3PLs Put Technology Front and Center

What’s the difference between a third-party logistics (3PL) provider and a logistics technology vendor? That’s not the setup for a punch line; it’s a straight question that doesn’t have an easy answer. Certainly, many respected 3PLs use software developed by other firms to help run their businesses, and run them well. But some 3PLs have brought the technology expertise in-house, creating their own systems for transportation management, business analytics, and other key functions.

3PLs with proprietary systems mainly use them within their own four walls, to support services to customers. But some 3PLs also market their solutions, either as standalone products or as part of their service offerings.

For smaller shippers, licensing technology (or, more likely, subscribing to a cloud-based service) from a 3PL can be an attractive proposition. A company that can’t otherwise afford to buy and maintain cutting-edge technology gains a solution originally developed to serve a large, sophisticated operation. Even a big shipper might choose this option, so it can focus resources on functions more central to its mission.

Whether a shipper buys services, software, or some combination of the two, technology usually lies at the center of a 3PL’s value proposition. Here’s a look at how some 3PLs use technology to support shippers’ goals.

Hot Data Moves Hot Sauce

When the Cholula Food Company went looking for a 3PL to manage its outbound freight in 2014, Echo Global Logistics made a big impression, thanks in part to its technology. Today, officials at Cholula remain impressed.

“Echo allows us to provide customers with more real-time information than before,” says Marlon Bolasingh, director of finance and operations at Cholula, based in Jersey City, N.J. A subsidiary of Jose Cuervo, Cholula distributes a variety of hot sauces from warehouses in California and Texas.

Bolasingh also likes that Echo can use an electronic data interchange (EDI) connection to load its invoices directly into Cholula’s accounting system.

The information Cholula uses to update its customers on orders in transit comes from a file that Echo transmits to Cholula every 24 hours. “Sometimes, in the LTL environment, it will show the exact location of our product,” Bolasingh says.

In addition, Echo provides a data dashboard to help Cholula analyze its shipments. “We can see how much weight is shipping on a particular lane, and how much product is shipping to a particular customer,” Bolasingh says. The data also reveals how much Cholula spends to distribute product to each customer. Cholula uses that information to factor in delivery costs as it sets prices for retail and food service accounts.

Along with the fully managed, multi-modal transportation service it provides to Cholula, Echo also offers a second service model, in which it acts as a traditional transportation broker. In this “transactional” model, Echo helps a shipper locate carriers for individual loads, but the shipper may turn to other sources for capacity as well.

In both business models, technology is crucial. On the managed transportation side, Echo integrates its proprietary TMS with the shipper’s enterprise resource planning (ERP) system. “They build orders in their system, and we create orders in ours for the transportation sourcing event,” says Doug Waggoner, CEO at Echo in Chicago. “Then we select the mode and carrier, and manage shipment execution all the way to their client.”

Echo also uses the TMS in its transactional business. It’s possible to manage a brokerage with help from an inexpensive, off-the-shelf solution, “but that would force us to do brokerage the way the vendor designed it into the software,” Waggoner says.

An off-the-shelf product would also make it hard to manage the unique needs of more than 270 clients across multiple transportation modes. “We require a lot of flexibility and the ability to configure the technology to match the requirements of a specific client,” Waggoner adds. The proprietary system fits that bill.

Besides customers that rely on Echo for managed or transaction-based services, some shippers use its TMS to manage their own shipments. That’s a good strategy when shippers want to automate their relationships with carriers but don’t have a lot of cash to spare.

Technology + Engineering = Better Strategy

For 3PL Transplace, service and technology are inextricably connected. “Our technology is central to the delivery of any of our solutions,” says Matthew Menner, senior vice president of strategic account management at Transplace in Frisco, Texas.

The main engine behind Transplace’s solutions is a Web-native transportation management system that optimizes and executes every aspect of a shipment. About 30 subscribers employ the TMS on a Software as a Service (SaaS) basis, using it to manage their own freight.

But in most cases, Transplace employees use the TMS on behalf of clients.One example is Intertape Polymer Group (IPG), a producer of packaging products based in Saint-Laurent, Quebec and Sarasota, Fla. IPG has outsourced its transportation management to Transplace since 2006.

The day-to-day services the TMS supports are extremely valuable, says Joe Tocci, IPG’s senior vice president, global sourcing and supply chain. But IPG may gain even more benefit from the way Transplace combines technology and engineering expertise to make strategic adjustments to the transportation network.

“Transplace provides a robust reporting package,” says Tocci. Based on information drawn from the TMS, the reports help IPG analyze freight activity and costs. “We can look at how much we’re spending on intermodal, truckload, and less-than-truckload (LTL),” he says. “We can break that down to cost per pound.”

That insight into lane density and cost helps Transplace and IPG identify where they can save money by refining the network. For example, if they discover that IPG makes many LTL shipments from the same manufacturing plant, they might combine those into full truckloads for transportation to a pool point.

If the value Transplace delivered lay only in its TMS, IPG might have saved money by using the TMS on a subscription basis to manage its own transportation. “But it becomes a tougher financial decision when I look at the strategic interaction that happens between us, and the recommendations from their engineering group,” Tocci says. “At this point, the annual savings more than offset the management fee.”

Transplace’s business intelligence practice continues to develop the company’s analytic capabilities. “Companies want to understand their freight spend and the value they receive from their providers,” says Vince Biddlecombe, the 3PL’s executive vice president and chief technology officer.

Any Way You Want It

3PL Transportation Insight (TI) has built its business on the notion that shippers should maintain as much or as little control over day-to-day operations as they like. If they want to outsource entirely, they can do that. “If they’re more comfortable leveraging our technology and maintaining their relationships with carriers—we’ll do that,” says John Richardson, director of supply chain analytics at TI in Hickory, N.C. Shippers can also choose a bit of each.

Three main pieces of technology underlie TI’s transportation execution services. The first is a proprietary, Web-based TMS, which the 3PL uses on behalf of its shippers or provides for them to use on their own. The second piece is software for auditing and paying freight bills. The third is technology for integrating bills of lading (BOLs) into the audit process to make sure invoices reflect not only contracted freight rates, but also the volumes actually shipped.

Data from those three functions supports two business analytics services. TI provides static reporting—periodic snapshots of freight costs and carrier performance. It also provides an interactive analytics portal called Insight Fusion.

Using Insight Fusion, a customer can view reports for its entire transportation network or slice that data in any number of ways. “You could drill down to a region, to a specific location with a specific date range, or to a lane within that location,” says Jim Taylor, TI’s vice president of information technology.

DSI Systems, a distributor of satellite equipment, consumer electronics, furniture, and appliances, has worked with TI for about nine years. The 3PL helped DSI redesign its distribution network, ultimately cutting its facilities from 31 to just seven. TI also took over DSI’s freight bill auditing and payment.

But for a long time, DSI let each distribution center tender its own loads. About three years ago, to gain better control, the company centralized transportation operations and started using TI’s TMS. “Now, when a sales order prints, or a pick ticket prints in the warehouse, workers there see a list of carriers we have contracts with and the cost for that lane,” says Dave Siebert, DSI’s senior vice president of operations.

Data from the TMS and TI’s freight billing system generates periodic reports. DSI also uses Insight Fusion to perform analytics on the fly.

“If you can dream of it, we can get a report on it,” says Siebert. “If my boss calls to ask how many times we’ve shipped 1,500-pound loads into Montana in the past six months, I can get that information while we’re still on the phone.”

Analytic capabilities translate into real savings. For example, a few years ago, officials from DSI and TI sat down to examine accessorial charges on carriers’ bills. Until they studied that data, no one had realized how often customers asked for special equipment or services, or what it cost to honor those requests. “We put some controls in place, and we cut our accessorial charges the following year by 50 percent or more,” Siebert says.

Giving it Away

Odyssey Global Logistics and Technology also has developed an IT platform to use on behalf of its customers, plus transportation management technology that shippers can use on their own. But Odyssey gives its strategy a different twist.

“We give the Web Integrated Network (WIN) platform to shippers at no cost,” says Russell Marky, chief information officer at Odyssey in Danbury, Conn. There’s no implementation fee, and the service carries no direct subscription charge.

Odyssey developed its technology platform over the past 12 years. It started by acquiring the source code for an existing TMS, then enhancing the software as the company’s services expanded, encompassing more geographies and transport modes.

A few years ago, Odyssey started looking for a new, innovative service to bring to market. “We came up with a model where we expose parts of our platform to customers, but only those parts that manage functions they want to still control,” Marky says. Generally, that means retaining control of relationships with carriers, he adds.

Shippers who choose that option get a Web-based TMS for use in-house, with no need to spend time or money implementing the technology. They’re under no obligation to use Odyssey’s services or its carriers.

So what’s in it for the 3PL?

Once a shipper starts using WIN, Odyssey can also present its own carriers for consideration. “We can point out, for instance, opportunities in a lane where we have backhaul capacity,” Marky says. When shippers seek transportation on the spot market, WIN shows them a wider range of carriers and brokers than shippers could identify on their own.

The shipper doesn’t have to use Odyssey’s network. But if it does, it will likely enjoy lower rates than it would under its own contracts. Like many 3PLs, Odyssey makes its money on the spread between the rate it pays the carrier and the rate it charges the shipper.

Wanho Manufacturing, which produces components employed on cellphone towers, has used WIN since early 2014. Dan Michaud, operations manager at Wanho’s facility in Waterbury, Conn., first signed up in order to automate and streamline the shipping process. The company had never before used a TMS.

For the most part, Wanho uses WIN to manage transactions with its own core carriers, at its own negotiated rates. But the shipping supervisor sometimes tenders loads to other carriers on the WIN network. “On some moves, we save hundreds of dollars if we utilize a WIN carrier versus one of our current carriers,” Michaud says.

WIN presents a range of carriers—both Wanho’s own and Odyssey’s—on the same screen, allowing quick comparisons. “We used to have to go to each carrier’s website to get a quote,” Michaud says. “This gives you everything in one shot, within seconds.”

How Did We Do?

Like many 3PLs, XPO Last Mile uses technology to route deliveries, show customers shipment progress, and provide performance and cost reports. But XPO serves a specialized market—retailers that need to deliver appliances, furniture, electronics, and other heavy items across the “last mile” to consumers. To support that niche, XPO has developed another set of technology tools that measures and monitors consumer satisfaction.

A division of XPO Logistics in Greenwich, Conn., XPO Last Mile uses a network of independent contractor-carriers to offer three kinds of delivery solutions:

• Dedicated Solutions, which handles all of a retailer’s heavy-item deliveries within a geographic region.
• Direct Solutions, providing nationwide, on-demand service. XPO arranges to pick up product at a retailer’s DC or fulfillment center, cross-docks the freight in one of its 48 facilities across the country, then has contractors deliver items to consumers.
• Installation and assembly, which provides certified, licensed plumbers, electricians, and other professionals to assemble and install a range of products, including appliances, fitness equipment, and ready-to-assemble furniture.

In each case, when delivery is complete, the consignee provides an electronic signature on a smartphone carried by the independent carrier. “Then 10 to 15 minutes later, we contact the customer and ask five questions about how we did,” says Scott Malat, chief strategy officer at XPO Logistics.

That survey generates a customer satisfaction score. “The contractors are compensated based on quality,” Malat says. “Our entire organization is totally focused on providing world-class customer service.”

XPO also uses the satisfaction scores to refine its carrier base. “If a carrier scores more than 4.8 out of 5, we give them more freight,” he says. Contractors with lower scores go into an “improve or remove” program. If they don’t improve, they lose XPO’s business.

A low score or customer complaint also triggers a “quality loop,” which starts within one hour of delivery with a phone call to the consumer. “Our team has one hour to come up with a remediation plan,” Malat says. The contractor might return to the home to resolve the error; the retailer might arrange to replace a defective product; or the customer might receive a gift card as compensation.

In addition, XPO offers a set of desktop solutions—essentially, access to its routing, customer satisfaction, and visibility systems. Retailers gain the benefits of those solutions even when not using XPO’s contract carriers. Most customers that employ the solutions are large retail chains that use XPO’s last-mile delivery services in many markets but want to retain their own control of deliveries in certain locations.

The Power of People

As central as it may be to the value a 3PL provides, technology never stands on its own. You need experts to put it to work, whether those experts get their paychecks from the 3PL or from the shipper.

Leaders at C.H. Robinson find that the value they deliver to shippers heavily depends on the expertise of the 3PL’s own technology super-users. That’s why C.H. Robinson, through its TMC division, offers a service called Managed TMS.

Positioned as a blend between a technology solution and a traditional 3PL service, Managed TMS gives a shipper the use of a TMS platform. If the company wishes, it may continue to choose its own carriers and maintain its own relationships. The shipper also gains business intelligence functions to support strategic decisions.

But, as part of this service, TMC assigns employees of its own to use the TMS for the shipper.

“Our people become an extension of their supply chain department,” says Chris O’Brien, chief commercial officer at C.H. Robinson in Eden Prairie, Minn. When shippers choose Managed TMS, both they and C.H. Robinson’s employees operate the technology.

Some shippers that rely on Managed TMS implemented TMS solutions in the past but didn’t receive the expected return on investment. “Or they didn’t have the manpower to put behind the technology to get what they wanted,” says O’Brien. C.H. Robinson supplies the manpower instead.

Other customers form a more traditional outsourcing relationship with C.H. Robinson. In those cases, the 3PL uses its proprietary Navisphere technology platform to route shipments, choose carriers, and make other decisions for the shipper.

Whether they use Managed TMS or outsource operations entirely, customers seek similar outcomes. “They’re looking for savings, and for better routing or optimization,” says O’Brien.

Often, they want to gain control of functions they haven’t controlled in the past. For instance, a company might decide to manage its inbound freight, rather than let thousands of suppliers ship freight to them independently. To enable that change, C.H. Robinson would set up a Web portal and teach vendors to use it. “Our customers put in business rules to make sure they get the outcomes they desire,” says O’Brien.

A shipper trying to implement that change on its own would need to make a tremendous investment in technology and people, says O’Brien.

C.H. Robinson doesn’t currently offer a stand-alone TMS. For customers that want to retain a fair degree of independence, the 3PL has built many self-service functions into its Managed TMS product. But most shippers that work with C.H. Robinson don’t want to go it alone. “When they come to us, they’ve already decided that the gap out there is talent, not technology,” O’Brien says.

Of course, talent and technology are both important. Shippers that work with 3PLs are fortunate to face such a broad range of options, allowing them to strike the technology-service balance that best suits their needs.