3 Ways Control Towers Drive Profitability for Logistic Service Providers

Posted by Martin Verwijmeren on Mar 1, 2018 10:20:00 AM

The customer demand economy has permanently altered supply chain and in turn, it's forced supply chain leaders to search for answers. From better supply chain visibility to supply chain orchestration, companies are searching for ways to be quicker, more efficient and more agile than ever before. In turn, they have realized that they can't do this alone and have moved toward utilizing strategic partners to help them figure out how to transform their supply chain strategy.

That's a huge opportunity for LSPs (Logistics Service Providers) that are willing to evolve as well. What we've heard is that the conversations between brand owners and their LSP partners have changed significantly over the past few years. More is being expected in the relationship with new services and transparency being required in order to win business. All with the same competitive price pressures needed to ensure profitability of won business.

It's forced LSPs to increasingly look at their technology and evaluate the current and future needs to support current and future customers, win more business by offering better services and most importantly, consistently optimize how they drive profitability with current contracts.

In this post, we'll take a look at Supply Chain Control Towers and how they help LSPs improve and maintain profitability in their business.

New Services for Customers

A large trend with many LSPs is offering new services for customers outside their traditional specialty in order to get more share of wallet. New services can include:

  • Expanding their traditional service into another function of the supply chain including managing transportation such as LTL and parcel, tracking warehousing activities, or extending capabilities internationally
  • 4PL services for customers looking to outsource their visibility and execution to a partner
  • Supporting new types of order flow models such as inbound supplier flows, outbound ecommerce channels, distributed order management flows, reverse logistics or spare parts management flows. Control Tower technology that is flexible will help the 3PL support these different use cases for customers.

In all of these cases, we are seeing that Logistics Service Providers need to innovate to remain a compelling partner for customer business and the most successful LSPs are looking for ways to be more strategic within their customer accounts through more services.

Excellence in Business Operations

Digital Supply Chain Control Towers also help LSPs to run their business more efficiently. This occurs in a few key ways.

First, LSPs can use a Digital Control Tower to automate critical order management functions for their customers. These functions help their planning teams save precious time on manual processes, enabling them to focus more value-added functions.

Second, LSPs can often connect the systems and operations across global organizations, helping them to take advantage of economies of scale. Consolidation of carriers is one area where our customers have seen significant cost savings in the hundreds of thousands to millions of dollars annually. It also helps to limit redundancies in the process.

Third, Digital Control Towers enable LSPs to truly manage by exception. This doesn't just save time for the planning team, but it also ensures improved compliance of all orders managed on behalf of the customer so that it meets all necessary SLAs.

Measuring Profitability per Order

Most importantly for LSPs, Supply Chain Control Towers help them get to the profitability analytics of their business. With these solutions, LSPs can begin to understand the granular activities and levers that drive business profitability.

Control Towers can help measure Total Landing Cost for a given order by associating costs to all the activities required to fulfill the order on behalf a customer. This is valuable to understand in order to optimize the process itself but it's also valuable for understanding the order types that are profitable vs. the ones that are not. It's also possible to measure the profitability on a SKU level. LSPs can use this data to drive optimization in their processes but they can also use it to strategically sell and better price bids to organizations based on the type of orders and products included in the scopes of work.


Build vs. Buy

In order to support these services, every LSP has to decide whether to build it themselves or to strategically partner with a software provider. There are positives and negatives to both options and you should consider the following:

Flexible Configuration

The biggest factor you may use to build vs. buy is configurability. If you build internally, that means you will get everything you want, right? Well, that makes sense in theory but in most cases, building for internal stakeholders often leads to massive and inefficient systems.

When evaluating potential vendors, it is important, however, to understand the depth of configurability of their system and their ability to support your business and the businesses of your customers. The other important point here is that a successful Control Tower software provider has many stakeholders who are driving the product innovation roadmap. This is in your favor as they have most likely thought about and built functionality that is critical to LSP success based on their existing customer base.

Innovation Power

While building internally often comes with the promise of unlimited updates to the functionality, the truth is that it's all about priority. And depending on the other technology solutions in your tech stack and your team capacity, new development may not be an option.

When you strategically buy, you're also buying into a company that is going to consistently innovate and improve. There are key competitive pressures for these software businesses to remain innovative and push the boundaries of their solutions.

Time to Market

If you build internally, you often have a project delivery date that will be longer than it would take to implement an existing Control Tower solution. In talking with other LSPs that we work with, these projects almost never meet the delivery date agreed upon, essentially taking much longer to get to a minimum viable product.

Cost to Serve

If you make a software decision just based on cost, you'll most likely build internally. However, that's often a mistake in thinking. While the monetary cost is lower, the opportunity cost for your team is often huge. As mentioned above, there is also consideration in terms of priority for your IT resources.

If you go with a software provider, it may cost more and you will also likely be investing annually in the software licenses for your team. However, the cost also comes with the expectations of product innovation, dedicated support and innovative technology that can pay for itself in optimizations and improvements. 


Buying a Digital Control Tower is the Right Decision

While you can try to build internally, strategically partnering with a modern Control Tower solution can help your organization quickly grow your business with new services, improved operational efficiency and key insight into your business profitability. A Digital Supply Chain Control Tower is a pathway to transform your business operations and build more value in your organization.

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Topics: supply chain transparency, supply chain transformation, digital supply chain

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