Industry and Local Trends

How Technology is Boosting Profits at Logistics Providers

How Technology is Boosting Profits at Logistics Providers
 

For logistics companies, the path to a competitive advantage teems with obstacles, and industry forces are adding to the snarl.

Customers are looking to increase efficiency in their supply chains while simultaneously demanding more sophisticated logistics services, says John Sidell, managing principal of SCApath, a consulting firm specializing in omnichannel and supply chain solutions. And while that can open doors for third-party logistics companies, it also creates a conundrum because meeting those needs often requires new systems.

“The midsize third-party logistics firms often can’t afford to spend the money it takes to put the technology in, in anticipation of the customers coming,” Sidell says. “So they’ll often have to land the customer and then partner with that customer to fund a technology deployment.”

When it comes to retaining customers, technology can outweigh even solid, long-term relationships, says Taylor Howerton, Senior Vice President, Ports and Logistics Industry Manager for SunTrust. “More and more, customers are demanding a lot more visibility into where freight is at all times, and if you can’t provide that, it’s going to become very difficult to compete.”

As technology evolves, that demand for visibility will only grow. In addition to providing data on a shipping container’s location sensors can send temperature updates, which can be useful when transporting perishables. In the future, Howerton says, customers may expect visibility into individual pallets or even product stock keeping units (SKUs) inside containers or truck trailers.    

At the same time, the impact of the ongoing truck driver shortage is rippling through the industry, reducing overall capacity, Howerton says. The deficit, currently around 48,000 drivers, could reach as high as 175,000 by 2024, and proliferating regulations may exacerbate its effects.

“Trucking companies can’t grow if they can’t find drivers, so there’s lots of consolidation in the space,” Howerton says. “There are also companies evolving to address the shortage: brokerages, or transportation management companies, that match up shippers with those that want to ship goods.”

Innovative technology is a must for logistics providers 

The right technology can help address many of these challenges faced by logistics companies. According to Howerton, transportation management companies can streamline their operations with systems that pair customers with capacity. By fully leveraging assets that are already in market, technology can help stave off some of the effects of the driver shortage.

Innovative systems can also be the ticket into new markets, Sidell says. For example, the popularity of e-commerce has encouraged both retailers and manufacturers to look for specially equipped providers. In addition to needing pallet- or case-level deliveries to their physical stores, retailers need a way to fulfill website orders. Manufacturers that manage logistics internally aren’t usually set up to handle individual orders sent directly to consumers. With the right Warehouse Management System (WMS) in place at a strategically located facility, third-party logistics companies can handle e-commerce orders for multiple clients and dispatch them to home delivery services.

“And that’s where proactive provisioning of technology comes in handy,” Sidell adds. “If I know this is going to be my model, I’ll procure the right systems so that when I go to company X, Y and Z, I can say, ‘Here are the systems I have in place to handle these e-commerce orders for you.’”

Or, if a manufacturer launches a product line targeted at customers in a new region, there’s potential for both the manufacturer and a logistics company with the right technology to benefit, Sidell says. “Instead of building up its own internal distribution and logistics infrastructure, the manufacturer can work with a third party that already has a building and a system in place. Then, in the snap of a finger—a few months—it can be operational with that new product line as opposed to building that infrastructure all organically and taking a ton of time to get it established.”

Technology that integrates into customers’ systems can also deepen customer relationships, Howerton says. “For example, the freight billing mechanism could be integrated into the system so that the shipper doesn’t necessarily have to have its own transportation software. The third-party logistics provider or transportation management company can handle the billing from the carrier back to the shipper.” In this way, the logistics company is providing its customers with what is essentially a suite of back-office solutions.

Financing options are available to logistics companies looking to make these and similar investments, Howerton says. They can include leasing or folding technology upgrades into an overall loan package designed to facilitate company growth.

Choosing a tech solution—and using it to its full advantage 

Once a company has decided to invest, choosing between off-the-shelf and proprietary systems is the next major decision. “Those companies that have proprietary systems and have invested in them for a long period of time really value them,” Howerton says.

“They think it gives them a competitive advantage because they’re constantly customizing it for their customers. The disadvantage could be a lot of upfront costs to build the infrastructure.”

Options are growing as technology evolves, Howerton explains, and some new cloud-based, off-the-shelf systems are updated frequently and can be highly customizable.

It’s also essential to see things from the employees’ perspective. “Some of us are sprinters, and some of us are marathon runners,” Sidell says. “Oftentimes, you end up with a combination of those types of talents on a project. The sprinters like quicker feedback and short wins, but the marathon folks want to make sure the project is done on time and on budget. You’ve got to serve both of those types of personalities.”

He suggests breaking projects up into smaller pieces with quicker returns to help boost morale, as well as prompting executives to regularly update front-line employees about positive results.

Employees in accounting can also benefit from technology, Howerton says. Logistics companies often need to pay different vendors in different ways, with some expecting ACH transfers, some wanting checks and some accepting cards. SunTrust can accept one file from a transportation firm and disburse the payments according to each vendor’s preferences, which saves time.

“We also gather lots of data, so we can see if a company you’re paying with ACH may be getting paid by other companies via card. That might be a preferred way to pay, and we can guide customers with that research,” Howerton says. “We can say, ‘You might want to reach out and see if they’re willing to take a card.’”

Before investing in a new technology, logistics companies should assess both cost and functionality, especially as it relates to their strategy, Sidell says. A company looking to facilitate e-commerce orders, for example, will want to ensure it chooses a WMS that can handle high volumes and multiple owners of inventory under one roof.  

Managers should also remember the importance of planning and resource allocation, Sidell adds. Granular plans are key to efficient implementation, as is having enough people with the right expertise.

“Sometimes, companies try to tackle these things internally with resources that aren’t used to doing it,” Sidell says. “They try hard, but because they’re blazing a path in an area they’ve never spent time in, they make mistakes. Ultimately, that burns through the budget and kills the project timeline because they’re learning as they go.”

In the meantime, customers may receive late or incorrect shipments, causing them to look for new suppliers. Sidell says that working with outside professionals can help prevent these types of problems and, in the end, save logistics firms both time and money.

Is your logistics company ready to invest in tech? Talk to your banker about solutions to help you streamline operations and grow a loyal customer base. 

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