Questions for this Executive Interview have been prepared by members of LQ's Board: David Closs, Ph.D., Michigan State & LQ Executive Editor; Russ Doak, Director, Global Supply Chain, Kodak; David Faoro, Director, Supply Chain Management, The International Group; John Langley Jr., Ph.D., Georgia Tech; Kurt Ritcey, Partner, Deloitte
LQ: What are the characteristics of your most successful customer relationships? (Kurt Ritcey, Partner, Deloitte)
John Thomson: Our most successful customer relationships are those that can be described as partnerships instead of customer-supplier relationships. We measure the success of the partnership in specific ways. For example, we evaluate our own performance from the shop-floor up in terms of productivity per person and we identify areas that can be streamlined and report these findings to the customer. The customer then implements the suggested streamlining process or gives us approval to implement it. That produces a positive bottom line for the customer. Even though we may not necessarily produce a profit on the top line, we will have strengthened the relationship with our client and established a high level of trust.
We offer the service that customers initially inquire about and traditionally go beyond this and suggest streamlining processes. We are vocal about recommending cost savings wherever we can identify them. The initial reaction we generally receive is, Aren't you cutting your own profitability?‚Äù If we looked at this strategy with a narrow focus this might be correct. However, in the long term we want to be part of their processes and ensure our longevity as their partner instead of constantly working around their tactical problem areas. We have been innovators in this respect.
LQ: What are the advantages and potential disadvantages of one-stop logistics where the customer counts on the 3PL to provide a range of integrated logistics/supply chain solutions? (John Langley Jr., Ph.D., Georgia Tech)
John Thomson: I don't see any disadvantages to one-stop logistics. With a proper framework in place‚Äîand if there isn't one we try to put it into place ourselves‚Äî and proper measurement of productivity, one-stop logistics is great from a customer's standpoint. They have one entity on the other side that is completely responsible for what's going on. They have an immediate contact to investigate a problem or a process that may need improvement.
LQ: As 3PLs continue to consolidate, will their business focus shift to targeting larger Fortune 500 business as opposed to small and medium-sized organizations? My concern is the consolidated 3PLs will become less flexible in their service offerings and less agile. (David Faoro, Director, Supply Chain Management, The International Group)
John Thomson: This concern is valid and true to an extent. Consolidation can have both positive and negative results. One of the positive outcomes is that grey-area operators‚Äîif we may call them that‚Äîwho fail to follow best practices are identified easily during the consolidation process and weeded out of the industry. A negative outcome of consolidation is that small and medium-sized companies might be overlooked. They often require 3PL services and if they are neglected they will go outside their area of expertise and attempt to practice supply chain management themselves. This may create a two-tier logistics industry. Fortune 500 organizations will always be considered a catch by any of the 3PLs, but from a supplier or supplier-partner standpoint, overlooking the small to medium-sized business market is not a good idea. They form a large and important part of today's marketplace.
LQ: In what ways has your firm changed its business-development efforts when approaching potential clients? How has the value-proposition changed in recent years? (David Closs, Ph.D., Michigan State & LQ Executive Editor)
John Thomson: Years ago, a clear measure of everything was the bottom-line; thankfully, that focus has changed. During the evolution of our company over forty years, we've established ourselves as a solution provider capable of managing either a small facet of a company's supply chain operation or functioning as a complete turn-key supplier.
Increasingly, companies are identifying what they do as core disciplines. In the case of a manufacturer, they might manufacture product X and market and sell product X, but the company may lack employees whose expertise is in logistics. Often they will look elsewhere to outsource this part of their operation.
LQ: Given consolidation in the 3PL industry, what can a smaller 3PL do to enhance its long-term sustainability? (David Closs, Ph.D., Michigan State & LQ Executive Editor)
John Thomson: I recommend that you work with your existing customers and give them as much quality service as possible. Be proactive and add innovative elements to their processes. This doesn't mean looking for more work to increase their outsourcing investment. And they may not be able to measure the impact of new innovations immediately in terms of dollars, but they will down the line. Quality service is where you should start and it is an important selling point when you speak with potential customers. Remind them that you are a smaller shop so you can offer quality service, attention and a custom-fit approach.
LQ: Each 3PL client is distinctive and each supply chain with a specific client is generally different. Too often, 3PLs take the approach that one-size-fits-all‚Äù. What are the steps you've taken to ensure that your company has been diligent in understanding your client's business? (David Faoro, Director, Supply Chain Management, The International Group)
John Thomson: We have a different method of operation for each of our customers. There are a lot of customers that you can paint with a broad brush as they require a similar service offering. But there are those customers that want a custom-fit, and that's what we like to deliver. They're not going to pay extra for it; they're going to pay a 3PL commensurate with what they require. It's important to understand and define what they're looking for and the framework for their supply chain operation.
If a customer has a distinctive situation, product or need, it's counterproductive to the industry as a whole to neglect the unique needs of the customer.
LQ: A non-asset-based 3PL must use the same airline, shipping companies and so forth, to a large extent as the larger companies. The advantage of a non-asset-based 3PL is that they are not tied‚Äù to specific transportation companies or their own equipment in order to deliver their service. What differentiates these 3PLs is their people, their IT, the accounts they've worked on, and so forth. If you are a non-asset-based 3PL, what differentiates you? (Russ Doak, Director, Global Supply Chain, Kodak)
John Thomson: A non-asset 3PL gives the opportunity for more variety and quality choices because you can go shopping for the best product. They are at arms-length from the transportation companies they can recommend. You also need people who are versatile, innovative and prepared to work outside the box.
Questions for this Executive Interview have been prepared by members of LQ's Board: David Closs, Ph.D., Michigan State & LQ Executive Editor; David Faoro, Director, Supply Chain Management, The International Group; John Langley Jr., Ph.D., Georgia Tech; Kurt Ritcey, Partner, Deloitte
LQ: What are the advantages and potential disadvantages of "one-stop logistics," where the customer counts on the 3PL to provide a range of integrated logistics/supply chain solutions? (John Langley Jr., Ph.D, Georgia Tech)
Dave Bouchard: No one 3PL has the best-in-class service in all of its service categories. However, the advantages are tremendous when a customer selects the right 3PL for the right reasons. Many scenarios will permit a customer to optimize and leverage the one-stop logistics‚Äù aspects of a 3PL reflecting the 3PL's experience, infrastructure, systems and ability to execute flawlessly. These scenarios can include when a customer's logistics capabilities need to grow at an accelerated pace to support their own customers, market demands or product expansions; if dramatic shifts in customers' sources of raw materials or finished goods have made current distribution network inefficient or uncompetitive; if competitors are gaining market share; or if logistics related performance metrics continue to be a challenge to improve.
In order for the 3PL relationship to provide a customer a significant return in efficiency and savings, the relationship needs C-level buy-in, executive commitment, good collaboration and mutually agreed upon metrics in order to improve supply chain efficiency.
LQ: As 3PLs continue to consolidate, will their business focus shift to targeting larger Fortune 500‚Äù type organizations as opposed to small to medium sized organizations? My concern is the consolidated 3PLs will become less flexible in service offerings and less agile. Please address this issue. (David Faoro, Director, Supply Chain Management, International Group)
Dave Bouchard: While there is a strong trend toward consolidations and many of the larger publicly traded 3PLs face market and shareholder pressure to perform profitably, an experienced 3PL will have the knowledge and capabilities to help companies of all sizes drive efficiencies throughout their supply chain. Many 3PLs do go after the larger clients who can move the needle‚Äù in the revenue and margin lines. However, service flexibility and large account management do not necessarily go hand-in hand. The key for large companies is to maintain centralized policies and processes but leave the autonomy of execution to the local management closest to the clients. Success comes when a plant or a DC run by local management has its P&L tied to the performance of the 3PL. If the large 3PL offers solid management, proven process infrastructure, and experienced employees at all levels, as well as a focus on the local level, the flexibility and customization needed to deliver effective and profitable solutions is realized.
LQ: How do you structure your operation's supply chain in order to deliver the flexibility your customers need? (Kurt Ritcey, Partner, Deloitte)
Dave Bouchard: Ryder's operations are structured based on a customer-centric model, designed to address individual customer needs. Our firm becomes a partner in the customer's supply chain organization, by integrating and becoming an extension of their business. We begin by analyzing the customer's current state of distribution including: cost analysis, service expectations, long and short-term objectives and goals. The relationship is built on information, collaboration, and two-way communication and supplier/customer visibility allows our engineers and pool of high caliber cross-trained people to identify challenges, bring solutions, and make improvement recommendations. This is accomplished by acquiring visibility to our clients' ever-changing business forecast, changes in market demand and constant communication of changing goals.
LQ: What are the characteristics of your most successful customer relationships - successful as defined by both your customer and your business? (David Closs, Ph.D, Michigan State)
Dave Bouchard: Our most successful customer relationships are ones where collaboration, communication and involvement at all levels for both parties is established, with complete visibility to the customer's short term and long term goals. High levels of trust and confidence between customer and 3PL with constant communication build success. Communications are both formal (strategic, and measurable, in the form of monthly, quarterly reviews), and informal, (tactical, day-to-day updates). It is a true business partnership with a vested interest for both parties. Defining, setting and agreeing on scope, roles, responsibilities, and actionable KPIs are critical. When visibility is achieved, the customer can fully leverage what Ryder can offer in terms of efficiencies, recommendations, planning and continuous improvement. Where the client is a commodity product purchaser, price tends to be the driver based on a presumed service level. Where the client needs a more value-added or niche solution, matching overall supply chain drivers with the 3PL value proposition is more typical.
LQ: Today there is a growing need for specialized knowledge and execution capabilities to adequately support cross-border logistics activities. Please elaborate on these factors. (John Langley Jr., Ph.D, Georgia Tech)
Dave Bouchard: Breadth and depth of knowledge are critical to support the increasingly complex cross-border logistics operations. The 3PL's ability to attract, retain and train employees with knowledge and experience in skilled execution of complex regulations and certifications are critical to success. Larger 3PLs have the infrastructure and internal processes to cultivate experience and to mandate continual training. They also have government and industry partnerships to maintain a large network of skilled, experienced, tenured management and employees that can best support the ongoing and complex changing regulations regarding cross border logistics activities.
LQ: How has your company made strides to address your customers' concerns about environmental sustainability?
Dave Bouchard: We believe our company can and does have a significant positive impact on the environment and we have worked hard to become an industry leader in environmentally sustainable practices to reduce waste, recycle, use non-toxic materials, conserve energy and control emissions. We extend this expertise to our thousands of customers who might not otherwise have access to this level of resources. Since most of our customers rely on trucks in some way to move products across the nation's highways, today they are especially concerned with finding ways to mitigate the impact of rising fuel costs. Some of the operating practices we have helped our customers implement include: train drivers to practice fuel efficient driving techniques; improve tire maintenance; specify fuel efficient equipment; implement an ongoing preventive maintenance program; and leverage technology through telematics and onboard diagnostic systems. While we cannot control the price of fuel, we are in a position to offer pricing and strategies to mitigate the impact of rising fuel costs to help them become more competitive and supportive of the environment.