Everybody in supply chain talks about innovation. It’s almost perceived as a professional weakness or disadvantage if you don’t use the word ‘innovation’ when talking about your company or vision for the future. But what exactly is innovation and is there a real business case for it? What kind of innovation does your customer need and want to pay for? Does everyone actually need innovation? And how does this translate into innovation for third party logistics providers (3PLs)?

The new report from JDA Software and Supply Chain Digest (SCDigest) highlights two supply chain megatrends for 2017:

  • There’s a continued strong growth in logistics outsourcing, which regularly advances at a rate greater than GDP growth, taking share
  • There’s a high corporate priority for innovation, both in the supply chain directly and in support from the supply chain for product/service innovation

These trends together show the need for greater focuses on innovation successes and limitations in shipper-3PL relationships.

Defining Innovation in Logistics

Over the last three decades it’s been apparent that there’s been a continuous upward path of innovation in logistics. During the early period of globalization, from the 1980s to the 2000s, 3PL companies focused on scaling capacity by building and consolidating their networks and becoming more efficient and cost-effective in serving their markers. Fast forward to the present and the logistics industry is focused on digitization, ecommerce, big data and IoT.

How Important is Innovation in Logistics, Exactly?

Innovation is very important, per the data. From the shippers’ perspective, 69 percent of respondents reported that “innovation is very important” to their relationship with 3PLs. Ongoing innovation is required to support the growing needs of ecommerce, online fulfillment, personalization and omni-channel expectations, while turning orders around quickly and cost-efficiently.

However, when asked if shippers saw 3PLs as being innovative in terms of process, 26 percent of respondents felt 3PLs had low innovation capabilities and 24 percent felt they had modest innovation capabilities.

The data also revealed a gap between what shippers expect and what logistics providers think they can deliver. When asked how they’d rate the 3PL sector on the ability to innovate and deliver technology innovations, only 7 percent of shippers felt they delivered high innovation capabilities. On the other hand, 3PLs rated their ability to deliver high innovation at 38 percent. That’s a huge gap! It’s also important to note that, for the most part, respondents felt that if choosing between operational excellence and innovation, they’d choose operational excellence, since customer service and meeting customer promises exceeds the need for innovation. That is, of course, unless it can drive excellence back into the business.

Data from the report also supports a common theme: Innovation isn’t for every customer. Therefore, a segmentation approach is needed. 3PLs need to look to the future – what will their business look like in 5-10 years and who will their customers be or become during that time?

3PL Collaboration + Shipper Collaboration = Delivering the “Right” Innovation

The data shows an interesting point: When asked about how shippers engage with logistics providers to develop innovation, many shipper and 3PL respondents agree that the 3PLs are allowed to find methods/solutions as long as they achieve business goals. In fact, nearly 64 percent of 3PLs have a hybrid relationship with shippers, which allows for a prescriptive, yet open approach to innovation and collaboration on what best fits their needs. On the other hand, 39 percent of shippers/clients felt their relationship with 3PLs was fairly prescriptive, not leaving much room for innovation.

Several 3PLs claim they can deliver innovation in the form of process or technology re-engineering, but only if they’re allowed. When the customer doesn’t value innovation, or doesn’t foster strategic collaboration, there’s a lot of resistance to change. The survey results reveal that while shippers appreciate efforts by 3PLs to launch innovative strategies, they’re also looking for expertise, best practices and solutions that can help them improve their business.

The data also points out the common misperception around 3PL capacity for innovation and perceived lack of strategic relationships between 3PLs and shippers, as well as a gap between the innovation that’s required and what innovation is nice to have. Logistics service providers need to be at the leading edge of technology and supply chain trends to keep up with the fast-changing needs of their customers. By not keeping up, they’re losing a critical competitive advantage.

How Can a Logistics Provider Become a True Technology Innovator?

At this point you’re probably asking yourself, “But what about the truly leading-edge innovation: Augmented reality, robots, 3D printing and drones?” There was a mixed response around this topic, with many shippers having doubts about providers being able to lead on those innovations, but many providers believe they should.

According to the data, 46 percent of 3PLs believe shippers expect them to offer more advanced technologies, while only 24 percent of shippers suggested 3PLs should add these capabilities to their service offerings. Survey results emphasize the challenge between the balance of innovation that lowers operational costs versus innovation that improves performance. Providers want year-over-year lower costs with the perception that innovation drives lower costs instead of new business capabilities. But for regional or niche players, innovation is critical to differentiate from others, predominantly because of the bigger customers in retail and high-tech industries driven by omni-channel, customization/personalization and product lifecycle.

The Best Path Forward to Innovation in Logistics Services

The new insights provided in the report, 3PLs Are Buzzing with Innovation: Bridging the Gap Between 3PLs and Shippers, supports the importance of driving more collaboration between shippers and 3PLs. So, given their importance of innovation in their business, what should 3PLs do next? Below are several ideas to up the innovation ante:

  1. Develop a formal innovation strategy
  2. Segment your customers based on their maturity, vision and business needs
  3. Improve strategic alignment with your customers, truly understand their priorities and needs
  4. A solid innovation platform must exist to standardize the deployment of the solutions and innovations
  5. Continuous discovery, never dismiss the possibilities especially as technology and data continue to advance

This year is going to be an innovative year between 3PLs and shippers and we’re looking forward to the trends in this report having a positive impact on 3PLs and shippers.

Get more details and statistics around bridging the innovation gap between 3PLs and shippers in the new report here.