To remain competitive, shippers need to be on the cusp of changes ushered in by Covid-19. One trend at or near a tipping point is the transactional business model.
Covid-19’s disruptions have brought many changes to global supply chains. Many changes were in progress. More important, many of those changes have accelerated. And they’re resulting in new and lasting ways of executing supply chain management.
As shippers plan for 2021, now would be an opportune time to relook old ways of doing business. Times have changed. How you as a shipper outsource your logistics services can impact your success.
In exploring this issue, we’ll dive into: (1) the need for outsourcing; (2) the new approach vs. the transactional approach; and (3) the selection criteria for choosing the right 3PL.
The Need for Outsourcing
As a shipper, you must first determine whether you want to keep logistics in house or not. If it’s a core competency, by all means, keep it in house. If logistics isn’t a core competency, you should consider outsourcing to a third party logistics provider (3PL).
A 3PL is a company whose core competency is providing logistics services. It’s what they do – day-in, day-out. Working exclusively on providing logistics services comes with advantages.
Some advantages are keeping current with change. As we know, supply chain management is rife with change. It characterizes our business. As a result, 3PLs are well-suited to deal with changes wrought by Covid-19.
Leading edge 3PLs also know a thing or two about resilience. They know a thing or two about innovation. And they know a thing or two about technology.
More important, 3PLs understand what makes supply chains function on a deeper level. They understand the disruptive effects of bottle necks. They understand how the bull whip effect can jolt your supply chain. They understand how capacity shortages and high shipping costs can undermine your competitiveness.
3PLs also are more likely to find innovative solutions to supply chain problems. In today’s uncertain times, you need greater predictability to compete locally as well as globally.
The pandemic, however, has turned the old ways of doing business upside down and inside out. So, you must find new ways of doing business to survive in a more complex and competitive marketplace.
The New Approach
As already mentioned, we are at a tipping point between transactional- and partnership-based business models. The former represents the old way of doing business. The latter represents the new way of doing business.
Transactional-based business models for providing logistics support worked fine in the past. But even before Covid-19, the usefulness of transactional-based business models appeared to have peaked.
In the past, logistics services were treated as commodities. Contracts stipulated service level agreements that were explicit in both the means and the outcomes of providing those services.
That resulted in the commoditization of logistics services. As such, it stifled or disincentivized innovation. And in drafting contracts this way logistics services became commodities. That rewarded the lowest bidder, as prices became the lowest common denominator.
Long-term partnership-based models, meanwhile, prioritize value over price. They incentivized
outcome-based results and shared values. Those two criteria represent a shift in thinking about logistics services as commodities. Again, this shift was underway before Covid-19 but has now accelerated.
Long-term partnerships value long-term relationships where shipper and 3PL seek the same outcomes with shared values. The new way emphasizes working together collaboratively in unison instead of against one another. Consequently, closer relationships provide benefits not possible in a transactional relationship.
In short, long-term relationships help foster shared risk and shared reward. It gives meaning to “Win-Win”.
The Selection Criteria For Choosing The Right 3PL
Writing contracts that embody a “Win-Win” premise might seem easy enough. But before you can do that you have to find the right 3PL with which to enter into a long-term relationship.
For starters, you should seek a 3PL that also seeks and values long-terms partnerships. 3PLs that ae willing to share risks and rewards equitably fit the bill. Beyond that you should seek 3PLs that are customer-centric.
How exactly do you find a customer-centric 3PL?
You should find a 3PL that puts your needs first. In practice, 3PLs that align their goals with your goals put you first. Plain and simple. Doing this enables 3PLs to focus on your needs and challenges. That ensures that relevant solutions will be found in accordance with your priorities.
And customer-centric 3PLs put the customer first in everything – not just in word but also in deed. 3PLs who put their customers first also practice open communication, internally and externally. They realize value lies in sharing data and information, not in hoarding it.
Finally, long-term partnerships foster closer relationships not possible in a transactional-based environment. More to the point, it enables innovation. That can only come from deeper insights gained from the close relationship. Again, this isn’t possible in a transactional-based relationship.
Formerly unrealized value comes from hidden insights. And that leads to relevant and innovative solutions. Greater value ensues as your goals become the focus rather than price.
It represents a vision for the long game.
Preparing for 2021 with a Long-term Partnership
Are you ready to complete in the post-pandemic marketplace?
The New Normal is here, whether we know it or not. By that I mean the future of logistics has arrived. And it arrived sooner than anticipated due to the pandemic.
Conducting business as you did before the pandemic reflects the old way of business. New times require new ways of doing business. Today, we are at a tipping point for the delivery of logistics services.
The transactional (old) model is giving way to the partnership (new) model. The new way focuses on outcomes and shared values. It fosters improved communication and collaboration. That, in turn, leads to innovation not possible when logistics services were viewed as commodities.
With accelerated and lasting change underway, now is the time to get a leg up on the competition.
At American Global Logistics, we put “service” – our watchword – into action.
Why not contact American Global Logistics today. Let’s start the conversation about how you can leverage our services.
With a long-term partnership, we’ll help you gain competitive advantage in the post-pandemic marketplace.