Economic uncertainty, natural disasters and fast-changing consumer markets are forcing third-party logistics providers to rethink their global expansion strategies. As they do, they are increasingly reliant on supply chain technologies to integrate new customers and markets as seamlessly as possible, with the fewest possible service disruptions.
There are three key capabilities — speed, flexibility and consistency — 3PLs must provide through technology to effectively support customers’ global expansion efforts, said Joey Carnes, chairman and CEO of MIQ Logistics, the former logistics subsidiary of less-than-truckload giant YRC Worldwide.
One of the legacies from YRC, which sold MIQ in 2010, is a cutting-edge technology platform. YRC invested “untold millions” in the platform, and today it is a strong competitive differentiator for MIQ, which continues to invest significantly in technology, Carnes said.
Many 3PL platforms in use are patchworks of add-ons girded by older engines. With older platforms, the process of upgrading transportation, order management or track-and-trace capabilities is like trying to change the engine of an airplane in flight. What customers want is seamless integration with no service disruptions.
“We have flexibility in technology that others don’t have,” Carnes said. “It’s why we won a number of our large contracts.”
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To support global expansion, 3PLs must provide analytics and actionable data on a daily basis, if not in real time. On the transportation management system side, the newest generation of software allows far more flexibility in modal choices and aggregating loads, an important capability given driver shortages and restricted capacity. “Customers want to know how well you handle disruptions,” Carnes said.
One of the challenges MIQ and its customers face as they expand globally is connectivity. Before acquiring or partnering with companies, MIQ evaluates systems replacement and integration costs, an expensive process that must be done with no service disruptions. A deciding factor in any acquisition is speed of implementation and execution — how quickly you can get the systems merged and fully operational.
If the potential service partner’s business culture, technology standards or service commitments aren’t compatible with MIQ’s, or the depth of operational experience is insufficient, the deal is a no-go. “Lead times are half of what they were two years ago,” Carnes said. “Those are some of the first factors that customers look at.”
MIQ, already active in Latin America’s thriving mining and energy sectors, in December entered into an agency relationship with Tolepu, Ecuador’s largest customs broker, to begin offering supply chain services in that country.
To augment its service offerings in the U.K. and Europe, in 2011 MIQ acquired The Logistics Corp., a U.K.-based provider of warehousing, fulfillment and retail distribution. The two companies have worked together for the last six years on retail logistics projects.
In 2011 CEVA Logistics launched a three-year global expansion initiative. One of the plan’s top strategic priorities is to increase market share and upgrade capabilities in China. The Netherlands-based company employs more than 10,000 people in China and operates its own trucking network in the country’s fast-growing domestic distribution market. CEVA is a major player in China’s automotive logistics market through its joint venture with Shanghai Automotive, Anji-CEVA.
Another key to CEVA’s global expansion is the Century Program. Each year, CEVA’s executive board selects 100 major global accounts to be part of the program. Century customers represent more than half of CEVA’s total revenue, yet commit, on average, only 5 to 10 percent of their total logistics spending to CEVA. The company’s goal is to boost that number to 20 to 25 percent.
Program UNO, one of CEVA’s two major business transformation programs, focuses on standardizing core processes in global freight management operations and rationalizing systems. The program, which is set to conclude this year and has delivered productivity and margin gains, touches on many work streams, including standardization of data and documents, job costing and tender management.
Global expansion plans also call for standardizing best practices at CEVA’s 350 freight stations worldwide so they share technology platforms, business processes and compliance methodologies.
Chris Hanz, senior vice president of information services and solutions at CEVA Americas, describes Program UNO as a business transformation initiative glued together by technology. The program is predicated on the belief that technology can’t solve process inefficiencies if the processes themselves aren’t standardized and optimized. “It’s about defining operational standards and making sure that we support and reinforce them globally,” Hanz said.
Project UNO’s 18 sub-initiatives include major software and systems upgrades and standardization of training materials so technology is deployed and used uniformly throughout the organization. Standard operating processes are especially important in light of CEVA’s commitment to high-growth markets such as the Asia-Pacific, Latin America, the Middle East and Africa — which together account for more than 40 percent of company revenue — and other emerging markets that may not have existing infrastructures to support applications.
CEVA also is committed to expanding its presence in Germany and France to the scale of its operations in the U.K. and the Benelux countries, Sidler said.
German 3PL Dachser has implemented a global expansion strategy that by 2017 seeks to increase to 50 from 37 the number of countries in which it operates its own branded offices, said Frank Guenzerodt, president and CEO of Dachser USA.
Dachser is one of Europe’s largest 3PLs with more than $5 billion in annual sales. It operates 16 million square feet of warehouse space in 310 locations worldwide.
The criteria for choosing target countries include overall economic conditions and specific business opportunities based on customer need. Dachser is expanding operations in Singapore and South Africa and is opening offices in Vietnam and Malaysia.
There are also myriad opportunities in Latin America, and Dachser plans to significantly expand operations in the U.S., where growth is up 20 percent this year. Dachser, which operates 11 U.S. locations, wants to increase that number to 20 through acquisitions and organic growth.
Cultural integration is one of the biggest challenges in targeted acquisitions. To fit in, companies must be compatible with Dachser’s entrepreneurial culture and flat management structure. In Europe, the company is known for its proprietary warehouse management system, TMS and tracking systems, which are developed in-house by an IT department that has more than 400 employees. Partners must be able to fully integrate with those systems.
The biggest challenge in replicating IT systems in new markets is training. Dachser has a dedicated team of engineers that travels to company offices and partner locations worldwide to provide training on systems integration processes standardization so service levels are consistent in each location. “The more personnel training that you have to conduct, the more you need standardized processes,” Guenzerodt said.
Supply chain visibility and track-and-trace capabilities are important to all companies working internationally, but large multinational customers focus on systems integration. Dachser is looking to establish EDI exchanges with all of its major clients, acting as an in-house expansion of companies’ logistics departments.
Compliance has become a key concern for Dachser clients, especially in the U.S. There are always new security, environmental and compliance mandates that are being promulgated that require 3PLs to manage vast amounts of data and provide expertise and reporting capabilities. “We have made major investments in compliance-related technology to make sure our clients stay legal in global trade,” Guenzerodt said.
In February, Dachser broke ground on a 325,000-square-foot logistics complex in Zevenaar, Netherlands, to accommodate soaring volume. It also opened a warehouse in Shanghai to support its growing contract logistics business in China. Dachser has been active in China for more than 30 years and employs 650 people at 15 locations there.
Not all global expansion plans are the same. Concerned about rate volatility in the major east-west trades — Asia-to-U.S. ocean carriers already have imposed three increases this year — Encompass Global Logistics has formulated a global expansion strategy centered on niche markets. The company is looking to establish itself in smaller, less-competitive markets where rates are less volatile than in the eastbound Pacific. “Most 3PLs want to play in the big markets,” Encompass President Stephen Aldridge said. “We do, too, but we want to differentiate ourselves.”
Encompass, a non-vessel-operating common carrier that is part of Hong Kong-based Gong Brothers Holdings International, began offering value-added services as a 3PL about four years ago. Services include purchase order management, cargo tracking, consolidation and deconsolidation, warehouse and distribution and customs brokerage services.
The company, which describes itself as a 3PL and NVO, is ranked among the top 20 trans-Pacific operators between China and North America. It moved more than 75,000 20-foot equivalent container units worldwide last year.
As a new 3PL, Encompass will face less competition in markets such as New Zealand, with only six active lines, as opposed to the trans-Pacific, where more than 25 lines operate. Markets of interest to Encompass include the western Mediterranean, Russia, eastern and western Africa, Australia-New Zealand and regions of Central and South America. Encompass also is expanding in China and West Asia, its core markets.
Carrier influence isn’t as deeply embedded in many targeted niche markets, leaving a gap in regional expertise. “If we get engaged in niche markets with growth opportunities, we have a better chance for long-term growth,” Aldridge said.
Extending standardized platforms to niche markets where business is often conducted by e-mail instead of EDI poses a formidable challenge. Encompass relies on teams of Hong Kong-based engineers to conduct four- to six-week training programs at company and agent offices throughout the world.
Contact David Biederman at firstname.lastname@example.org.