The 10th Annual Third Party Logistics Study from Capgemini, The Georgia Institute of Technology, SAP and DHL, should serve as a wake-up call to 3PLs the world over. It shows that only 38 per cent of customers are satisfied with their 3PL’s IT capabilities – half what it was two years ago. For the first time, customers are asking for cost-effectiveness above all else, though they are not willing to lose progress made on value-added services. This means that 3PLs will need to make more intelligent use of available technology to provide strategic expertise and thus move up the value chain. With over 70 per cent of survey respondents claiming their services were merely tactical in nature, those 3PLs that get this right will clearly differentiate themselves from the competition, enabling them to squeeze their low margins further.
And therein lies the difficulty: low margins dictate that 3PLs limit IT investment to customer demand, so that their IT infrastructures must be as flexible as possible to accommodate this. Many have made significant investments in tools that will assist in managing the supply network, but these have typically been designed with an enterprise focus. This limits their usefulness because 3PLs operate multiple contracts simultaneously, and a single supply chain can extend across hundreds of trading partners. Ahead lies the task of using current IT investments in a new business model.
One possibility is to combine the available technologies of Mobile Asset Management (MAM) and RFID, listed by just under 50 per cent of this year’s survey respondents as the top IT priority. RFID is now at a point where it can provide a tangible strategic advantage: for example, Capgemini’s work with the Finland Post Corporation applies RFID technology to transport processes, enabling real-time asset monitoring, enhanced supply chain visibility, and thus customer service, by increasing asset availability and utilisation. With the asset cost of its ‘lost’ or damaged roll cages in excess of 1m euros annually, the fact that the Finland Post Corporation can now track and trace the cages with a 100 per cent readability rate is no small achievement.
Indeed, this represents good and immediate ROI, and of course better asset control leads to significant benefits in its own right through better utilisation and management. After this, the benefits can be extended: ongoing annual shrinkage of lost assets in the order of 10-20 per cent is common; and 40 per cent can be seen in extreme cases. Such success is achievable anywhere, but there are some essential steps that must be taken:
1. The opportunity lies in what RFID can do as an enabler of new applications and processes. It should not be deployed by simply overlaying a technical solution to existing practices but as part of a broader process change in the way business is conducted.
2. RFID should not be attempted purely because it is now possible from a technology perspective. Successful adoption occurs when driven by clear business issues.
3. All technologies implicated under the RFID umbrella have their own distinct capabilities and limitations. Being familiar with how these affect the real operational environment enables the right technology to be applied.
4. Stakeholder involvement and sponsorship is critical, from executive commitment to engagement and training at the operational level.
5. Clean and filtered RFID data with deep knowledge about its context is essential. Only the right tools and capabilities will integrate data to organisational legacy systems and to build solutions that allow further operational improvement.
While overall 3PL customer satisfaction levels are high (88 per cent considered their relationship with their 3PL provider as ‘successful’), technology is the key to offering a more strategic service in the future. Technologies such as MAM and RFID are potential tools that 3PLs could use to provide a more strategic service as they are available now and, used effectively, will minimise customer costs and increase efficiency. By adding genuine value through smart use of technology, 3PLs will ensure they have a key role to play in the supply chain of the future.