It’s official: third party logistics providers try too hard to please their customers and it is costing them a fortune. A report, by Damian Coffey, Marco Kesteloo and Robert Spieker of consultants Booz Allen Hamilton, points out that the average return on sales of the leading players dropped from 6.4 per cent in 1996 to 2.6 per cent in 2005.
Coffey, Kesteloo and Spieker call third party logistics “the industry that needs to relax”. They argue that declining margins “are a consequence of the industry’s business model, which consists primarily of custom-tailoring technology solutions to clients’ every request, without thought given to the economic consequences of that strategy”.
Their thesis is that 3PLs should switch to what they call a “smart customisation approach to get profitable growth through tailored business streams”.
By smart customisation they mean a product-focused model that offers a carefully defined selection of increasingly differentiated, and consequently more profitable services.
It seems such an obvious alternative to the bespoke solution strategy – after all the “product” approach works well in the express business. So why no-one has thought of it before?
The answer is that they have. Some 15 years ago I had conversations with senior managers in Exel who were developing “logistics products”. Even then, 3PLs were starting to feel the squeeze and saw the need to have something they could sell rather than simply having to react to customer demands.
The idea clearly didn’t take off then, but it is undoubtedly a tougher world for 3PLs today so perhaps the time has come.
The key question is: would customers accept this approach, or would they feel that something was being taken away from them and look for another bespoke service?
In any case, I suspect that it will be some time before we see a 3PL advertising the advantages of its PukkaPikkaPakka brand over a rival’s EezeePickPro offering.
Malory Davies FCILT, Editor