With growing consumer expectations for faster delivery, shippers are expecting value-added logistics services from 3PL operators. This increases the urgency for 3PLs to leverage on the best market trends to increase logistics flexibility. I had an interesting conversation about this with Frank Tinschert, Business Unit Director Logistics at Quintiq, and below are his answers.
1. What are the greatest challenges 3PLs currently face?
The general situation for third-party logistics providers (3PLs) is that the requests made by their customers have become more challenging. This is due to the diversification in the production schemes of manufacturers. On the other hand, there is always the demand to deliver on the highest level of quality possible. So, a lot of manufacturers require 3PLs to agree to service levels that are challenging for large operations.
Another challenge is the pressure on 3PLs to fully commit to certain requirements at every point of the shipper’s supply chain, such as environmental and working time regulations. 3PLs with global operations will find it particularly difficult to fulfill all standards because they differ from one country or region to another. Internally, there will be a heavier administrative burden for these 3PLs.
2. So how will logistics planning and optimization technology help 3PLs to overcome these challenges?
Smart planning and optimization technology allows 3PLs to review several different possible scenarios and enables them to make informed decisions after reviewing the results of their intended actions.
This is useful on many different planning levels. On a highly strategic level, it helps 3PL providers answer questions such as:
- How would our existing network handle a new market or a new customer?
- How would that impact their current operations?
- In the case of contract logistics, should we accept such a long-term project? (A 3PL bids to be the logistics operator of a company for the duration of the contract – typically 3 to 5 years)
On an operational level, 3PLs need to decide on the assets and resources required to fulfill all customer requirements. On a granular level, every shipment and order needs to be planned and optimized. This is typically done by a planner, but manual optimization is impossible given all the processes and rules existing on a unit level. This is where the logistics planning and optimization technology comes in – it empowers the planner to come up with a better plan, along with the ability to see alternate plans when unexpected changes for one or multiple shipments occur. The 3PL provider is then able to quickly communicate to the customers what alternate scenarios they may implement to still fulfill agreed service levels and ensure on-time delivery.
3. In a way, such a tool takes the pressure off the planner. Would you say it’s also a way to retain planners and experienced people within the company?
Yes. We always keep in mind that such a tool is never meant to challenge the planner’s skills. It is, in fact, supporting them. While a software solution takes into consideration many hard constraints, the soft skills of the planner are very important too. Certain things that the planner knows about the customers are very difficult to capture in an automated software. For instance, knowing exactly where the shipment has go. Sometimes the default address is not a place people can enter and deliver goods. The delivery point might actually be a gate around the corner that is another 300 to 400 meters away, which would then cause a delay in the delivery.
There are many instances when the experience of a planner is crucial, in order to further optimize what the software has calculated as the best plan.
4. This is the point of view of 3PLs. How about the shippers – the customers of third-party logistics providers? What are their problems and how do you see a planning and optimization tool extend their part of the business as well?
In a nutshell, they are a little bit better off because they can make certain demands on the 3PL operators. For instance, at a large factory, typically there will be a delivery timetable to be followed. The logistics operator commits to certain time windows to deliver or pick up goods from the manufacturer, and the agreement is fixed.
This is a bit shortsighted because both parties could benefit more from dynamic, real-time logistics planning. The manufacturer would benefit from lower inventory levels, while the 3PL operator could gain a better profit margin for being responsive and reacting “on demand”. There is certainly high potential for both 3PLs and manufacturers to become more efficient.
Optimal planning also has a profound impact on upstream logistics – the transportation of all the raw materials that are typically on low stock within the factory. Using a smart planning tool would help to further optimize the inbound stream of raw materials. To share a great success story: One of our customers from the metals industry who used our planning and optimization software was able to reduce inventory of raw materials by 35%, reflecting savings of double-digit millions.
But the same goes for finished goods – proper planning can help speed up shipment deliveries, payments, and sales to the end customer.
5. “Inbound Logistics” finds that only 20% of shippers mention cost as the most important factor when choosing a 3PL. The other 80% have indicated that the service provided is more important. Do you notice this trend in your conversations with 3PLs? Or is it a case where most of their services are largely commoditized and the 3PLs are competing on price?
While price can be an important factor for shippers, 3PLs can also leverage on other differentiating factors – by catering to a niche area in a particular industry, for instance. In the complex manufacturing industry, you will see that 3PL operators would have a more involved role, as fulfillment operators for the manufacturer. They not only provide transportation, but are also responsible for the sorting, pre-manufacturing, warehousing, and so on. And often in the automotive industry, certain parts are pre-manufactured by a 3PL operator, which requires specialization that not all 3PLs have.
It is also about the service level provided by 3PLs. Ultimately, for the manufactuer, having a smooth operation within the factory is much more important than saving those final five cents on logistics operations.
6. Let’s talk about 3PL operators’ initiative to leverage on technology innovation. Do you think this is a differentiating factor to shippers and their supply chain?
A 3PL operator who has a holistic supply chain approach with full transparency of their operations, is certainly highly appreciated by shippers and manufacturers. With regards to handling global manufacturing operations, let’s take a look at a situation where sourcing is done, say, somewhere in China and then shipping is carried out for selling in European markets. Having parties who can share more information during that process flow will be a great advantage.
In this situation, the 3PL operator, responsible for transport operations, would want to optimize their planning to ensure quick delivery time for the materials or products. This is where technology innovation comes into play. But choosing the right technology and solution can be tricky. 3PLs run the risk of creating more problems rather than solving existing issues, if the solution is not a perfect fit. Now, Quintiq offers a 100%-fit solution – an integrated platform that helps companies plan and optimize their logistics operations by providing a holistic view with the right data, all in real time.
7. How does a logistics planning and optimization platform differ from a transportation management system (TMS), and which one is best for 3PLs to leverage on?
Both are important. TMS is a system that takes care of all the day-by-day operations, including invoicing, customs clearance, maintenance schemes, and resource management. But it goes hand-in-hand with a logistics planning and optimization platform like Quintiq, which takes data from the TMS to generate forward-looking plans.
The Quintiq software also takes things a step further by aligning plans with the company’s KPIs and strategic goals. The dispatcher then makes a decision to operate in a certain way based on the most optimal plan. This information is flashed back into the TMS for further operation when it comes to sending invoices to a customer or tracking historic events.
8. The Gartner Magic Quadrant for Global 3PLs indicates that 65% of companies are increasing the usage of 3PLs. How can 3PLs differentiate themselves with growing expectations of shippers?
First of all, that is good news for 3PL operators. That means the shippers are going back to their core business and no longer operating logsitics and transportation by themselves. This offers a big potential.
Now, in order to become a global fulfillment partner, a 3PL needs to be of a certain size. This means the 3PL provider has to belong to a global network of 3PL operators. An alternative to this is for the 3PL to focus only on certain industries.
Additionally, in order to remain competitive, 3PLs need to embrace innovation – big data and resource analytics – and to know how to make the best out of such information for demand planning and forecasting.
There are global companies operating very smartly on this. These companies have a huge potential in bringing down operating costs and increasing value for their customers by providing precise information and clarity on how they operate. This gives the shippers a better idea on how they could best use a 3PL operator for improving their own products’ time-to-market.
9. On a final note, on November 19, you’ll be participating in the 12th Annual 3PL Summit in Amsterdam. What would you like to say about that?
This is one of the major events in Europe, where key players for the 3PL and manufacturing sectors come together. It is a perfect opportunity to to discuss best practices and gain valuable insights into how other operators and service providers run their businesses. Of course, I will be more than happy to address any questions about the planning and optimization platform Quintiq provides and about how we could support 3PL operators in implementing such a platform. I am looking forward to meeting everybody at the event in November.
About Frank Tinschert
Frank Tinschert heads the Logistics Business Unit in the EMEA (Europe, Middle East and Africa) region. He’s a qualified engineer in transport systems and has more than 15 years of professional experience in the field of complex transport and logistics solutions. On November 19, Frank will be hosting a 45-minute interactive workshop at the 12th Annual 3PL Summit in Amsterdam, exploring how smart optimization technology provides 3PL operators a competitive advantage. Discover more.