LQ’S EXECUTIVE INTERVIEW SERIES:

Strategies for Success and Moving Upwards in a Downturn

A Conversation With Thomas K. Sanderson,
President & CEO, Transplace

Questions for this Executive Interview Series have been prepared by LQ’s Executive Editors.

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LQ: Will belt-tightening due to difficult economic times in 2009 compel more supply chain managers to cut costs by dedicating more resources to supply chain management software, or the I.T. expertise of 3PLs?

Thomas K. Sanderson: The answer depends on the severity of the downturn. In the past, I’ve seen shippers use tough economic circumstances as a catalyst to get capital appropriation approved for supply chain software – tying the investment to the business case surrounding the application. During this particular challenge, however, we are seeing heightened interest from the shipper community for a 3PL-provided IT solution.  In today’s market, not only are capital budgets thin or frozen, but organizational budgets are tight, with many shippers actually reducing headcount rather than adding or maintaining headcount.  Supply chain applications create value, but they – by definition – also require talented personnel to make proper use of the tools. With the 3PL-delivered approach, shippers realize the potential that supply chain applications offer, with two key considerations for today’s realities. First, the technology costs are funded out of operational budgets rather than capital budgets; and second, the 3PL solution affords supplemental staffing for the solution design.  The provision of both the people and the technology to improve the business process has made the 3PL offer very compelling in this market.

LQ: Will the economy create a greater trend for more to focus on deriving even greater value from their existing outsourcing relationships? Will they likely use this as a lever to renegotiate existing agreements regarding pricing, service levels and other key terms?

Thomas K. Sanderson: From our perspective, Transplace sees our existing customer base now looking to expand the scope of business processes where we can help support their goals. For example, where perhaps in the past our customers had a staff to focus on some portions of the supply chain operation internally, and to rely upon Transplace for other areas – now, we are in discussions to expand the boundaries where Transplace is “on point.” While it is true that the economy is slowing down, the supply chain business processes are still in motion – and there is heightened attention paid to all operating costs associated with it. Where it makes sense, our customers are shifting additional areas of scope to Transplace in order to free up limited time and resources on their side of the relationship. This addresses the heightened attention and focus that supply chain costs are now receiving from C-Level leadership.  In terms of shippers using the current economic climate as a lever for renegotiating agreements,  we have not seen this in our business.  Our customers look to Transplace as a strategic partner, and as such, we are always looking for mutually beneficial ways to streamline and enhance our business relationship.  The one thing we do see is that our primary contacts proactively seek us out to brainstorm collaborative ways to create new sources of value in the supply chain. So for us, this downturn has served as an opportunity to become even closer to our most important customers. 

LQ: Will outsourcing provide an opportunity for companies emerging from the current economic downturn to find solutions that need less capital, and instead place a premium on the importance of working with others who have the right people and processes?

Thomas K. Sanderson: In the logistics arena, the focus is always on process-based outcomes. The key question we typically see is a shipper thinking through the trade-offs of an internally pursued outcome, or an outcome that relies upon both internal personnel and external partners. For many firms that have historically had corporate cultures that value internal process controls and accountability, this translated to capital investments in buildings, software, and a payroll-based staffing model. This economic downturn, however, has served as a catalyst for those types of firms to consider alternative approaches out of necessity.  The absence of capital budgets and the freezing of corporate hiring has led many of those firms to revisit the outsourcing option. For those companies, Transplace believes that, yes, they will find solutions that are less reliant on capital budgets. What they will discover after outsourcing a supply chain business process is that the same process-driven outcomes can be achieved through partners, with the overall costs becoming operational costs – turning a total cost equation from one with higher fixed-costs proportions into cost equations where far more of the cost is now variable.  Ultimately, the goal is efficient execution of the business process. Whether that process is performed by internal people (using owned assets and tools) or by external people, the true measure of success is the same – the fully loaded cost to serve a customer base at a targeted service level. Shippers that select the right external partners today will find that the total cost to serve their own customers can be brought down while also streamlining their corporate balance sheets.

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