Background
The highly competitive third-party logistics (3PL) market is a broad and diverse group of companies that move product over ground, air, and sea, from point-to-point for just about every industry imaginable. Companies like UPS Logistics, Ryder, C.H. Robinson, Airborne Logistics, Cardinal Transport, and Penske Logistics are some of the names from a pool of over 200 logistics service providers in the US alone. 3PLs are notoriously under tremendous pressure to manage costs, while providing a wider range of services to an expanded and diverse customer base. At the same time, 3PL providers need to view themselves as business process managers that can capitalize on today's evolving supply chain management (SCM) technology.
Most 3PLs have a significant inventory of applications to host business process outsourcing for order services, warehousing, pick-pack-ship operations, inventory control, kitting, light assembly, transportation, consolidation, international trade logistics, reverse logistics, and many other functions for requesting clients and prospects. Software applications from Descartes, i2, Manugistics, GT Nexus, Vertex Interactive, Nextlinx, as well as a plethora of warehouse management systems (WMS) packages are found within their applications mix.
Progressive enterprises have recognized that they cannot be all things to all people and, consequently, will outsource all but their main lines of business to service providers, which can do a more effective job for less money. This can create a huge opportunity for those services that are providing what the market demands, when the demands are made. As customers demand quicker goods and services and at lower costs, service providers need to be able to integrate technology into existing and future business functions and reinvent processes as demand dictates. Service providers also have to be able to match changing customer expectations and respond rapidly as customers require changes in business processes. Logistics service providers have matured to become logistics business process outsourcing (BPO) services for companies willing to focus on core competencies and outsource indirect tasks.
Customers are demanding more and want to make sure they receive the perceived benefits from their logistics service providers. Enterprise' SCM staffs are reassessing the value of 3PL providers and their ability to lower costs and maintain service levels. Logistics management within enterprises are also questioning 3PL providers' ability to be flexible, innovative, and to make use of newer, more efficient technology. But companies are being shortsighted if they are only looking to the outsourcing option for specific logistics functions aimed at simply reducing costs while maintaining existing service levels. Alternatively, bringing outsourced functions back in-house may be a daunting task. Research on logistics services indicates the long-term trend toward outsourcing the management of entire business processes, such as dynamic business processes including order assembly and order delivery, which are subject to considerable change over time.
Such criteria served a purpose at one time, but customers expect their 3PL providers to be more than just delivery mechanisms now. Customers want 3PL providers to be more like supply chain partners, so customers must evaluate which service they choose using higher standards than in the past. The new criteria include the following:
Service oriented architecture (SOA), in its simplest form, is an approach to managing business tasks and business processes made available from different software packages for reuse. SOA uses flexible connectivity with well defined standards-based interfaces. Components of SOA include Web services, portals, application servers, security and analytics frameworks, business process management (BPM), and master data management, just to name a few.
SOA is a guide companies can use for the strategic management of their business. At the heart of SOA is the concept that business applications must be active and based on internal and external business processes, including outsourced ones. Serving as a blueprint for the next generation of collaborative systems and business practices, SOA ties together a company's systems of record, process, and venture, so that the technologies within each system work toward supporting collaborative services. The SOA model must be applied to internal and external systems, particularly those in support of whole business process outsourcing.
Today's 3PL customer has different needs than in the past and must evaluate 3PL providers on new criteria, for the following reasons:
3PL technologies need to be evaluated against an emerging SOA blueprint. If the logistics provider cannot articulate a plan toward SOA, then future services could be in jeopardy as technology leap frogs their existing static application offerings.