SERVICE- VS. COST-DRIVEN DEMAND
While Schwan's U.S. supply chain transformation is unique because of its labor-driven, depot-centric distribution model, it demonstrates a common challenge that manufacturers and retailers face as they try to scale their networks to be more responsive to demand changes.
"A few years ago, we started noticing a change in product placement—less big-region, more small-region fulfillment," says Karl Meyer, CEO of 3PD, a Marietta, Ga., provider of high-touch, last-mile delivery service throughout North America.
"Five years ago, big box retailers that ran their own delivery services or outsourced dedicated fleets thought the idea of co-mingling freight was an insult to their brand."
— Karl Meyer, CEO, 3PD
"That shift was driven by fuel pricing, and the desire to get inventory closer to the market," he notes. "The big trend was reducing long-haul miles per load. Now companies are using the same solution for a different problem: velocity—or the speed to fulfill an order, whether it's into brick-and-mortar or virtual marketplaces."
This new service-driven impulse will stimulate greater demand for third-party partnerships, Meyer contends, especially because many brick-and-mortar companies don't have the capabilities to pop up a new DC overnight or integrate new technologies with enterprise systems.
"Companies are also more willing to conform to an established process that fits their needs," he says. "That shift has to happen. Five years ago, big box retailers that ran their own delivery services, or outsourced dedicated fleets, thought co-mingling freight was an insult to their brand."
Meyer compares this new sensibility to the way European organizations traditionally managed their supply chains—where solutions are perceived as cost- and service-driven, rather than proprietary.
As shippers become more receptive to upstream collaboration, 3PLs are softening their edges as well. The high price of fuel notwithstanding, many 3PLs have tried to break out of the transactional mold, and emphasize the importance of supply chain partnership.
"We're more open with customers, encouraging them to work together to reduce transportation spend," says Steve Buckman, vice president of operations, Kane Is Able, a 3PL based in Scranton, Pa.
Some companies demand as much from their service providers. Kane recently began working on a pilot program with a large retailer that required the 3PL to completely open its books.
"We would not willingly have done that five years ago," Buckman says. "Today, that's how we work with customers. Some still want a transactional relationship. But we want to help them understand the decisions we're making, and how they impact cost.