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Logistics Quarterly Magazine - Volume 16, Issue 2, 2010

 

The IT Gap Faced by Third-Party Logistics Providers

Chris Norek, PhD, Senior Partner, Chain Connectors, Inc.
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In the most recent Third-Party Logistics (3PL) Study completed by Dr. John Langley and Capgemini, over 1,100 survey responses were received from global shippers who are users or potential users of third-party services. Over 400 of the responses were received from shippers in North America. Two questions that have been asked over the last several years of the survey are: “Are IT capabilities a necessary element of 3PL expertise?” and “Are you satisfied with 3PL IT capabilities?” The results from nine years of the survey responses to these questions are shown in the following chart.

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Source: 15th Annual Third-Party Logistics Study: The State of Logistics Outsourcing, Dr. John Langley and Capgemini.

As evidenced by these results, there is a noticeable and significant gap between what shippers perceive 3PL providers need to offer in the information technology arena and whether shippers are satisfied with the IT capabilities offered by third-party logistics providers.

Why the gap exists and Why it has Narrowed

There are several potential explanations for the perception gap between the desired performance of 3PL IT capability and current perceptions of the actual capability. These include ease of integration to 3PL systems, access to and pricing of external software solutions, and communication. I’ll discuss the issues and how they’ve been addressed to reduce the IT perception gap.

Integration to 3PL Systems

Integration is a key issue in terms of 3PL IT use. Any time a company has to link to a trading partner, whether it be a customer or supplier, the IT systems obviously need to be connected to enable information sharing. This task is often tedious and time consuming, particularly with legacy systems of a 3PL. As a result of the time needed to complete an integration to a third-party by a shipper, it is often a difficult task for that shipper to consider using another 3PL. In essence, the difficulty and effort experienced in the integration process can keep a customer “tied to a 3PL” in good times and in bad. The switching cost could be so significant that a 3PL could conceivably keep that shipper’s business longer than if integration to another possible supplier would be made easier.


The gap has been narrowed as integration has been made easier by software providers. Service-oriented architecture (SOA) has allowed more of a “plug and play” integration. Over the last ten years, great strides have been made in both functionality and ease of integration by software providers. Software providers have helped make the integration of solutions quicker and more painless (I didn’t say totally pain free!) including the use of SOA. All of the big enterprise requirements planning (ERP) vendors have made SOA a big portion of their current solution offerings.

Access to and Pricing of External Software Solutions

Traditionally, pricing of software license fees often prohibited the adoption of new technology. Most software providers required the expensive purchase of the full license to allow use of the software. In addition, software providers didn’t like usage of the software for many companies outside of the company actually using the license (e.g., 3PL customers). As a result, it was sometimes difficult for a 3PL to adopt and implement new functionality to be used across their customer bases.


Recently, new pricing models, including Software as a Service (SaaS) which allows paying based on amount of use, have made it easier for 3PLs and their customers to evaluate the value of software solutions. There is also more flexibility in pricing and some supply chain software providers are actually targeting 3PLs as their main sales demographic.

Communication

Communication issues also contributed to the IT perception gap for 3PLs. Being able to clearly show how 3PL technology could benefit shippers wasn’t easy in the past, particularly if legacy systems were used to link 3PLs and customers. Now, third-party providers have become better versed in providing concise answers to questions on how they can create value for their customers. Having experienced and addressed integration issues has made 3PLs more conversant in showing value for the use of information technology. Overall, the level of IT knowledge shared over time for both 3PLs and their customers has increased, thereby reducing the fear of IT issues.


While there is still a sizable gap in the perceptions of 3PL IT capabilities, it has been reduced significantly over the last several years. Since admitting a problem is the first step in resolving it, the visibility of the 3PL perception gap has brought attention and focus to this important area. Based on progress in the 3PL IT area, the gap should continue to narrow.

 

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