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Logistics Quarterly Magazine - Volume 16, Issue 2, 2010

LQ’s Executive Interview Series:  Excellence in 3PL Technology


A Conversation with Jim Handoush, Co-Chief Operating Officer, Landstar System, Inc. and Kevin Fletcher, Executive Vice President, Logistics Services, Landstar Transportation Logistics, Inc.


LQ’s questions for its Executive Interview Series on 3PL Excellence in Supply Chain Technology have been prepared by members of LQ’s Board: David Closs, PhD, Michigan State University and LQ Executive Editor; David Faoro, Director of Supply Chain, The International Group; Clifford F. Lynch, President, C. F. Lynch & Associates; John Langley, PhD, Professor of Supply Chain Management, Georgia Institute of Technology; Nicholas Seiersen, LQ Executive Editor.


LQ: What initiatives does your firm use to develop talent with a combination of supply chain management (SCM) and information technology (IT) knowledge? Do you expect the appropriate talent to be developed through universities or is your firm using unique career paths to develop the appropriate combination of skills? (David Closs, PhD)

Jim Handoush: Landstar has experienced positive results with recent graduates of logistics and supply chain management programs. Due to the increasingly critical role that technology plays in SCM, universities recognized this gap and made changes to their core logistics/supply chain curriculum. While some schools relied on more traditional methods of study, others employed various technology applications to provide students with a hands-on approach to supply chain design and optimization. Overall, I feel that students coming out of logistics/supply chain programs today are much more proficient in supply chain technologies from a practical as well technical standpoint than their predecessors.

LQ: A combination of retiring baby boomers and recession-induced layoffs has caused the collective knowledge of these employees to escape from their respective organizations. Is there a fear among shippers that outsourcing supply chain IT services will create a further loss of supply chain knowledge? (David Faoro)

Kevin Fletcher: I don’t necessarily feel there is a fear among shippers, but rather a situation where shippers are rationalizing what makes the most sense for their respective firms. Some may feel that supply chain technology is a core competency and competitive advantage they want to keep in-house. Others do not see this as a competency and in some cases even see it as a weakness. These firms recognize value in shedding the costs and responsibilities associated with keeping it in-house and outsourcing these services to a 3PL such as Landstar or a technology provider that affords them attractive and cost-effective solutions.

LQ: Given the majority of shippers use internal supply chain applications, do you think one of the reasons could be a perceived lack of flexibility and customization in 3PL IT service offerings? If so, how do you change this perception or is this perception a reality? (David Faoro)

Jim Handoush: While I think this perception may have had more legitimacy in years past, leading 3PLs have acknowledged this gap and either have or are in the process of developing solutions that are more flexible and scalable. Concerning the customization aspect, it typically comes down to a cost-benefit decision on the part of the shipper in evaluating the “nice to haves” versus the “must haves” since extensive customization can quickly drive up cost. What may start out as a very long list of desired system functionality is sometimes scaled down to essentials when the amount of time and money required for mass customization is determined. At Landstar, we promote the flexibility and scalability of our robust transportation management system (TMS) solutions as a market differentiator.

LQ: How can a 3PL ensure that as customer needs change, their offerings change and adapt to meet customer requirements? I can think of examples where shippers have asked for enhancements and were rebuffed due to cost or a lack of resources on the 3PL’s part. (David Faoro)

Kevin Fletcher: One area to look at is what type of relationship exists between the customer and the 3PL. Is the 3PL viewed as a strategic partner and included in the customer’s business and logistics planning processes? If so, then the 3PL should be well aware of the customer’s changing needs and would have had multiple opportunities to discuss these requirements with them. If it is more of an arms-length transactional relationship, then the changing need is probably handed to the 3PL with little warning and in some cases almost as a directive. As long as the customer and 3PL organizations are aligned and lines of communication kept open, then the changing needs should come as no surprise and potential resource and cost requirements have at least been initially discussed. When very little notice is given and a short timeline has been established by the customer, 3PLs sometimes have no choice but to weigh other scheduled projects in the pipeline that can impact resource availability and cost.

LQ: I can think of a situation where a shipper contracted with a 3PL to provide IT tools to manage a part of its supply chain. As the shipper grew through an acquisition, the solution no longer met its needs. How would you handle this type of situation? Would you ever tell a customer your application can no longer meet their needs? (David Faoro)

Jim Handoush: Landstar consistently solicits feedback and evaluates ways to deliver greater value to our customers through enhanced technologies. It is for that exact reason we acquired two technology-based companies in mid-2009. These acquisitions allow us to now provide customers supply chain transportation integration solutions in a Software-as-a-Service (SaaS) environment. After evaluating and exhausting all possible options to meet the technology needs of a customer, the 3PL should discuss the gaps in their solution with the customer and determine the direction moving forward. A “smoke and mirrors” approach will not go unnoticed for long and do more damage to the 3PL’s reputation in the long run.

LQ: Do you believe that state-of-the-art IT capability should be simply a cost of doing business for a 3PL? (Clifford F. Lynch)

Kevin Fletcher: I would not necessarily say it should be simply a cost of business for a 3PL, but rather a strategic business decision. While there are some 3PLs that feel their business model and strategy demand significant investment in state-of-the-art IT capabilities, others do not place as great an emphasis and choose to rely on more manual processes. In addition, a 3PL may hesitate to make a significant investment into the special technology needs of a customer without first getting a longer term commitment to the relationship. Situations also arise where there is a very visible disconnect between what a customer expects to receive at no cost versus what the 3PL is willing to offer. Landstar strives to provide our customers with leading-edge technology solutions that are flexible and scalable, deliver improved visibility, offer greater efficiency through automation and drive supply chain savings, all in a cost-effective manner.

LQ: What are some of the “keys” to successful relationships between 3PLs and their customers in relation to IT needs? What are some of the reasons that may be responsible for the lack of success in some instances? (John Langley, PhD)

Jim Handoush: As the key component to supply chain planning and execution, IT can be viewed as the major contributor to the overall success or failure of the relationship between a 3PL and a customer. Both organizations must be closely aligned, share common goals, maintain an open flow of communication and be willing to collaborate. If there is a lack of trust or flexibility on the part of either party, progress will be greatly diminished. Customers look to 3PLs as their “experts” in this field, and as such, expect 3PLs to be forward thinkers and innovators when it comes to IT enhancements and value creation. Relationships become strained when a customer feels that their 3PL is not meeting their expectation as it relates to bringing forward new ideas and solutions to drive supply chain efficiencies. Also, integration, access to data and the cleanliness of that data is paramount to develop meaningful and timely key performance indicators (KPIs) and performance reporting to effectively manage the business.

LQ: What steps are you taking as a 3PL to better respond to your customers’ IT needs? (John Langley, PhD)

Kevin Fletcher: First and foremost, we place great emphasis on our customers’ input. Listening to and being attentive to customer feedback gives us insight to not only their short-term needs, but longer-term strategic direction. Our 2009 acquisitions allow us to provide web-based IT solutions that are highly configurable and easily implemented, from basic transportation to very complex enterprise level supply chain order management. These solutions reduce total supply chain cost and improve business processes through optimization and automation in a real-time operating environment for shippers while also affording greater visibility, business intelligence, and KPI/performance reporting. Customers can choose to purchase only the technology on a subscription basis or elect to have Landstar also perform the execution. Our customers have come to expect us to bring new solutions and technologies that allow them to operate their supply chains more efficiently and cost-effectively which ultimately makes them more competitive in their particular market.

LQ: Looking ahead into the next three to five years, what do you feel will be your customers’ top priorities in terms of IT needs where 3PL involvement will be helpful? (John Langley, PhD)

Jim Handoush: In general, I would say that customers will place greater emphasis on web-based technology that allows them to reduce total supply chain costs and improve overall business processes through optimization and automation. These solutions will include multiple segments of the overall supply chain in a real-time operating environment. Key facets of these solutions will include material order management, dynamically optimized network plans, execution of transportation orders, payment to service providers, and reporting of critical business intelligence in a multi-lingual, multi-currency environment. I also anticipate an increased dependence upon integration as integration platforms become more and more flexible. I expect a broader acceptance of IT on a subscription or on-demand basis for a number of reasons that are making it more attractive and cost-effective. Customers will continue to place significant value on a 3PL’s ability to provide real-time supply chain visibility, deliver innovative and scalable solutions that are also flexible, and afford timely and accurate KPI/performance reporting to better manage the business. Ultimately, a 3PL’s involvement will only be helpful if the business and IT communities of the customer and 3PL are strongly aligned.

LQ: In the future, do you see 3PLs developing more of their own software and IT, or do you see them relying more so on the commercial sector? (John Langley, PhD)

Kevin Fletcher: I see it being a combination of both. Some 3PLs see this as a core competency and are very comfortable developing their own IT solutions in-house and keeping the resources needed to enhance and maintain their systems. Others may not feel as strongly about their internal capabilities and choose to rely more on the commercial sector for their expertise. I’ve also seen some cases where the commercial sector was used instead of the 3PL’s existing in-house IT department specifically to support a speed-to-market strategy. In general, it boils down to a build versus buy decision based upon the 3PL’s cost-benefit analysis.

LQ: To what extent are contemporary technologies such as “cloud computing” relevant to your current and/or future IT plans? (John Langley, PhD)

Jim Handoush: Contemporary technologies such as “cloud computing” are very relevant to Landstar’s current and future IT plans as evidenced by our 2009 acquisitions. These solutions have a cost, speed, and ease of implementation advantage over traditional software that must be purchased, installed and maintained. Contemporary technologies must be viewed as viable solutions given the trends of expanded broadband capabilities, global IT hosting centers, new and more powerful server technology and software, worldwide acceptance and usage of the Internet, and the availability of inexpensive PC hardware.

 

 


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