Suddenly Seeking Solutions

A few weeks ago an intermodal executive asked me a question to the effect of, “Where should we be headed?” As I talked out my answer and the rationale, it occurred to me that on the surface I sounded cringingly mundane, my observation the type that could have been made in 1995, 2007 or today.

You’ll be left behind, I told the executive, if you view your business as merely one that provides transportation services to your customers, moving their stuff from Point A to Point B. That’s because customers — shippers, beneficial cargo owners and end-users — increasingly recognize the complexity of today’s logistics environment and more than ever realize they don’t have all the answers and are seeking them from vendors.

Logistics providers thus need to position themselves to their customers as solutions providers, understanding their customers’ business well enough to be able to present ideas with real potential to cut costs, mitigate risk or help achieve other goals.

This is true not just in logistics. A lesson from salesforce.com, on which the JOC runs, is that your value as a salesperson increasingly hangs on whether customers see you as a source of insights, hence the value of Twitter and other social media.

The question, then, is what makes being a solutions provider as opposed to a service provider more relevant today than it would have been in the past? At the risk, again, of sounding mundane, the answer is that the pace of change is accelerating, and companies don’t know how to respond and, importantly, are willing to admit it.

Whether it’s rapidly increasing labor costs and demographic changes in China that are increasingly making “the world’s factory floor” uncompetitive, rising frequency of natural disasters and other disruptions, the unrelenting drive to wring costs from the supply chain through lower-cost transportation modes, the rapidly emerging demands of e-commerce or U.S. dockworker unrest, customers know they must come to terms with the short- and long-term supply chain implications.

China provides a good example, because what’s happening there likely represents a structural shift that demands a long-term change in thinking. Average China factory worker wages grew 10 percent annually from 2000 to 2005 and another 19 percent annually from 2006 to 2010.

Urban unemployment rates for Chinese 21- to 25-year-olds.
Source: China Household Finance Survey, Southwestern University, Chengdu.Urban unemployment rates for Chinese 21- to 25-year-olds. Source: China Household Finance Survey, Southwestern University, Chengdu.

The spike isn’t just because of China’s aging population but also results from the rejection of factory work by the college-educated young even if it means unemployment (see chart), suggesting not only a dubious future for China’s labor-intensive manufacturing, but a problem with no simple solutions regarding where the next low-cost labor pools will be found.

Experts predict the landed-cost differential between China and Mexico could be erased by 2015, prompting FedEx President and CEO Fred Smith to say in December that Mexico “will be a major beneficiary of near-sourcing trends.”

The rising frequency of supply chain disruptions — from earthquakes and labor actions to systems outages of various types — are rising steadily. The 2013 Third Party Logistics Survey cited data from the Business Continuity Institute that losses stemming from such supply chain disruption rose from $62 billion in 2009 to $350 billion in 2011.

Responses to a third-party logistics study: companies that see logistics as a core competency and companies planning to increase their use of 3PL services.

The point is that supply chain complexity is rising, and that’s why in recent presentations I have cited one of the key findings of the 2013 3PL survey: that far fewer shippers see logistics as a core competency, and a much larger percentage plan to increase their 3PL outsourcing (see chart).

That’s why if you’re not a solutions provider these days, you risk being rendered irrelevant.

Peter Tirschwell is senior vice president of strategy at UBM Global Trade. Contact him at ptirschwell@joc.com and follow him at twitter.com/PeterTirschwell.

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