Logistics service providers are no longer expected to just move freight; now they are tasked with solving problems, managing risk, and innovating at the pace of retail, writes Mark Wright (pictured, below), Senior Director Supply Chain Advisory, Blue Yonder.
Blue Yonder’s recent Logistics Service Providers (LSP) Survey interviewed 250 retail executives about their relationship with LSPs. The survey highlights some challenges and opportunities for LSPs in working with retailers. There is good news for LSPs looking to expand their relationships with customers and become irreplaceable strategic partners providing high-value services beyond those traditionally offered by LSPs.
What Are Retailers Looking for in an LSP?
The good news is that retailers are looking for a lot more from their LSPs. More than half (52%) want LSPs that are not only execution providers, but strategic enablers matching their pace of innovation and providing value-added services.
Yes, retailers want reliable, trustworthy partners. But more importantly, they want proactive strategic guidance from trusted advisors who are equally committed to a journey of growth together. LSPs must lead in lockstep with retailers, not just be passive partners who follow orders.
The survey highlights this by revealing the most important traits in LSPs that retailers are looking for. Number one is reliability and on-time performance (agreed by 60%) signaling that core competency still matters. But just behind that (agreed by 56%), retailers want flexibility and responsiveness, followed by cost-efficiency and transparency (46%).
Retailers are demanding a lot in terms of support from their LSPs too. Among the top services they want from LSPs are: end-to-end visibility (69% of retailers), supplier and carrier coordination (61%), risk management planning (57%), prior warnings of disruptions (55%), and recovery response (51%). That’s a lot for LSPs to deliver.
This augments rather than replaces LSPs’ traditional role. Maintaining service levels are still most important, but retailers also want visibility, flexibility, and innovation too. They want to know where their stuff is at all times and proactive, real-time updates during critical events and as needed. They want LSPs who anticipate issues and respond quickly to avoid a crisis; a proactive partner who consistently delivers value by finding efficiencies, managing risk, and minimizing disruption.
Clearly, LSPs who want to stay competitive and be seen as the much-desired strategic partners need to go on the offensive. The market is crowded with LSPs providing the core competencies, but they need to be aggressive in driving cost efficiencies, providing visibility and transparency, and matching retailers’ drive for innovation and improvement.
In addition, the survey finds that retailers are also looking to outsource more services to LSPs. While 35% of retailers outsource order management, another 30% of retailers are considering outsourcing it in the next five years. Similarly, 49% of retailers currently outsource returns management, and another 21% are considering outsourcing it in the next five years. And one of the biggest opportunities for LSPs is analytics, where 21% of retailers outsource it today, but with more retailers considering making the move, that figure could jump to 60% in the next five years. This shows that retailers and other shippers are looking for LSPs to provide more value-added services outside their core competencies.
Further good news is that retailers expect to grow in 2026 and beyond. According to the NRF, retail sales are expected to rise by 4.4% to $5.6 trillion. Customer growth is great news for LSPs, who can adapt, provide, and scale the desired services for retailers.
Retailers are less than thrilled with LSP performance across several areas. The number one issue was LSPs’ lack of technological capabilities (40%), followed by their lack of a flexible commercial model (33%), and poor cost efficiency (32%).
It will be increasingly more difficult for LSPs who are saddled with legacy technology and siloed systems to meet these increased demands from retailers. Clearly, those who are willing to modernize their capabilities and systems to match retailers’ expectations will stand out and have the competitive advantage in a market saturated with legacy and siloed systems.
Ways for LSPs to Respond
There are some critical capabilities that LSPs need to develop to support that vision and realize the promise that retailers are offering.
Adaptability and resilience are key as disruptions become the norm, as are effective decision-making and problem-solving. Speed is another factor that solves many problems and can prevent minor issues from blowing up into crises. It also helps control costs, as the sooner you identify issues, the more options and the cheaper the options available to resolve them. And it enables a responsiveness that retailers increasingly demand. As one retailer put it:
[The LSPs] ability to scale capacity quickly across regions set them apart from other providers during our evaluation. During peak seasonal demand, our LSP was able to secure additional linehaul and last-mile capacity within days, whereas other providers required weeks of lead time
But underlying these abilities is often a technical problem. The sluggish response to issues and inability to adapt is often the result of manual data hunts through spreadsheets, or across different, fragmented enterprise systems.
At the root is the fact that the ‘integration’ between systems is an actual human, e.g., manual inputs and data exports between spreadsheets and order, warehouse, and transportation management systems. The data may be there, but it is scattered, outdated, and not available in one convenient view. All this slows and degrades decision-making and makes it difficult to collaborate with colleagues, carriers, and partners.
Taking the human out of that integration and reconciliation process is where tech modernization can have one of the highest impacts. Implementing a flexible, unified data system that serves as an authoritative single source of truth drives transformation from the ground up and across a digital network of trading partners. It improves data availability for AI and decision-making, thereby enhancing all functionality and outcomes, and the customer experience.
This is exactly the kind of innovation retailers are looking for from LSPs. As the report notes:
83% of retailers expect their LSP partnerships to evolve through digital network expansion. Across all retail subsectors, markets, and company sizes, the digital supply chain network expansion piece is the defining factor. Without it, retailers are likely to look elsewhere for services and long-term partnerships
Further, retailers expect LSPs to specifically invest in machine learning/predictive AI (49%) and control tower/digital supply chain networks (40%). These two go hand-in-hand, as the ML and AI have better data from the network, and thus predictions and control tower issue-detection and resolution are improved.
A network connecting carriers, suppliers, and partners powered by a unified data platform enables the end-to-end visibility and collaboration that retailers so desire. It serves as the basis for a control tower with AI-driven intelligence that can identify issues in the network early, and surface proactive resolutions.
This unified data source also helps facilitate the configuration of new, efficient workflows and collaboration across departments and trading partners. This connects all aspects of the supply chain network, finds more efficient processes and workflows that allow LSPs to reduce their cost-to-serve and increase their margins.
Such a modernization initiative that builds the required data foundation and then leverages AI also helps address other challenges faced by LSPs, such as the labor shortage. As LSPs embrace innovation and AI, they more easily attract and retain talent, especially the younger generation who are digital natives.
The Winners are Being Forged Today
While 80% of retailers expect their use of LSPs to increase over the next 3-5 years, they will be looking for much more from their LSPs. As the the LSP winning more business tomorrow will not be competing on price or base services alone. They will demonstrate value through innovation, adaptability, and flexibility. They will grow by offering ease of integration, rapid onboarding for customers and partners, end-to-end visibility and collaboration, and risk management. They will provide real-time, end-to-end tracking updates by default. They will anticipate issues with predictive analytics, communicate them promptly with clarity, and resolve them quickly with AI-powered recommendations.
The LSPs that get this right, will lock in long-term relationships with growing retailers who are similarly modernizing and innovating to meet their own customers’ rising expectations.
To learn more about how Blue Yonder is helping LSPs win more business and retain more customers, go to https://blueyonder.com/industries/logistics-service-providers.
