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No niche is an island:

Do you want to perfect your company's service offering? In this article, five examples of value-added solutions that a 3PL can provide within a reverse solutions "niche" shed light on how companies can outperform their competitors. Here's a look at how a niche 3PL can establish itself as a leading provider of a core service.

by Herb Shear

Advice, unlike carrier capacity, seems never to be in short supply. The current advice for 3PLs is to establish dominance in a particular niche, whether that niche is a geographic region, a vertical specialty, a service or a product.

Plenty of 3PLs are taking that advice. EyeforTransport reports that in today's fragmented 3PL marketplace, "... individual players have been focusing on their chosen segments to attain critical niche and segmental leadership".

There is much to be said in favor of defining your specialties and sticking with them. A niche-dominant 3PL can provide personal attention, accessible management and up-to-the-minute expertise that can't be beat by the mega-logistics companies.

But if you're too narrow in defining your niche, you may be left out in the cold. Client companies will pay for specialized logistics expertise only where they need it. They want to reduce, not increase, the number of outside service providers they use, so as to streamline and standardize their own operations. When I got started in the logistics industry 35 years ago, it was not uncommon for a business to deal with 300 to 400 carriers and 30, 40 or even 50 warehouses. Today, it's rare for even the largest corporation to have that many suppliers. Companies nowadays are open to - in fact, they demand - a comprehensive set of supply chain solutions from, and a true partnership with, a 3PL.

That means that 3PLs need to provide a complete solution for a particular niche. No niche is an island; it is "a part of the main". The successful 3PL of the 21st century will distinguish itself by being not only the best provider of a niche solution, but also by locating that particular solution within a broader universe of solutions which it is equally well equipped to provide.

How can that be accomplished? My advice is, first, to identify where you can provide the greatest sustainable value for your targeted customer base; next, to identify the niches you are best suited to serve; and, finally, to offer a complete suite of valued-added services surrounding your chosen niches, so as to become a strategic partner to your clients.

When I recommend "a complete suite of valued-added services", I do not mean that a 3PL should attempt to be all things to all people. Such a strategy might work for the very largest third-party providers, but it is not a viable option for the rest of us. What I mean is that a 3PL that establishes itself as a leading provider of a core service should also provide an array of closely related services that help the client achieve its strategic goals.

Reverse logistics is a case in point. Suppose you operate a returns center for a client. You could simply handle returns processing, and establish yourself as an efficient hired hand. Or, you could oversee the entire reverse channel, and establish yourself as a problem-solving, profit-enhancing partner.

If you choose to be the latter, you must think "outside the box" - outside the niche, if you will - and help identify and solve supply chain problems that originate before, and linger after, your client's goods enter the returns center. Here are five examples of value-added solutions that a 3PL can provide within a reverse solutions "niche":

1) Take damage out of the supply chain so as to prevent returns before they occur. Consider unsaleables, which cost the consumer-packaged goods industry $2.6 billion last year. Companies usually focus on returns processing as the solution. But there is a better way: uncover the causes of unsaleables in order to keep them from happening. For instance:

2) Take transportation of returned goods off the client's shoulders. A 3PL with complete, efficient, timely transportation capability relieves clients of an onerous task, freeing them to concentrate on their own operations.

Here is an example on the inbound side: Sears Holding stores - which include more than 3,000 Sears and Kmart locations across the U.S. - handle returns through a website especially developed by their 3PL. They simply log on and enter a few bits of data. Pickup is automatically arranged - that very day, if the order is placed before 11 a.m. - and both a VICS standard bill of lading and a pallet label are automatically generated. This process cuts a day or two out of the historical pickup time cycle and automates load tendering. On average, this web-based system saves 15 to 20 minutes per shipment over hundreds of thousands of shipments.

3) Establish the "rules of engagement" for adjustable rate policies. The 3PL is uniquely situated to mediate clashes between retailer and manufacturer. It is a damage fact-finder, assessing the condition of the returned items, their causes and their rates of return. It sets forth that data as the factual basis for negotiation of off-invoice allowances.

Such negotiations are traditionally the source of much acrimony. But I have never heard of either a retailer or manufacturer refusing to be accountable for something as long as they understand it to be under their legitimate control. When the facts are clear, the talks go better. Most important, the working relationship between maker and seller improves over the long term - a result that is no less valuable for being intangible.

4) Maximize the value of the client's assets. Far too many companies still view returns as trash, to be disposed of as quickly and cheaply as possible. A 3PL that thinks beyond the niche shows the client that reverse logistics is a strategic weapon that adds to the bottom line.

Disposition management is an example. Suppose a company's products are selling in Maine but not in Florida. Its 3PL should calculate and offer options: e.g., it would be more profitable to transport the products from one state to the other than to sell them at markdown. Other examples:

5) Manage the best use of technology. Will a specific new technology drive out costs? Will it drive up productivity? The answers were "yes" and "yes" at the massive Sears returns center near Atlanta, which processes more than 3,400 pallets and 800,000 items each month. In a recent pilot program, claims by salvage dealers plunged by 83 percent after Sears' 3PL replaced barcodes with RFID tags on outgoing shipments. An independent study by Carnegie Mellon University attributed the reduction to two sources; improved efficiency and the deterrent effect on false claims. RFID deployment has now been expanded to all outbound operations at the Atlanta returns center.

That is an instance of how a 3PL can widen its niche by serving as an objective, knowledgeable technology adviser. By counseling clients either to make a worthwhile investment or avoid wasting their money, a 3PL adds value to their bottom line.

The preceding five solutions - damage avoidance, transportation, adjustable rate policy, maximizing asset value, and technology -- are just some of the ways that a 3PL could reach out beyond a narrowly-defined "returned goods" niche. A big part of the third-party expert's job is to innovate, to ask clients, "Do you perceive this problem? Have you considered this solution?"

What is more, a 3PL that establishes itself as an expert problem-solver in one niche enjoys a competitive edge in other niches. Suppose, for instance, a 3PL gains the trust of a client by implementing an effective damage avoidance program; that client surely will lend a respectful ear if the same 3PL proposes to operate a warehouse. And there the cycle will begin again, if the 3PL goes on to offer a variety of direct logistics solutions that benefit the client. A customer, after all, does not see some arbitrary "bright line" drawn between different niches. It just wants its supply chain to run efficiently, and if one 3PL can make that happen at different points along the chain, all the better.

Third-party solutions are in demand. The U.S. Department of Commerce sees the 3PL sector growing at 10-15 percent a year, while a study by Accenture and Northeastern University shows that 370 of the 500 largest U.S. manufacturers work with 3PLs, up from 185 a decade ago.

I attribute that rising demand to two causes. First, more and more companies are discovering the competitive advantages of a thoughtfully designed, technologically-advanced supply chain. Second, and simultaneously, they are discovering that they lack the internal expertise to establish such a supply chain. It's not their core competency.

No doubt some corporations will choose to work with giant, soup-to-nuts logistics providers. Others will fill a specific need with a small, specialized, boutique 3PL. But I believe that clients will obtain the best value from 3PLs that fill the in-between space: those that offer an array of creative, problem-solving, value-added services, related but not limited to a given niche, that fill the client's strategic needs. Indeed, no niche is an island; a 3PL, for its own and its clients' sake, must explore wider territory.