Andrés Birlain Lopez
CEO and Material Handling Consultant
RIVUS® Material Handling México
Expert Contributor

The Challenge for 3PL From the Perspective of Customer Value

By Andrés Birlain | Tue, 07/26/2022 - 11:00

Many of you likely already know the concept of 3PL (third-party logistics) that began to gain strength in the Mexican market in the 1980s. The logistics operation of many international companies was seen as a complementary activity to their businesses. All of those companies spent millions of hours and resources of all kinds in perfecting their core business. The motto was: win through manufacturing efficiency and leonine market penetration to grow the market share.

There was no time to think further. It was the right thing to do. We associate much of this moment with famous Japanese manufacturing philosophies, such as Six Sigma, Just-In-Time, and Lean Manufacturing, that honor Japanese culture. The following sentence sums up very well the line of thought of the Japanese: "Discipline will eventually overcome intelligence."

The 3PLs immediately added value to these companies for the simple fact of taking a weight off their shoulders or rather, a “problem” off their shoulders. Thus, the growth of a converted industrial sector that grew as its clients grew was clear, while not forgetting the public labor gaps that allowed them to play with an advantage.

Economies of scale and operational synergies have become the most characteristic intangible values ​​of logistics operators (3PLs). That's how decades passed ... that's how they built emporiums and companies that were highly intensive in human capital.

So far so good! But, what happened to the planet during all this time? To humans? To  necessities? To outsourcing? They evolved. By necessity or by circumstance you choose.

The characteristic of defining logistics activities as "complementary" ended. Today, no management team can afford to disregard the person in charge of the supply chain as the key to profitability for their companies. Isn't it just as important to arrive well as to reach our client/consumer first? It's both.

Logic allows us to clearly identify that a supply C-H-A-I-N is an accumulation of activities that happen before, during and after a manufacturing process. It is everything. Everything takes logistics.

Likewise, the opportunities that an executive with a panoramic view of his company's supply chain can visualize tend to be endless. The challenge is knowing where to invest first. For this, you have to recruit and hire those who know how.

This is where I start thinking about the challenge that 3PLs present today. They must demonstrate why they continue to be actors that drive savings, efficiencies and innovation to their clients. The consumer today is more educated. If a 3PL operation is only executed with personnel, pallet jacks, forklifts and racks, it is at risk of losing value or at least losing “perceived value.”

Technology and innovation not only pay off in optimizing work. They are now the most powerful sales and differentiation tools for 3PLs. What do you have to show your client that demonstrates that you know how to do logistics better than them?

These days, it is not an easy task for anyone to invest in innovation. Here are some challenges:

1. Logistics and supply chain is an “unsexy” department for top managers. Some define it as "tactical" rather than strategic.

2. Nobody is used to change. Doing so involves the risk of losing or winning. Even your job. Having strategic allies in the supply chain strongly minimizes this effect.

3. Change is not staggered. It endures as a concept. If you change to stay, you stay behind.

4. The logistics industry in general has been allocated little budget over the years. Let's not take the examples of automated companies. Let's look at the entire industrial sector and we will realize that there are few companies that are today transformed and that invest year after year in their logistics and material handling.

5. The common domestic industrial supplier does not necessarily have the strength to provide value. Nor is its offer enough. In many cases, customers come across very small providers with limited offers.

6. If the 3PL is contracted for less than five years on an account, it will hardly seek to innovate. If you do not have a range of similar clients in your portfolio, it is even more complicated. If you work for FMCG clients, even worse. The reason, in my opinion as an entrepreneur, is that the marginality of their profits does not give them a fair budget to make a bet with peace of mind. The same effect happens to all companies that sell “commodity” services or products in this sector, such as forklifts, heavy machinery, cranes, racks, ERPs and conveyor belts. They are reluctant to invest and evolve, just because their customers ask for a faster horse.

7. The new generations continue to lack knowledge of the industry and, therefore, talent at all levels is scarce.

8. Labor is still “fast food” as an analogy for 3PL employers. However, today they realize more than ever that it is indigestible, and its dependence produces potential diseases.

9. There is a rare feeling that marketing and branding for 3PL customers is irrelevant. Marketing and branding is never trivial. Not in B2B. Not in logistics. As good operators, the important thing is that the job “gets out” well. I agree, but you always pay more for clothes from the brand you like. However, it is the same fabric. You need to better market your value proposition to your customers.

10. Technology, if it does not have multi-operation, multi-client adaptation capacity, quickly becomes costly. Getting technology that is shaped to the growth and needs of any logistics company will soon become a mandatory investment trigger in the decision-making process.

The Era of Logistics? You name it! But those who do not know how to navigate this time of change, do not anticipate it, and take back control of their vessel, will end up losing. This era will reward those who know how to accept changes and navigate wisely and with a sense of urgency.

Photo by:   Andrés Birlain Lopez