The Over-Customization Problem

Logistics companies have seen their profits shrinking over the past few years. In addition to the economic recession, there is another major reason why third-party logistics firms are experiencing declining profits. The industry’s business model consists of custom-tailoring technology solutions to the customer’s request and approaching new projects with all new designs and implementation. For this reason, the industry is trapped in a competitive, downward spiral of expensive project-by-project customization and declining profit margins.

Third-party logistics providers need to relax this customer-centric business model. To do this, they need to step away from the project-based approach in favor of a product-based model. Logistics companies need to define the services offered by their company, keeping them clearly differentiated and so more profitable. Bundling services is only a good idea if the company gets paid adequately for the all of the services that they bundle. By adopting a more disciplined and strategic approach to customization of their services, third-party logistics firms can pay more attention to their bottom line. They can reduce the complexity and cost that is generated by trying to be everything to every customer and so make their own company more profitable.

In the past, third-party logistics firms have been inefficient users of IT. For instance, poor integration of acquisitions and unnecessary use of outsourcing are reasons why some third-party logistics firms continue to support multiple IT platforms. This is a costly mistake. Unless these companies consolidate their IT systems, they will continue to face unnecessarily high cost structures and complexity.

Third-party logistics firms can take steps to solve these problems by providing customers with targeted responses to customers’ real needs that fall within the logistic firm’s domain of expertise. This approach requires training third-party logistics firms’ sales forces in diagnostic, consultative sales. It also requires admitting when your firm’s services cannot address all of the customer’s needs. Finally, third-party logistics firms should develop modular, high-value, IT-intensive products that sit on top of a common, company-wide IT infrastructure.

Economic hard times require innovation for companies to survive. You should put talented, imaginative people in an environment where they can introduce the kinds of ideas that will shake up the competition. However, you should also know when to “stick to your knitting”. Concentrate on what your company does best. Spend money to put only the best ideas into practice. Companies are often better off with only a small amount of innovation and a focus on operating efficiently.