The Keys to Success for 3PL Warehousing Services

Details #

Karl Siebrecht and Ben Dean speak with two seasoned supply chain experts, Bob Spieth and Jeff Sexstone, about the essential factors for success in 3PL warehousing. Bob Spieth, Executive Advisor, Advent International, shares his experiences in growing logistics businesses, emphasizing the importance of people, technology, process management, and disciplined new business practices. Jeff Sexstone, a Partner at Kearney, discusses how shippers can structure and manage 3PL partnerships effectively, highlighting the evolving role of technology, automation, and governance in logistics. Together, they provide a comprehensive look at how 3PL providers and their clients can foster strong, resilient partnerships in a rapidly changing industry.

Key topics discussed:

• The four key pillars of 3PL success: people, technology, process management, and disciplined new business execution.

• The evolving role of technology in 3PL operations, including automation, visibility tools, and customer-facing digital interfaces.

• The importance of structuring strong 3PL contracts and governance models to align incentives and ensure long-term success.

• How external factors like inflation, geopolitical disruptions, and changing customer expectations are reshaping 3PL relationships and strategies.

Episode Transcript #

Narrator 0:00

Welcome to the Logistics Leadership Podcast brought to you by Flexe. Flexe provides Flexible Warehousing Infrastructure, helping enterprises optimize their supply chains with flexible solutions through North America's largest network of warehouse operators. Enjoy the show. It's the Logistics Leadership Podcast with Karl Siebrecht and Ben Dean.

Karl Siebrecht 0:30

Hello, everyone. Welcome, once again, to the Logistics Leadership Podcast. I am Karl Siebrecht, your host, and as always, I am joined by my colleague, Ben Dean. Hello, Ben.

Ben Dean 0:41

Hey Karl, as always, it's great to be with you on the podcast, and I'm really excited for today's episode, since we're talking about the keys to 3PL success.

Karl Siebrecht 0:49

Yeah. So as you know, I'll be speaking with Bob Spieth, who is a veteran 3PL executive and also a veteran Chief Supply Chain Officer from a couple of very large shippers. So we're going to talk through the keys to 3PL warehousing services, both from the warehousing operator side and from the shipper side. So Bob is a perfect person to help us understand that dynamic.

Ben Dean 1:16

I think he took what was then known as OHL from being a regional, maybe two city 3PL, to a national player in the top 15 in the US. So I don't think there's anyone better to talk about what the keys are to being at 3PL and being successful at it.

Karl Siebrecht 1:32

That's exactly right. And then, as I mentioned, he also has deep experience on the shipper side. So super excited for that conversation and also equally excited for your conversation with Jeff Sexstone, who works with the consultancy Kearney, and equally has deep, deep experience in this topic.

Ben Dean 1:51

Yeah, really excited for that conversation. I think I'm going to try to play it a little more long format for our listeners, because there's a lot of gold within that. But, you know, Bob sits at this executive level really talking about the strategic elements. And though Jeff's really at that strategic level as well, he talks deeply about the executional aspects of successful 3PL partnerships. And I use that term intentionally.

Karl Siebrecht 2:14

Yeah, exactly, exactly. So let's do it. Let's dive in and listen to Bob. So Bob, welcome to the podcast.

Bob Spieth 2:23

Karl, great to be here. Glad to join you today.

Karl Siebrecht 2:26

I'm excited for this. Listeners don't know this, but I've known Bob for a long time, and so have benefited from a lot of his expertise, and excited for him to share a lot of that with you all. So Bob, to start, if you wouldn't mind, just tell us a bit about yourself and give us an overview of your background.

Bob Spieth 2:42

Thanks, Karl. I've been in supply chain and logistics for most of my career. Actually started off right out of college with the army, running operations in both Korea and Germany. And that was, you know, all logistics, maintenance, supply chain. And then from that early start, made a stop at business school and stop in consulting, and then wound up making my way back into the logistics world with Ozburn-Hessey Logistics in Nashville, Tennessee. So that was a relatively small, regional third party logistics company, give or take, $40 million in revenue at that time, going through a management transition, going from being a family owned company to a management owned and run company.

Karl Siebrecht 3:27

You now may recognize that as OHL.

Bob Spieth 3:31

Yes, exactly. It was Ozburn-Hessey at the time, then became OHL, and is now GEODIS, North America. So it's made this, this name transition. When I joined it, we really had operations just in Nashville and Memphis, Tennessee. I was with OHL for the next 14 years, part of the leadership team that grew that company to be over a billion dollars in revenue through a combination of acquisitions and organic growth and a really strong bet on eCommerce that we made quite early. Out of that I discovered, you know, I ran the contract logistics business, and really discovered how much I loved growing businesses and being part of that, you know, scaling of business, and when things, you know, began to settle down a little bit at OHL, I got attracted away to an opportunity in Seattle to join Zulily, which was a super fast growing eCommerce company, as COO there. It was a three year old company already doing 300 million in revenue, and when really needed to scale, needed to scale and to build out the team to scale. And I was part of that leadership team where we grew almost 2 billion in revenue over the next few years. We were acquired by the QVC Group, and then I joined the QVC Group as COO. A different business, much larger scale, 14 billion in revenue, global business. You know, we were integrating acquisitions, a very different kind of experience, but all around logistics and supply chain. And then, you know, was lucky enough to retire four years ago. And currently I'm on the board at Flexe. I'm an operations advisor with Advent International, which is a private equity firm. I teach over at Vanderbilt as an adjunct professor, and then I serve as a Board Chair of Service to School, a nonprofit that supports veterans’ education.

Karl Siebrecht 5:35

Fantastic, yeah, just an amazing background, lots of learnings over the years.

Bob Spieth 5:40

Too many. Way, way too many.

Karl Siebrecht 5:44

Maybe a scar here or there. So let's see what we can learn from you. So as I mentioned up top, we would like to explore the keys to success in the 3PL warehousing industry, and we want to view that from both sides of the equation. So let's start on the service provider side of the equation. In your experience and what you've seen in the industry around you, what do you think are the keys to success for building and scaling a 3PL?

Bob Spieth 6:10

So I'll obviously talk primarily from my experience at OHL. And you know, while, while the industry has changed, many things remain eternal, so to speak. I mean, I kind of think about it as, in my mind, building and scaling a 3PL, I think about four key areas. I think about people. I think about technology. I think about kind of process management and process oversight, and then I think about new business discipline. So I think about those four key areas, and I'll talk a little bit about each one. People comes first. I mean, this is a service business, it's got an enormous people component. You know, underneath that, a couple of things that I'd call out specifically that, and I'm really, I'm again, piggybacking on my OHL experience. We recognized early on the importance of kind of continuity and expertise, and a part of our network strategy, we invested in a campus network with core operations in key cities. And a significant part of the reason for doing that was because of people. You know, it allowed team members in a specific place to basically build a career and never have to relocate. So you could come in as an operator and become a lead, a supervisor, a manager, and never have to relocate, because there was critical mass in a single location. So it gave a lot of, you know, a lot of benefits from employee retention and development. But I'd call out that people piece, and then the other, from the people standpoint, is kind of the commercial team. You know, the 3PLs have to win new business. And in our case, what you know, one thing we found was that with that commercial team, looking for former operators, looking for people who had walked in the customer's shoes in the past, was just super critical. The second area, I'd say, was technology. Technology, in the 3PL world, you're trying to, you're trying to almost meet an impossible demand, which is a highly flexible set of systems that can configure and adapt to customers’ needs. Low cost because they just need to be low cost. Scalability across a variety of types of business and across the enterprise and then the capability to build internal expertise. So kind of, you know, aligning on, you know, call it one core system, so that you as a company can become the expert at that system. And so technology was and remains, I think, super important. And kind of selecting that right, picking the right platform, and then investing in that. Third area, I'd call it this kind of process, I call it process management, which includes kind of metrics and financial reporting. It's this idea that is a 3PL, 15 years ago, or we had, you know, 400 different warehouse operations. It's the combination of customer plus warehouse plus location equals 400 of those. And you know, having a set of performance metrics that would allow both, you know, kind of managing the business, oversight of the business, understanding the financials of the business, in a way that could roll up and be reported on and overseen was super critical. And then the last I'd call out is, is new business or startup kind of disciplines and in my mind, and certainly where I have most of my scars from my 3PL days was all about starting up new customers. It was all about starting up new operations, huge opportunity for either success or failure, and I'd say that's probably true across every 3PL I've been involved in or know of. And so building a lot of expertise around how do you deliver the semi custom solution in a very, very predictable, reliable way. What do you need from an engineering support, from a project management support, from a training, you know, building out those startup processes that are, you know, almost over-specced is, I think, a critical discipline for a 3PL to kind of build and scale a great business.

Karl Siebrecht 10:40

Got it. Understand. That's a great way to frame it. So people, tech, process, and then the new business.

Bob Spieth 10:47

I pull out new business separate, because it's just, it is so make or break, you know, it is so make or break because, you know, invariably, if you're in that business, people are licking wounds from startups that went bad, and they're still licking wounds five years later. And the customers, you know, everything's make or break on that initial work.

Karl Siebrecht 11:10

Totally makes sense. Let's double click into the tech part of that. So help us understand at least what you've observed. How has the relationship between 3PLs and technology changed over the years? We know that technology itself has evolved, you know, at I mean, frankly, just a fast clip. So how has the relationship between the 3PL and the technology evolved over the years?

Bob Spieth 11:33

Yeah, you know, I think if I go back again probably 15 or more years ago, the two primary focuses were kind of operational excellence, right? Could the technology, you know, handle the operation in the most efficient way? Was it technology kind of well suited to the operation? So it's kind of inward focusing around kind of process and technology, and then, you know, equally important was the integration of that technology with the customer systems. Those two, you know, out of that came at various points, we did it also of the idea of, should you look for best of breed technology? You know, should you put a certain WMS system in for an apparel customer and a very different WMS system in for another customer? This idea of fitting the technology exactly to the process. So those were, I'd say, the thought processes 10 to 15 years ago, probably a pretty strong feeling around having a package system that, you know, was a name brand that customers could trust, right? That was also an important part of how we thought about it. I think most of those points are still true. You know, none of those have gone away. It's not like they're not important. I'd say what's grown in recognition and importance is the understanding that, you know, best of breed technology doesn't matter if you don't really know how to use it. And so, you know, kind of this building scale with a particular technology where the company is just super expert at running the technology itself can actually be more valuable than necessarily having exactly the right hammer for exactly the right nail. The other thing that I've seen and experienced, actually, very, very recently is a lot more emphasis on the tools that the customers will use. So what will the customer's visibility look like into the 3PL system? Customers are looking for visibility. They're looking for the ability to look at their inventory, to optimize, to make decisions, but customers are also used to using apps, you know, they're used to using Uber, they're used to using Spotify, you know, they're not necessarily used to looking at, you know, a green screen, hopefully, or, you know, a classic, you know, Oracle, you know, screen. And so I was part of a recent 3PL selection where a key criteria was that the 3PL system still looked like it was 15 years old for one 3PL and another 3PL showed something that was really whiz bang. And that was, that was the decider, and that would have been much less true 10 or 15 years ago.

Karl Siebrecht 14:20

So kind of just base level expectations from the customer have changed, kind of almost separate and apart from the industry itself, it's just more broadly, what does great technology look like? What do I expect it to be able to do and how can I use it?

Bob Spieth 14:34

And the customer almost looks at it and says, if it doesn't look like what I'm expecting it to look like, how good can it be, right? Yeah, it's a flag that says, ooh, you know, is this even, even though, from, you know, an inside of the four walls, or inside of the TMS operations, it can actually operate very, very well.

Karl Siebrecht 14:54

Makes tons of sense. Okay, so now let's look at the keys to success from the customer’s standpoint, and I'm, you know, going to make a wild guess here that there's probably going to be some similarities, because, you know, if the provider can do the key things necessary to build and scale successfully, that means they've got to be making customers happy somewhere. So how would you think about that? Again, from your personal experience, you've been the COO of the very fast growing startup in Zulily, like, which I think at one point was, like the fastest growing company.

Bob Spieth 15:22

I think for about 18 months we could, we could call ourselves that. There was a short incredible run where it was scaling faster than any other eCommerce business at the time, at least.

Karl Siebrecht 15:34

Right, right. And so keeping your consumer customers happy, obviously really critical. And then that company was, as you told us, sold to a much larger company, global scope, both online and offline commerce. So you've got a lot of experience, and then you've also been part of a private equity organization and have helped them, presumably their portfolio company. So, got a lot of experience from the customer standpoint. So tell us, what are some of the key success in creating a successful partnership with a 3PL provider?

Bob Spieth 16:07

Yeah, I'd love to say it's kind of rocket science, and I have four or five points I'll make, and none of them will be at all shocking or surprising. You know, I kind of always point first to just pure quality of service. And quality of service, you know, though, is a little different sometimes from how, you know, a single operator may view it. I think that, you know, from a customer standpoint, they're looking for execution of the business. They're also looking for quality handoffs, because, as we all know in logistics, no one handles something all the way through, no single company. And so quality of the handoffs, and then quality of the technology, alerting and messaging, even if the product is handled well, if the messaging doesn't follow, from a technology standpoint, the product may not have been, may as well not have been handled well. And I don't, I don't think in particular, warehouse operators always think about it that way. So quality of service, certainly super, super important. I'll point to follow through and consistency as a second point, just kind of doing as a provider what you say you will do, doing as a customer what you say you will do. Again, not rocket science, but I've seen it not done too many times and so we want to call that out. Third is just proactiveness. I think it's in the service provider realm, there's sometimes a feeling of, okay, we're doing the business. We're doing it well. We're delivering great quality. You know, your inventory accuracy is superb. What else do you want? And I think as a customer, the customer is always looking for improvement ideas. Bringing improvement ideas to the table and then making changes in your control, letting the customer know about them, whoever's managing that 3PL relationship invariably is being looked to by their boss to deliver some kind of savings every year. And so if the 3PL can come forward with those savings or with those quality improvements, that just helps make their job easier and helps make the business easier. I think proactiveness, especially when you get into, call it years three and beyond of any of any contract, I mean, the first couple of years tend to be more about stability and getting things, you know, just operating and operating really well, but the proactiveness becomes super important after that.

Karl Siebrecht 18:36

Not resting on your laurels, once things get stable.

Bob Spieth 18:39

Yes, exactly. Not resting on your laurels. I think that's well said. I'll always point to cost effectiveness, always. I mean, I think as a customer, you know, I mean, I always look to my own operations to improve their productivity and efficiency every year and, you know, it's hard to say this in an inflationary environment, in a non inflationary environment, expected cost to come down year over year. And certainly be looking there for that, you know, from a great 3PL partner, I'd be looking for those same things. And then the last I'd call it is just transparency. Bad stuff always happens. You know, stuff happens. Well, you know, things you're not expecting happen. You know, a sprinkler leaks, somebody takes something, you know, whatever, you know, inventory is unexpectedly missing, a shift doesn't show up. You know, a customer doesn't expect perfection. They do expect transparency about what's happening, and then, of course, the responsiveness and follow through. I think too often I've seen that, you know, 3PLs will want to avoid saying that there's a problem until they fix the problem. And by the time they fix the problem, the customer has long ago learned there's a problem and is already raising alarm bells about that. So I think that that's the last I would call it.

Karl Siebrecht 20:19

Can be a trust buster, for sure. I mean, I think that's great. You know, you started by saying, look, this isn't rocket science. It's not, but it's, at some level, it's the basics. But it's important to just remember that the basics matter. And it's not just like listing them. You actually have to do them.

Bob Spieth 20:37

You have to do them. And I think I've seen all of them, I think we've all seen all of them not done in many, many cases. And then, and then you wind up with, with a loss of trust. And what could have been a great partnership just, just doesn't happen.

Karl Siebrecht 20:52

Yeah. I'd like to explore a little bit whether you feel like the value proposition of a 3PL contract logistics solution, that the value proposition of that has changed over the last, call it, you know, 10 to 15 years. And maybe as a way to do that, could you share your thoughts on if the rationale or the reasons from the customer's perspective for deciding to outsource to a 3PL, have those changed?

Bob Spieth 21:18

I would say they more like accelerated versus changed is where I'd look at it. When I think about why customers outsource to a 3PL, you know, I think about a few things. I think about their typically, capital efficiency is a part of it for both purchase capital and longer term leases. So there's a capital efficiency element. There's just a pure difficulty in maintaining skill in logistics, you know, if it's not your core, if it's not your core function as a company, do you want to build that skill in house? There's certainly a technology rationale, and always, well not always has been, but I'd say, for the last 20 years, has been around, you know, if a company's not in that business, do they want to invest in trans management systems, warehouse management systems, shipment planning systems, so that technology capabilities. And then there's a people management piece. How we describe that is, if you're, you know, a company who doesn't have production facilities, doesn't have a large, you know, hourly workforce, right? You know, taking on an hourly workforce is just adding a new dimension to your whole people management and your many companies. That's something I just I don't, I don't need that additional complexity to my whole people management world. And I think those have been there. I'd say, you know, some, you know, as there's less and less production, maybe in certain places that people management one becomes even more and more important as companies become more and more virtual. When I look over, you know, what's changed, you know, I think a couple of things have become, even have kind of added to that list, more uncertainty, more desire for flexibility. From a customer standpoint, I think over the last, you know, you know, five years, we've seen a lot of disruption, and which brings about a desire to say, you know what, let me have the flexibility of a logistics provider versus my own bricks and mortar, just so that, I think flexibility has become an important piece that was there was less so 10 or 15 years ago. I think you have more complex logistics flows, you know, with the rise of eCommerce, you know, omnichannel, there's, it's hard for any, even a company who wants to keep stuff in house, to keep it all in house, because there's these, you know, new kinds of flows, and they're like, you know what? That's just not one I want to invest in. And then, from a technology standpoint, just the pace of change continues to accelerate and staying current on that is a, I don't think there's been, I would call it substantive change, other than maybe the increased need for flexibility, but it's just kind of more and more pressure from that standpoint.

Karl Siebrecht 24:01

Yeah, makes total sense. And it kind of really resonates that there's a core set of needs that haven't really changed, but then there's just these additional things that come along and kind of build the case, if you will, for like, even just a general forget the department of the enterprise or the sector, to outsource or not to outsource. It's kind of, you come back to, I know you have your MBA too, that class where they talk about core competency. That's very true in this industry as well. And as the complexity increases, it's a bigger investment for the corporation to sort of decide that, hey, I'm going to be an expert in this.

Bob Spieth 24:41

Yeah, which is really the decision that's being made. And you can't be an expert in everything, because, as we know, or if you do, you'll fail.

Karl Siebrecht 24:57

Yeah, you can aspire. Well, Bob, this has been a really great conversation and really, really appreciate your willingness to join me here.

Bob Spieth 25:03

Karl, it’s been delightful. Yeah, it's a trip through memory lane that I don't get to take all that often. So thanks for asking me.

Ben Dean 25:12

Well, Karl, another amazing conversation there you had with Bob. There was a lot said there, so maybe it's time for a recap. What did you take out of that conversation as kind of the discrete keys to success he mentioned?

Karl Siebrecht 25:24

Yeah, let me just summarize where Bob started. So he talked about, there are four keys to success. First is people. People comes first. We've heard that, by the way, with other guests on the podcast, that's certainly a theme for season two. Second key to success is technology. It's trying to build technology to meet a really, really, really, almost impossible demand, is the way he put it, you know, try to bring flexibility into an environment that is highly uncertain and highly dynamic. Third was process management and measurement. Measurement of metrics sort of get aligned between the service provider and the customer. What metrics matter? Bring visibility to that, and bring process around, sort of continually managing through those. And then fourth, which was super interesting, a little bit new for me, not new, but sort of not something we hear frequently, is new business discipline. Bob said something like, you know, most of my scars from his tenure on the 3PL side were from the startup phase.

Ben Dean 26:26

Yeah, I'm so glad that he highlighted that, because I think it is a discipline in and of itself. And when we talk about people, process, technology as we have this season, you know, that's a piece that gets missed out, that launching a business is the hardest and where the most success or failure comes. And through the people, process, technology piece, I think that Jeff from Kearney is going to really highlight the how behind those principles. He gets into detail about how you set up your relationships, how you set up the actual agreement between your 3PL and then how you manage and govern that going forward. But before getting into all that detail, an important piece that Bob touched on as well is why we're going 3PL. A lot of these large enterprises, they think they know it, they've got great infrastructure, they've got a, you know, a treasure trove of cash, maybe, to spend of their own. So let's take a listen to Jeff Sexstone kick off this conversation by talking about why these sophisticated shippers are going third party for some of their logistics needs.

Karl Siebrecht 27:28

Perfect place to start. Let's give it a listen now.

Ben Dean 27:32

I'm fortunate today to be joined by Jeff Sexstone of Kearney. Jeff, what's the inherent value in the 3PL, and is that going up or down? Do we expect that shippers see more outsource logistics in the future or less?

Jeff Sexstone 27:46

Well, good question, Ben, I appreciate it. We generally expect to see, you know, more and more 3PL outsource in the future. And there's three main reasons for that. One, it's the capabilities. Customers are expecting better services. It's very hard for any individual shipper to be a logistics expert at different areas, and have the investments to support that. That is the purpose of a third party logistics provider that can spread those investments out across shippers. Two is, there's a lot of geopolitical disruption in this space. Again, another hard thing for how to basically shippers keep on top of, they keep on top of their own areas, but they may not be able to keep on top of the global supply chain, and how to basically adapt and react to that. And third is that technology element, again, where to invest, how to invest, how to basically interplay, though, it's a kind of another key area we see that, you know, shippers are going to be, hey, it's, you know, it's good challenge too. We see a lot of the biggest shippers, yes, there's investments for the biggest retailers in this space, we see beyond that, a lot of folks are going to the 3PL partner and saying, hey, listen, how can we better team together, either on certain new startup businesses or core business as well? And we continue to see more of the 3PL usage throughout cross industries, as well.

Ben Dean 28:55

Kearney is very well known across the industry, and especially for operations and supply chain expertise, but broadly, why are companies going outside and coming to Kearney to answer questions like, what makes for a successful 3PL relationship?

Jeff Sexstone 29:11

Yeah, there's a couple reasons. COVID was a big disruptor in the industry, both in terms of what to expect and expectations for being able to adapt and adopt, and the ongoing trend of eCommerce and omnichannel. So those expectations are putting a lot of pressure on shippers to perform more reliably, more successfully, and some of those shippers don't have the capabilities to do that. The same time, a lot of the shippers and 3PLs had a bit of a struggle with relationship during COVID because of some of the inflationary effects that were playing out, and those cause some stress in relationships, and partly due to how some relationships were structured, and partly due to how some relationships were managed going forward. So we're seeing a lot more collaboration, kind of working together. It's kind of one of our key things on both sides of the fence.

Ben Dean 29:56

All right, let’s shift over more to the service provider side of the equation. And talking from that basis, what are the keys to success just to be a successful 3PL from a business perspective?

Jeff Sexstone 30:08

As most people know, the entries to being a 3PL are relatively low. Anyone can go out and lease the warehouse, and most people can ship packages out of the garage. That's not the challenge. The simplest elements is probably two core functions. One is integrating those solutions together. It's easy to isolate logistics components and optimize them. What good 3PLs do is they help stitch them together in a seamless manner. You know, make sure there's the correct flow and efficiencies. Those things have to have the nice tension in blending those elements. Of course, we talked about the physical, virtual, relational world. The second aspect of it is the relationships and brands. So a lot of shippers, particularly, they very much want a 3PL experience in certain functional areas. So we recently worked with one of the larger data center operators, and they were looking at, basically, who do they team up with in the future, and how do they do it? And a big criteria with them, even it's so critical to their business, they want someone with experience. So having that experience and that reputation is critical to be able to expand in those business segments.

Ben Dean 31:05

What’s changed, let's say, in the last 10 years in that space, about what 3PLs need to be doing to be successful?

Jeff Sexstone 31:11

My experience and most other folks on both sides would say technology tends to be the long pole in the tent. It tends to be the biggest challenge of doing integration in the time they do it. So that's a key challenge. And most large shippers are having a hard time keeping up these technology trends for these Amazon-like experiences, and they're turning more and more to 3PLs, expecting to bring those proven kind of solutions that better plug and play at their own core infrastructure. One, to provide the capabilities, and two, to reduce their capital investments and risk. In terms of automation, on the automation side, 3PLs are kind of caught to a varying degree in the automation dilemma. So they're being asked by all shippers that we want more automation. The challenge is 3PL agreements have traditionally been three to five years, and depending on the degree of automation, that takes longer times to pay that back, depending on who's paying for that. So we're seeing is some combination of sharing of that investment, more for bigger investments, and also longer term agreements. So you have a longer term and mutual payout. So it's benefiting both parties a better degree.

Ben Dean 32:11

You know, staying on the technology front and the automation pieces especially, so there's ways to get a longer commitment, both between the 3PL and the shipper to the outcomes and delivering the ROI on that automation. Have you seen that the ROI is shortened on automation? That there are more ways to get into those types of unit economies of scale without, you know, buying tens of millions of dollars worth of conveyance?

Jeff Sexstone 32:37

Yeah, particularly in smaller kind of handling of products, there's kind of two areas. We see a lot more of the robotics, things like Locus, we can basically, there are more plug and play with some configuration that can be swapped out, so less of a physical infrastructure, I can bring in robots and add them and scale them out. We're seeing that pretty common across a lot of the 3PLs in similar systems like 6 Rivers and those type of systems as well. Those systems allowed scale, flexibility and dynamics without the initial massive investment, because they can be amortized over the agreement. They play to certain types of characters of shape and form. We're also seeing more things around MHE in terms of forklifts and some automation there. There's some levels of maturity that's still being experimented. I think the more the cutting edge is, we're seeing more things on visuals, in imaging. So those things are easy to kind of plug and play once they're set up. I think that's gonna be an area we're gonna see more and more maturity going forward, things that can be plug and play and provide that rapid payback. Right now, it's still kind of at the cutting edge.

Ben Dean 33:32

And that brings me to question about education for 3PLS, I guess, and shippers around automation and technology. There's more options, there's more within those options, a way to procure them and get creative about how to finance it. So how do you, if you're a successful 3PL or a successful shipper, stay up on what is available and be in the know and on that cutting edge? Is it to talk to Kearney or do, can you do that for yourself? Can you bootstrap it?

Jeff Sexstone 34:03

Yeah, I would say it's a combination of things. So there's a lot, hundreds and hundreds of companies that are out there, kind of at the cutting edge. We're seeing from the shippers, they're looking more for reliability of services. So it's kind of a tale of two cities here. One is, they want to make sure there's reliability and they produce. They want a 90 or 95% solution. They need, really, a 99-100% solution that's going to work day in, day out. There's a lot of experimentation. But at the same time, shippers also want some degree of, you know, interesting cutting edge degree as well. So I think what 3PLs need to find is the right balance, where they can introduce some things that are reliable but also kind of interesting and that shows their capabilities, while actually kind of continue to deliver day in day out. So teaming up with select providers in certain segments, we're seeing that kind of work with very select partners to make sure it's proven, and also making sure that it integrates very well with their existing system infrastructure as well.

Ben Dean 34:58

Let's get back to the key. The big key, the capital K. Would you say, from the 3PL and or the shipper perspective, if they are different, that having automation as a core part of your logistics and supply chain solution is a key? Is that a universal statement we can make? How universal can we get about the role of technology and automation in a successful supply chain?

Jeff Sexstone 35:23

Yeah, I think we've basically heard more and more shippers are saying, hey, I want automation. What we caution the shipper side is, listen, you need to look where the payback is. The goal is not automation. The goal is basically better service or lower cost. And that math needs to pencil out. And you can do some experimentation and limited pilots. And a lot of these providers are looking to kind of do that. Other ones are kind of more proven. So there's like ASRS type systems out there. They're very well proven and very mature in areas, and they can basically demonstrate that success pretty well in plugging those systems in where it meets the right criteria. And that's the other key. You need to have the right kind of automation for your solution. It's a mix of variability, volatility and throughput. So how much of volume I'm doing any given time? How volatile? Because you want to basically be able to sweat those assets that are more consistent. If you believe your business is going to be very dynamic and changing rapidly, it's a harder case to make that investment, because it may not work in the future as well.

Ben Dean 36:15

Yeah, and I think that's a great point in that this is a tool, and there are many tools within that tool set of automation and technology, but it's not necessarily key to supply chain success unless it unlocks a particular need in terms of service costs, etc. So you started out talking about relationships, and I think that's key. We got into the technical stuff. So let's specifically talk from the shipper perspective, and looking at what you've told, you know, your clients and all that, what do you see in those big K keys for shippers to do to create successful 3PL relationships?

Jeff Sexstone 36:55

Yeah, this is a key topic that continues to come up, and I generally separate shippers in two main categories. One, if you're a stable kind of shipping, shipper that knows your volumes, knows your type of product, is not going through a lot of dynamic and massive growth in changing form factors and locations and services, things like that, the agreement can be more structured. You can rely on what you're doing today, put that out to market, work with your 3PLs, to say, listen, this is what I expect. You get much more of a kind of a closed book, fixed variable agreement, and saying, listen, this is what you do well, this is what 3PL does well, we understand our business. That's one kind of play. And then you have to kind of go down that path and having the agreement set up right, having the right governance for those and not taking off, not basically walking away, and having the 3PL manage it. You still got to stay close. The other part is the shippers that are more dynamic. They're much more growing. They don't know what the future holds for them. The size, shape of their man might be different. The dynamics may be very different. In those relationships, they need more of a partner that can help grow and evolve with them and can coach them along the way. And these tend to be agreements we're using, where cost plus arrangements tend to work better, because we're not, you don't have the certainty in the balance and allows the 3PL and you put, you have to put certain terms and conditions there, where there's mutual value on both sides and there's mutual productivity gains. And that relationship has to be, you know, that governance of that has to continue to work out, where both the 3PLs improving operations, the same time that the shipper themselves need to continue to mature some of their operations as well. So it provides mutual benefit.

Ben Dean 38:26

I love this dichotomy here, because it's very different approaches, but very, very different, again, you have to know, as a shipper, variability, what your future holds. So I'm curious, when you talk to shippers, not naming any names, do most of them know which they are? Are they fully into one camp or another? Is it kind of a mixed bag?

Jeff Sexstone 38:46

Yeah, most of the biggest, biggest 3PLs are doing a bit of both. They have that kind of role, and they're trying to shape it in different directions for both business purposes and relationship purposes. And I would say we expect both to continue. I think COVID, there is probably more pre-COVID, more fixed variable, but because of the inflation, some of the pressures on that, there's basically a little less propensity for risk on the 3PL side. So we're seeing a little more push for the cost plus. But at the same time, when you go down that path, you got to make sure you have the right balance to make sure those costs can stay in check as well.

Ben Dean 39:22

What you're saying, especially as it comes to, you know, the investment that needs to be put into the initial agreement, do you see that most companies aren't doing that? Where's the focus area? How do I become an expert at making the right agreements?

Jeff Sexstone 39:36

Recruitment groups are exceptional, but 3PL arrangements are special arrangements that require more expertise than your typical, it's not a transactional relationship. It requires a little more depth of thinking through, putting the right process in place, putting the right governance in place, and having a real good, honest across functional alignment with stakeholders to make sure, hey, listen, if we're putting this out, this is really how we're gonna perform. Or if we don't know how we're gonna perform, this is, this is some more flexibility we need to have. And baking as much into the agreement as possible, with a key focus on kind of that relationship transparency and basically what the roles individually are. So again, the benefit of the best 3PL relationship is both parties are continuously benefiting from that. If one side or the other, it gets a little lopsided, you start getting more friction and stress in there, and that's where some of these relationships go, go a bit sideways.

Ben Dean 40:26

And usually those you know, those terms and governance are established kind of the rules of road by the shipper. That is, at least my experience. Do you think 3PLs can play a bigger role there in showing shippers what will make them successful and a more transparent type agreement?

Jeff Sexstone 40:43

We try and continue to coach our shippers to be more open about it, less completely transactional. But at the same time, the 3PLs need to coach the other way as well. They need to kind of show some flexibility too. So I think that's what we're seeing. Depending upon, there's lots of degrees of the 3PLs and their rigidity and flexibility that plays well as their business models, but they need to coach, particularly in the governance model, in helping set up a governance model where, you know, there's mutual sharing of ideas, there's mutual sharing of operation improvements as well. So both sides kind of come to the table together, so the shipper doesn't back away and just hand it off the 3PL, and then when a bump comes down the road, you're dealing with less experienced people that don't know the operation as well, and that's where things tend to be some challenges in working together tend to be much larger opportunities for both sides.

Ben Dean 41:28

I really resonate with a piece about specialization and knowledge. You as a shipper have your area where you're focused on, which is selling your goods for the most part, if you have a supply chain, and allowing third parties to focus on what they do well is obviously just intuitive. But one of the trends that I've seen as it comes to 3PL service companies is as many seem to be taking non-integrated approaches and splitting off divisions. Think of XPO, GXO, RXO, I think there's a QXO now, and trying to be really specialized into areas while shippers are asking for integrated solutions. Do you see those two things at odds, or are these different sides of the same coin?

Jeff Sexstone 42:10

Yeah, in the logistics industry, this has been the end all debate. Can we basically provide a seamless experience across molds, models and services, and for certain shippers, that appeals to them. The challenge is, most shippers, they like that experience element, but they really like to put all their eggs in one basket. That's probably their biggest concern, you know, and then warehousing and transportation providers still tend to be segmented unless there's like, a dedicated like routing and or routes and things like that, where it tends to be integrated. It's really, you know, 3PLs need to basically anticipate, not just the bundle services, but really how to create more meaningful, long term value for shippers. Having it all is great, but how does that create more value? And that's been more basically, it's been a bit more of a challenge, other than saying, hey, listen you don’t have to worry about it. Okay, how do you sell that? How do you, what's the truly, is it a better service, is it a better cost? So I think those are things that a 3PL needs to continue to challenge themselves on. And what does that bring? And then how does that play out for the long term as well? Which is where most shippers get concerned about.

Ben Dean 43:12

Yeah, that long term horizon. Great way to end it there. Jeff, thank you for your time and the thoughtful responses.

Jeff Sexstone:

Been a pleasure.

Ben Dean:

So that was an illuminating conversation from my end with Jeff. There's so many levels of complexity lying under the surface of a 3PL relationship, not just choosing the right 3PL and setting up the right agreement, but managing that towards success has so much level of difficulty that you don't see at the surface.

Karl Siebrecht 43:40

That's right, but at the same time, you know, it made me think back to one of the things Bob said. He's like, look, fundamentally, this is not rocket science, but it is all about execution, and execution is hard. Execution doesn't come for free. You got to work at it. And I think that strikes to the heart of what's important here, which is the relationship between the service provider and the customer, and making sure you get that right, so that both parties can kind of lock arms and execute together.

Ben Dean 44:11

I love that partnership approach. I think it is a perfect place for us to end the conversation today.

Karl Siebrecht 44:17

That sounds good. Ben, once again, I think a great couple of interviews. I certainly learned quite a bit from our two guests. I hope our listeners did as well.

Ben Dean 44:26

And a big thank you to Bob Spieth and Jeff Sexstone for joining us.

Karl Siebrecht 44:30

And thanks to you as well, Ben. Always good to be with you. And as always, I look forward to keeping this conversation going.

Narrator 44:39

You've been listening to the Logistics Leadership Podcast presented by Flexe. The opinions of the guests aren't necessarily the views of their company. If you'd like to learn more about the podcast or join the Logistics Leadership community, check out this episode's show notes and visit flexe.com/logisticsleadershippodcast. Keep the conversation going. Email us at leadershippodcast@flexe.com. The Logistics Leadership Podcast features original music by Dyaphonic. The show is produced by Robert Haskitt with Jeff Sullivan, Ben Dean, and Karl Siebrecht. Thanks for joining us.