A Deep Dive Into the Future State of Logistics Outsourcing

As natural, political and operational disruptions become the new normal in today’s global supply chains, how can shippers and 3PLs better collaborate to drive value in logistics?

In this episode of the Navigate Disruption podcast, Eric Krell talks to Infosys Consulting Associate Partner Melissa Hadhazy about the 2020 Third-Party Logistics Study, the longest running and most detailed look at the current state of logistics outsourcing. Sharing some of the most valuable insights from the study, Melissa zeroes in on challenges and opportunities related to data management, the expanding financial impact of logistics, and the blurring of boundaries when it comes to defining what a 3PL, 4PL or even a 5PL, really is.

Transcript

Narrator
Welcome to Navigate Disruption, an Infosys Consulting podcast that shares insights on digital innovation and market disruption. In each episode we cover trending topics that help business leaders navigate their transformation journey in an age of constant change.

Eric Krell
Hi, it’s Eric Krell. On this episode of Navigate Disruption, I talk to Melissa Hadhazy, associate partner in Infosys Consulting’s manufacturing practice.

In her decade plus of industry and consulting experience, Melissa’s worked on distribution, operations, and strategy projects throughout Europe and North America. She’s advised companies in the consumer goods, heavy manufacturing retail, construction, logistics and services industries. Beyond all of that and impressive work, though, one of the most noteworthy aspects of Melissa’s activities is her involvement in the production of Infosys Consulting’s annual third party logistics study. This research report provides the largest, longest running, and most detailed look at the current state of logistics outsourcing. In my conversation with Melissa, she shares some of the most notable findings from the 2020 report. These are valuable insights for shippers, as well as for 3PLS.

Melissa zeroes in on challenges and opportunities related to data management, the expanding financial impact of logistics, and also the blurring of boundaries when it comes to defining what a 3PL, or a 4PL, or even a 5PL really is. Drawing from the survey findings as well as her own client work, Melissa also talks about procurement trends and then shares how companies are making the supply chain more sustainable from an environmental perspective. Let’s get to it.

Hello, Melissa. Thanks for joining me today.

Melissa Hadhazy
Hello.

Eric Krell
You’re the co-author of the longest-running third party logistics research on the market, and from here on out I’m going to abbreviate that to “3PL.” The report you produce is comprehensive, it’s multidimensional. Start our discussion by talking a little bit about the history of the survey and some of the ways that you collect and analyze all that research.

Melissa Hadhazy
Yes, of course. It’s actually really exciting. This year is our 25th anniversary of the study. We’ve been doing it for many years. It was actually started by Dr. John Langley from Penn State, and he owned the study and really ran with it for many years. About 10 years or so, we acquired rights to help support that study and have since grown the way in which we gather information. We work with a couple of sponsors, so Penn State is one of our sponsors. We also have Penske Logistics this year as a sponsor.

Eric Krell
Now, from what I know, the way that you conduct the research is unique. Tell me a little bit about that process at a relatively high level — what do you do?

Melissa Hadhazy
We really take a three-prong approach to this study. So we sit down as a group of sponsors and have conversations early in the year around what we’re seeing in the industry, what’s happening in the marketplace and what are our clients asking about. And we boil that down to a couple of key topics that we think are relevant today and tomorrow. Those then become the special topics that we study.

We also have a series of questions that we ask via survey every single year so that we can really track that data and see how that information or that topic has evolved over time. So we take all of those questions and topics, create a survey, which has been distributed annually, usually around this time of year. We then also sit down and hold a series of workshops. We try to do those internationally so that we can get industry leaders and experts, both shippers — those that are shipping product — as well as 4PLS — companies that are providing that shipping service — and really understand what their thoughts are on the questions that we ask, the types of responses that we’ve gotten back, and get a firsthand perspective on the information.

The third approach is really just talking to those that are in the industry. So talking to our clients that are shippers, that are in logistics and understanding what’s happening, what are they looking at, what questions do they have, and how we can start to address those trends and those industry findings.

Eric Krell
Let’s talk about some of those findings at a very high level. What from the 2020 survey results do you find most noteworthy?

Melissa Hadhazy
By far, a topic that has come up the last several years and continues to be a forerunner in interest, as well as depth, is this idea of data and how data is being handled within logistics. As you know, data is growing exponentially every year and it’s really become as much of a burden as it is an opportunity for companies to understand how to take that data and distill it down into actionable pieces of information.

Eric Krell
Tell me about another big takeaway that you found looking through these results.

Melissa Hadhazy
Another one is one that we’ve focused on as a special topic this year is this idea around the financial impact of shipping and logistics and the importance of understanding that financial impact as you’re going forward and making decisions as a company.

So if you think back a couple of years, we really saw logistics and the moving of product, be it raw goods and materials or finished goods, as an afterthought in the overall company strategy. Now, we’re seeing that financial impact becoming an important, strategic focus point where companies are making decisions around how they want to run their business based off of that logistical impact.

An example would be to think about a shoe company several years ago … If you looked at where their budget was spent and how they were making decisions it was really around the new flashy object or the coolest idea or design around that shoe. If you look at that company now, you really boil it down to: How can we get this product to our end consumer in the way that they really want and need it? That might mean where they used to do all of the assembly in one facility overseas in Vietnam or in China, we’re now seeing they’re doing some pre-assembly or forming and cutting there, but then they’re doing final assembly in Europe or in North America or South America. That’s where they’re finishing the product and they’re trying to get it to their consumer faster with lower total shipping costs.

Eric Krell
So I hear two key takeaways, I know consultants like to work in threes. Is there one more that you can share from the survey?

Melissa Hadhazy
Of course, of course. We do love threes. Finally, what I would highlight is the idea of is a 3PL? What is a 4PL? We’ve got a lot of questions as we rolled out the survey in the study this year around, is there now even a 5PL? This idea that what defines a logistics company has really changed so much in the last several years where you used to have very clear boundaries concerning what a shipper was — somebody that made a product — and what the 3PL was — the company that delivered or moved that product. Companies like Amazon are really starting to play in those spaces with their warehousing and their logistics, as well as their individual products that they’re selling. In some places, especially in Europe, there are a lot of bike delivery services. Some companies have even started asking their employees to deliver packages on their way home.

Eric Krell
So Melissa, as those boundaries blur and are maybe reconfigured, what are one or two challenges that shippers are dealing with in this new era?

Melissa Hadhazy
The biggest challenge is still how do they meet their consumers’ needs? When you think about a really big shipper, one that operates in several different countries or in several different geographies, those needs aren’t always the same. Here in North America, we’ve become burdens to our shipping companies in that we want everything yesterday. We want it right now, within the next two hours and we want to know exactly when it’s going to get to our doors so that we can make sure we’re waiting right there for it. In other more developing markets where we’re seeing a lot of volume, it’s not necessarily that they need it right now or they need it tomorrow, is that they need it consistently and they need it to get there safely. There are a lot of different needs from different consumers and from different markets that bigger companies are really trying to manage.

Eric Krell
The survey focuses on a whole bunch of issues. Some are germane to shippers, some are germane to 3PL providers, some obviously affect both. If you would talk a little bit about shippers in addition to the challenge that you just mentioned, what else are you finding shippers contending with — not only based on the research results but also your discussions and work with client companies?

Melissa Hadhazy
Data is a big piece of this. Shippers are in a position that they want to work with logistics companies and other third parties to better serve their customers and end-users. They want to share information with them easily. They want that full-service level. Unfortunately, as you start to get down to the tactics of these relationships, a lot of them are still managed by sourcing or procurement departments. When you get down to managing that relationship with your third parties and with your logistics companies, it can become very tenuous in how you’re procuring either lanes — individual A2B type of shipments or groups of lanes — or overall services and what that final relationship looks like.

3PLs want to bring to the table all of these amazing solutions … but somebody has to pay for that, right? Somebody has to pay for all of that data management and all of those other services that are being added in on top of the physical movement of product. That relationship is something that we’ve touched on almost every single year for the last 25 years: how do you get the most from each other without making it just a transactional situation?

Eric Krell
That sounds like a clear and present issue, especially right now. Who knows how 2020 and beyond will unfold. Tell me what that means from a logistics perspective.

Melissa Hadhazy
Volatility in the market. Even when we’re talking about meeting that final consumer’s needs, one market area might act differently than another market area. The market might very quickly turn around and say, “No, thank you” to something that you’ve put out there. You need to be flexible. You need to be able to change your plans and not necessarily change them at the very end of the supply chain. We’re seeing a lot of companies now trying to partner with their 3PLS to better adjust to their final consumers’ needs in the middle of the supply chain process. We’ve got some companies that are rerouting entire containers from the port as soon as they’re received from one location to another based on how consumers are using those fast-moving goods.

The other side of that, and something that we haven’t touched on yet but is a huge part of the industry right now is this idea of becoming cleaner. People want to know that their products were moved in the most economic or eco-friendly way — and that they haven’t harmed an industry, a group of people or an environment in the process.

Eric Krell
I want to talk a little bit about environmental sustainability at the end of our call. Before we get there, are there any challenges that are specific to 3PL providers that I haven’t given you a chance to talk about that came out of this study?

Melissa Hadhazy
Retail providers are at the top of the pyramid — the tipping point in terms of data and information that they’re holding onto. They really are positioned to share so much information, both with end-users, consumers, middle management, in terms of business-to-business relationships and across the entire supply chain. And with that comes a lot of risks. As soon as you own the data, you’re also responsible for that data. Companies want to partner with people on both ends of the supply chain and share that information appropriately and in a way that is protecting the information owner … as well as the information about the product itself…

We talked about blockchain a couple of years ago in this study and we’re really seeing that resurface again around all of this information-sharing and how we can do that in a way that protects everyone across the supply chain while allowing the right amount of information-sharing.

Eric Krell
You mentioned that widespread desire to operate more cleanly. Tell me what companies are doing now to make their supply chains greener, more environmentally sustainable.

Melissa Hadhazy
We’ve got shippers that are trying to minimize the number of touches on their products. Because every time it’s moved from a truck to a train, a ship, an airplane, etc., you’re just increasing the carbon footprint of that final product. You’re also seeing companies really reflecting on how they can move parts of their manufacturing process, or parts of their R&D process forward, so that they can then allow for more economical as well as better for the environment modes of transporting items. Think about electronics: cell phones, iPads, things like that, have a very quick entry to the market. The question is: how far ahead can we get the final release date to make sure that we get it over and we’re shipping it in a way that doesn’t require everything to be put on an airplane at the last minute, which is again the worst way that we can ship things for our overall environment.

From the 3PL perspective, you’ve got companies looking at automated trucks and electrical vehicles vs. traditional diesel engines. There are a lot of different opportunities out there right now. We’re seeing a little bit of dabbling in the market, and there will be a lot of changes in the next few years.

Eric Krell
That topic, as you describe it, seems to have so many dimensions to it, moving parts, considerations, stakeholders. And it seems like almost every issue in the survey, and also in what you discussed, has a lot of complexity. Is that overall complexity in and of itself a huge challenge?

Melissa Hadhazy
It definitely is. It’s a big part of the challenge. It’s also, I think, part of the opportunity for both shippers as well as 3PLS to carve out their own space in this evolving market. We talked at the very beginning of our conversation about how the term 3PL or 4PL is morphing and the relationship that a shipper and a 3PL has is also changing. But there are so many different solutions that can potentially come out of this that it’s created a lot of unique solutioning and a lot of unique companies and offerings out there that we never would have thought, five or six years ago, would even be in the market. It’s a fun way to think about it.

Eric Krell
Excellent. That’s an optimistic note to leave off on. Before we sign off, it’s a big year for the research. Tell me about what’s in store for the next version of the survey, which will come out, as you said about this time next year. I know you’re working on it right now. What should we know about that?

Melissa Hadhazy
The survey itself is going out to industry experts in the coming weeks for the 25th anniversary survey. We’ve got some special topics. I can’t release all of that information yet, but I did touch on a few if you listened closely. The study itself then will go through production and print and then be released at CSCNP, which is the Council for Supply Chain Professionals, later in September of 2020. We title our studies the following year, so it’s the 2021 25th anniversary 3PL study that will be released.

Eric Krell
Melissa, thanks so much. It’s really enjoyable to hear about all that’s going on here. You just gave us a taste. I’m interested to find out more and good luck with your next round of research.

Melissa Hadhazy
Thank you so much.