Providers of logistics and transportation (LTS) services are lifeblood for companies that buy bulk materials and ship products. At the same time, slowdowns or other glitches or inefficiencies in the services are maddening to CFOs, because they land squarely on the bottom line.
As it turns out, finance chiefs at LTS companies have their own hands full, in part because of customers’ heightening demands for innovative solutions. That’s pushing the LTS field to shed decades-old ways of doing things. For one, it’s finally starting to leverage the most current technologies — a very positive change, but one that puts new pressure on industry CFOs to allocate capital wisely. And their finance departments, historically staffed mostly by people who grew up in the industry, are now seeking to bring in fresh operational ideas from outside. Neither pursuit is proving to be a snap.
Those are the main takeaways from a new report, produced jointly by the financial officers and LTS practices at executive recruiting firm Korn Ferry. It isn’t based on a survey, but rather on a series of in-depth interviews with finance chiefs at companies representing different LTS niches: industry-leading, full-service provider DHL Americas; air cargo shipper Delta Air Lines; Coyote Logistics, a growing non-asset-based provider of services to the LTS industry in North America; and BDP International, a global non-asset-based services company.
“Starting out, we didn’t know if there were going to be common denominators among these different kinds of LTS companies,” says Beau Lambert, a principal in the recruiter’s financial officers practice. “But what we found was incredibly consistent. They all had the same pain points. They’re all struggling with technology and talent, issues that other industries faced years ago.”
On the technology front, the report cites a 2014 study sponsored by technology consultant Capgemini, Penn State University, Korn Ferry and others, which found that while 98% of users of third-party logistics (3PL) services agreed that IT capabilities were a necessary element of the service they expect, only 55% said they were satisfied with current 3PL capabilities.
Most in demand is the latest technology allowing fully transparent, real-time tracking of shipments — where they are and when they’ll arrive. Providing that requires LTS firms to keep up to date with advancements in RFID and GPS tracking, as well as trade-management tools for moving goods across borders in the most efficient, compliant and profitable way.
Also needed are advanced route-modeling and demand-and-capacity forecasting solutions. In fact, if customers can benefit from such technologies, so can LTS providers themselves, and not just by improving their ability to attract and retain customers. “Knowing when product will be shipped and where it is in the supply-chain cycle allows the CFO to better manage cash flow, by understanding when receivables and payables will be coming in. That really adds to the bottom line,” says Lambert.
The forecasting systems are crucial for avoiding the kind of disaster that befell LTS providers during the 2013 holiday season, when there was an unexpected late rush of demand for deliveries. Big shippers like United Parcel Service and Federal Express weren’t able to make all their deliveries by the Christmas-day deadline. “Better demand forecasting allows CFOs to deploy capital to meet demand and have assets, like trucks and sorting-center staff, in the right places,” notes Neil Collins, global sector leader for Korn Ferry’s LTS practice.
Having It Their Way
Perhaps the most vexing challenge for LTS companies is that their large customers are pushing for ever-more customized services.
Even building technological infrastructure that can be used across their customer bases requires “huge capital expenditures for projects that may have a shelf life of three to five years,” says Lambert. “Then, when larger clients want full suites of customized product offerings, it becomes a question of whether the LTS companies really have the capability to build out that functionality and what the ROI will be. It really pins the decision on their CFOs and CEOs to make sure they’re allocating capital to the technology platforms customers need most.”
Contradictorily, customers continue to “beat the logistics industry over the head on price,” says Collins. “So, typically the services of logistics providers have been very transactional in nature and actually pretty cheap.”
That, he contends, is a key reason why the LTS field lagged behind many others in technology usage. “Customers just want to renew their one-year contract, but for 10% less. It’s such a mixed message: ‘Hey, we want you to innovate, but by the way we’re not going to pay for it.’”
As a result, some LTS companies are evolving how they define themselves. “They’re starting to view themselves as technology companies first, and they just happen to be serving the logistics sector,” Collins says, “rather than viewing themselves as logistics providers who move boxes on trucks and may play around with technology a little bit.”
Meanwhile, like companies in every industry, the leading, more technologically advanced ones in the LTS field are making hay with data analytics. UPS, for example, knows what you bought on Amazon and when, what size the package was, where it was moved to and much more. That serves two distinct purposes. “They can use that data to better plan for their own companies, but they can all sell it to marketers and sales organizations that are looking for rich data on customer behavior and patterns,” Collins notes.
So far, the data analytics movement has barely scratched the surface of what will eventually be possible. Korn Ferry’s report quotes DHL finance chief Scot Hofacker as saying, “Logistics is more ‘little data’ than ‘big data’ right now,” especially compared with the advanced use of analytics in retailing, where Hofacker spent 12 years of his career.
Where the Grass Is Greener
CFOs in the LTS industry who are driving technology innovations are looking to stock their teams with people who are comfortable with IT and data-intensive challenges. In most cases, that means reaching outside the industry.
Richard Hanks, CFO of BDP International, told Korn Ferry that one rich source of talent is the financial services sector, where people are accustomed to a regulated environment, rapid development of new products and a high transaction volume, all of which apply to LTS.
Hofacker sees the same potential in retailing. “I see a lot of similarities there [with LTS]: multiple locations, predictive analytics and in-depth managing of labor,” he told the recruiting firm.
In fact, LTS companies now have a strong preference for filling their CFO seats with people from outside the industry. According to Korn Ferry, among the 50 largest logistics companies, 64% of current CFOs were external hires. And among those, 52% came from other industries. By comparison, at industrial companies in the Korn Ferry 1000, a proprietary database of executive-talent at 1,000 large companies, only 17% of current CFOs were hired from other industries.
“The level of sophistication and the degree of evolution seen in other industries is helping the logistics industry, which is pulling in people from the outside to instill strategies and methodologies that really help broaden its capabilities,” says Lambert.
But as they look far afield for talent, they will face something of a paradox: “talent will be easier to attract but hard to find,” the Korn Ferry report says.
The “easier to attract” part of that equation refers to the fact that the LTS finance chiefs who spoke with Korn Ferry all want to put their fresh talent into rotational mode: bring people in for finance and accounting roles, groom them to move into operations where they learn the business inside and out, and eventually bring them back into finance. “That is a very attractive career prospect for someone coming out of a Big Four accounting firm,” Lambert says.
The “harder to find” part is simply the reality of recruiting finance talent today. “It will be especially difficult for LTS companies, with all of their competitors looking for the exact same thing,” Lambert observes.
Photo: National Oceanic and Atmospheric Administration, Wikimedia Commons