Why Are Companies Turning to LSPs? Technology Leadership
It’s no secret that logistics margins are shrinking as operating costs continue to escalate. At the same time, customers have never been more demanding, creating tighter and tighter delivery schedules. Add in labor shortages, ongoing disruptions and sustainability pressures — and we’ve got possibly the most challenging logistics environment ever.
How can shippers, including retailers and manufacturers, successfully navigate this volatile landscape? Increasingly, they’re turning their warehousing and transportation activities over to logistics services providers (LSPs) to optimize these activities and generate a fast return on their logistics investments.
As a result, LSPs are seeing enormous growth. The global market for third-party logistics (3PL) is projected to increase from $974.6 billion in 2022 to $1.9 trillion by 2030, reflecting an average annual growth rate of 8.4%. And that figure doesn’t encompass other LSPs such as postal service providers, parcel carriers, fourth-party logistics (4PL), and fifth-party logistics (5PL) providers, which are also experiencing rapid growth.
Why are so many retailers and manufacturers turning to LSPs — and how are these logistics partners helping to improve margins and returns? That was the subject of a recent webcast Blue Yonder sponsored called “Fast Tracking ROI: Agile Logistics Through Automation, AI and Optimization.”
This on-demand event was hosted by Brian Straight, Editor-in-Chief of Supply Chain Management Review, and it featured two guest speakers: Kristi Montgomery, VP for Innovation, Research and Development at Kenco Logistics, and Travis Eide, Research Director for Global Supply Chain, Transportation, at IDC. Nafe Hagen, 3PL Global Solutions Leader for Blue Yonder, rounded out our panel.
“Let the Experts Be Experts”
These panelists unanimously agreed that, in today’s challenging warehousing and transportation environment, partnering with an LSP just makes good business sense for many retailers and manufacturers.
In his work at IDC, a leading global provider of market intelligence for the technology industry, Eide sees firsthand the challenges faced by retailers and manufacturers today.
“I think shippers have reached a point where they understand they’re lacking logistics industry expertise, and that lack of expertise is putting them at a competitive disadvantage,” said Eide. “They’re looking to offload some of that operational workload, bring in a third party, and let the experts be experts. That allows their own team to focus on their core competencies of running the business, while the 3PL provides operational intelligence. They’re striving for best-in-class service levels that help support their future growth.”
Hagen — who works with LSPs, retailers and manufacturers at Blue Yonder — concurred with Eide. “A lot of shippers are looking to save money while also increasing service levels to hit their on-time, in-full targets,” he noted. “They’re looking to LSPs to bring thought leadership, innovation and best-in-class practices. Every day LSPs get up and they breathe, they sleep, they eat logistics. They think about nothing else. They’re thinking about things like, how do I automate processes? How do I increase efficiencies? How do I drive growth for my customers through the supply chain? Day in and day out, they’re focused on logistics optimization.”
LSPs Unlock New Opportunities via Technology
Montgomery leads innovation efforts at Kenco, a fully integrated 3PL managing over 100 distribution facilities for more than 350 customers. She recognizes the importance of applying advanced technology, including Blue Yonder solutions, to help customers solve their complex logistics challenges.
“People get excited about the ‘bright shiny objects’ like robotics and automation, but realistically where we’re seeing a significant amount of uplift with our customers is ensuring that processes are automated, workflows are automated, and there’s less manual entry and manual capture of data. And then once you have that capture happening digitally, now you have access to data that you didn’t have before,” Montgomery pointed out.
“Then you layer on top of that things like predictive analytics and machine learning — and now you can predict what’s going to happen six to twelve weeks from now,” she continued. “As everyone knows, the supply chain changes frequently. And so how can we be prepared for that? With advanced technology, we can create a digital scenario behind the scenes where we say, what if this happens? What if that happens? And now we’re ready for the future.”
“The range of advanced technologies available today enables logistics teams to say, what makes sense for my operations? And LSPs are doing this better than anybody in the market right now,” Hagen remarked. “They’re able to look at customer organizations and say, here is an area of innovation we think would benefit your business. By entrusting their logistics to an LSP with advanced technologies and best practices, shippers can react to complicated situations at scale. LSPs bring thought leadership and technology leadership that help shippers unlock opportunities for efficiency, without a huge total cost of ownership.”
Driving ROI Through Partnerships
Hagen noted that, in his work with Blue Yonder customers, he sees the value and return on investment companies are realizing from creating strategic relationships with LSPs.
“The world around us is changing, and it’s constantly going faster. We’re seeing this trend of tighter margins, but also shorter timelines to deploy, shorter timelines to react, and the need for an increase in ROI,” said Hagen. “The ongoing market volatility really creates this perfect storm where retailers and manufacturers are looking at the market saying, what do I do? We’re seeing more companies work with one or two key LSPs and really create a partnership, versus what we’ve seen in the past, where they had 10 or 15 different LSPs. We’re seeing a lot of consolidation in the market as companies really try to attack their challenges.”
“I think there’s quite a lot that LSPs bring to the table,” added Eide. “They’re able to leverage cross-industry expertise and drive toward best-in-class capabilities. They can take learnings from other customers and other industries and use those to help address some of the challenges that a manufacturer or retailer is experiencing, without having to reinvent the wheel. And that helps drive speed of ROI and increase an organization’s competitiveness in a real-time environment. LSPs bring that technological knowledge to the table and expertise that can help drive innovation. And to do that with speed is important in the space that’s evolving so quickly.”
What Are LSPs Getting Right? Stay Tuned
In my next blog, I’ll explore the specific best practices — including the application of AI and automation — LSPs are delivering to their customers today. Check back to see what our panelists had to say. And remember to watch the full webcast here.