined’ neutral approach to technology,’ said Bill Aldridge, executive vice president of global ocean products. ‘We have an array of IT tools in our suite that includes GT Nexus that enable us to design and deliver world-class end-to-end solutions to our clients.’
An important piece of CEVA’s value proposition revolves around the neutral nature of the technologies the company employs. Should a customer choose to change logistics service providers altogether or in part, that customer is not locked into CEVA Logistics by the technology. Rather, that customer can easily switch to another GT Nexus-compatible provider.
With little to no switching costs involved, CEVA Logistics truly competes on service, leaving technology related to global logistics connectivity and visibility to the experts. ‘GT Nexus is driven by a diverse user community focused on innovation, thought leadership and best-in-class execution,’ Aldridge said.
Aldridge outlined benefits CEVA experiences by using GT Nexus as its IT platform for customer visibility and connectivity:
‘ Partaking in research and development resources wider in scope than the company’s own.
‘ Accessing continuous improvement and innovation for clients by participating in a globally focused, diverse user community.
‘ Extending the value proposition for the GT Nexus customer base on the platform using its contract management tool.
‘ Connecting and optimizing traditional global forwarding and contract logistics activities with networks utilizing best-in-class technology.
In addition, 3PLs standardizing on a network, such as GT Nexus or Descartes, will benefit in terms of increased sales opportunities and shorter ramp-up times from the accessibility to customers already operating on the platform. Large 3PLs with operations spread across the globe can also use a standard network to connect their own disparate networks and systems.
The argument for using a third party-hosted logistics network as the core visibility and connectivity infrastructure hinges on the value of the community itself. No matter your role in the logistics community, the value to each individual participant increases as the community adds members and as members increase their usage.
Clearly, 3PLs benefit when shippers operate on the same platform, because the shippers, their contracts and data become accessible. Less obvious ‘ and perhaps counterintuitive ‘ when competitors subscribe to the same platform 3PLs benefit as well. All of these members are pushing the platform host to become more efficient and effective, and all members benefit from these innovations. 3PLs will also find value in the connectivity with their vendor base including carriers. Transaction costs will decrease in an electronically connected environment. Additionally the 3PLs’ potential service offerings can increase in scope and variety due to the expanded number of vendors operating on the platform.
Generally speaking, the benefits of using a global logistics network as your base infrastructure for visibility and connectivity stop where your traditional logistics activities end. This may sound silly, but it’s important to point out that these networks do not claim to solve all of 3PLs’ problems. Certainly those 3PLs focused on global logistics will benefit from standardizing their IT platforms, just as the industry has benefited from other standardization initiatives such as containerization. But the capabilities of these services often end when the 3PL is inside ‘the four walls’ of a customer’s operation, providing distribution, warehousing, assembly or other services at the item level. Handling a unique product generally requires a unique solution that will require 3PLs to consider, and often use, custom-built technology. With respect to the logistics management services and the connectivity and visibility required to execute these IT initiatives in today’s market, there’s really no reason not to be operating ‘ if not standardizing ‘ on a third party-hosted global logistics network.