Insights / Supply Chain / Article

Three Power Shifts Forcing Re- Evaluation of Logistics Strategies

February 18, 2016

Contributor: Christy Pettey

Growing supply chain management complexity is one of the biggest strategic threats.

Global logistics organizations are struggling to adapt as market power shifts away from them. These shifts in power impact logistics leaders' abilities to effectively manage their operations amid ever-increasing complexity.

First, a significant percentage of global companies outsource part or all of their logistics operations to third-party logistics (3PLs) organizations. “In the past, the customer was king, and 3PLs would often fall over backward to win over customers, often offering services at a loss,” said C. Dwight Klappich, research vice president for Gartner.

With significant consolidation occurring in the 3PL marketplace, Gartner estimates that, in the next few years, 10 major 3PLs will control roughly 80 percent of outsourced logistics spend. This consolidation of power allows 3PLs to be increasingly selective when choosing the companies with which they do business. Consequently, companies must move away from using price as the primary metric for choosing a 3PL. This power shift is not only in 3PLs — it’s also happening in over-the-road trucking, where carriers are now being equally selective in their choice of shippers.

The next power shift is technology, which is moving from being human-centric to increasingly using autonomous smart machines. “Historically, machines were only good at doing routine repetitive tasks, where humans could strictly engineer into these solutions the expected behaviors,” said Mr. Klappich. “For example, industrial robots were good at such things as painting the body of a car or welding a joint, and it took significant human time and effort to program the specific behaviors.

As smart machines evolve, whether they are autonomous vehicles or digital/cognizant assistants, power will move away from those that do tasks to those who develop the automated tools to partially or completely perform those tasks.

Lastly, power is shifting in the technology world from monolithic applications hosted on-premises behind a company's firewall to more supply chain and logistics applications operating in the cloud. In some cases, the move from on-premises to the cloud is principally a change in address. In other cases, the cloud offers enhanced capabilities that are difficult, if not impossible, to provide in traditional deployment models. In transportation systems, for example, having a prebuilt carrier network accessible to all clients on the cloud application has numerous benefits. This is especially true in a climate where carriers have more power to choose shippers, which forces shippers to engage with more carriers.

“The era of logistics organizations viewing themselves simply as expert expeditors is over. Today's increasingly complex and volatile business climate is forcing logistics users to become more proactive, forward-looking and clever in managing their operations,” said Mr. Klappich.  

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