According to Jozef Opdeweegh, who has been the CEO of three successful global logistics companies, there are 7 core factors that will determine the success of a third-party logistics business.
1. Customer centricity
At the heart of a successful logistics business is a deep understanding of the needs of the customer and an unwavering commitment to address those needs. Inexplicably, many third-party logistics providers appear to be inwardly focused, without the ability to truly empathize with their customers’ requirements. They lack the natural reflex to think outside the box to bring their customers innovative solutions that will allow them to create a distinctive competitive edge.
2. Quality of operations
At its core, a third-party logistics business is tasked with delivering the right part to the right location at the right point in time, while minimizing any product-damage. Key focal points to fulfill the core mission include:
- Qualified and well-trained personnel
- Stringent error-proofing techniques
- Embedded quality control systems
- Real-time inventory visibility throughout the supply chain
- Laser focus on continuous improvement
- Six Sigma with lean manufacturing
3. Turn-key solutions
Customers increasingly want a provider that can successfully handle any type of end-to-end, specialized value-added logistics services. It is essential for a third-party logistics provider to master a vast array of supply chain optimization tasks, while not being too constrained in its service offerings. A provider should ideally develop the know-how to serve all of its customers’ supply chain needs. These run the gamut from the mundane to the very complex, from straightforward full truckload transportation to complex integrated warehousing and product transformation, as well as much more sophisticated, multi-modal solutions.
By providing the customer with a proven, turn-key solution, a logistics provider will greatly simplify the task of the customer’s purchasing community, which will be able to source with one partner, rather than having to piecemeal different facets. This eliminates the problem of ill-delineated boundaries between different providers
and the inevitable finger-pointing in case of quality issues.
4. De-commoditized service offering
The landscape of logistics companies is very competitive with a direct correlation between the complexity of the task and the number of market participants.
In order to differentiate itself from competitors, a logistics provider should focus on services that are complex and mission-critical to the success of its customers. It is important to crawl up the value chain and embrace complex value chain challenges.
By being a reliable provider that embraces challenges few others will touch, a logistics company puts up barriers to entry, increases switching costs, and enhances the stickiness of the customer base. This is not a suggestion to solely focus on the very sophisticated, but rather to make those mission-critical tasks the heart of an integrated service offering.
The ability of a logistics provider to master integrated and sophisticated supply chain optimization results in a micro environment with a smaller group of competitors. This should lead to the negotiation of more favorable contractual terms and more attractive margin potential. From the perspective of the logistics provider, the key elements to focus on during contract negotiations are the following:
- Clarity on scope of service.
Have a very detailed description of the service offering to minimize future questions about what is inside or outside the contract scope.
- Duration of the contract
Longer contract terms provide a sustainable cash-flow profile and allow the logistics provider to invest in innovative technology to better support the customer demands with a long-term view.
- Protection against fixed costs
- Clarity on scope of service.
Build in protection, either in the form of a non-volume related reimbursement for fixed costs, or a variable reimbursement per relevant unit of measurement that increases if the handled volume decreases.
- Performance indicators that are clear and measurable
Relevant KPIs are customer dependent but would include: (1) number of errors, expressed as a fraction of the number of opportunities to make an error (short, over, damaged), (2) on-time delivery, (3) truck turnaround time, (4) labor efficiency and more.
6. Information technology
In order to effectively run a logistics organization, it is paramount that the company has real-time global inventory visibility to know exactly where different SKUs are stocked. A global logistics company may handle and aggregate millions of SKUs in its warehouses. Without providing access to real-time inventory information, a third-party logistics company cannot satisfy the demands of its discerning customers. Equally, it will not be able to provide meaningful reporting on the KPIs that are relevant to the customer and that have been agreed to in the service contract.
A successful logistics business can swiftly adapt to changing customer needs, rush orders, seasonal demand, and related peaks in volume. Maintaining the requisite agility requires the provider’s back office to be versatile and capable, yet nimble. By virtue of their business model, third-party logistics businesses manage geographically dispersed warehouses, so it is critical to develop a standardized operating system to guarantee a consistent customer experience across the network. Hand in glove with this is the need to build a fully scalable support infrastructure that can be adjusted up and down based on volume requirements.
Jozef Opdeweegh, also known as Jos, has served as CEO for over 17 years of global technology, distribution, and supply chain optimization companies with 5,000 to 20,000 employees, public or privately held. Opdeweegh has extensive board membership experience on 4 continents with related and unrelated companies.
Website – http://jozef-j-opdeweegh.com/
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