What’s right for my business?

When it comes to deciding how to best manage freight operations, many shippers, wholesalers, distributors and logistics personnel find themselves at a crossroad. Do you implement a Software-as-a-Service (SaaS) freight management system in-house or should you outsource everything to a fourth-party logistics (4PL) partner?

Choosing what’s right for your business to stay competitive while still providing the best service to your customers can be a daunting task. Here we’ll help you evaluate the options and explore the pros, cons and other factors you should consider before deciding.

To begin, it’s important to understand what the difference is between a 4PL partner and a SaaS approach, for managing your freight?

A 4PL partner is essentially a freight broker. Brokers are typically an individual or company that works with their customers to connect them with carriers. They look to provide industry intellectual property (IP), supplier procurement and other related management services with the aim of creating a lean, cost-effective supply chain.

SaaS is cloud-based software that is owned, delivered and managed remotely by one or more providers. SaaS provides powerful connectivity and integration with other systems or stakeholder technologies, but is user managed.

Next, let’s do a side-by-side analysis and weigh up the pros and cons of both options:

Pros
4PL Partner

  • Businesses often choose a freight broker as a partner on the basis that they will be able to negotiate better rates with transport carriers. They already have established relationships and dominant buying power. They’ll also take care of ongoing relationships with carriers on your behalf, and audit their invoices.
  • If your business’s core competency is not logistics or freight management, then brokers can take care of all your operational and data management
    needs.
  • You should consider the above points carefully if your business is in its infancy or experiencing rapid growth, as engaging a 4PL is a simple way to outsource a task that can require considerable resources and expertise.
  • Engaging a 4PL partner can help drive organisational change. A business trying to implement internal change can experience many challenges, but the
    process can be made easier by having an external party develop and action your new direction and strategic changes.
  • Similarly, if your business requires strategic assistance, for example, new network design or you’re exploring new territory, a 4PL partner can guide you through this process.
SaaS

  • First and foremost, SaaS solutions, whether freight management based or otherwise, require very little upfront capital.
  • Most services are subscription based so you’ll only pay a monthly or annual fee.
  • SaaS platforms are continually updated so solutions will always be based on the latest infrastructure. You’ll also have access to new functionalities as soon as they are available. Say goodbye to legacy systems that are running old software versions.
  • In-house SaaS-based solutions can heavily reduce, and in some cases eradicate, the need for specialised and expensive internal IT resources.
  • A freight management SaaS platform provides complete visibility over the performance of carriers and has the ability to analyse this performance over time. This provides you the opportunity to be proactive in managing and building upon already existing relationships.
  • A SaaS system will give you the capability to easily reconcile your own carrier invoices to ensure you are being charged in line with your usage and expectations. Without dedicated software this can be a laborious and complex task that is often neglected in many businesses.
Cons
4PL Partner

  • 4PL’s have a reputation for being able to negotiate good carrier rates, however, some carriers won’t work with brokers which could potentially narrow your carrier network. Many carriers prefer to eliminate the margin brokers apply to their services and deal directly with their customers.
  • Freight broker margins can be quite variable and dependent on sustained volume. Over time, you may find you have the ability achieve the same or
    cheaper overall rates by building strong relationships with your key carriers.
  • 4PL partnerships can often lack transparency, and given they work with many clients, your individual needs may not be their core focus.
SaaS

  • A SaaS-based freight management system’s master data needs to be administered and ‘tuned’ regularly by in-house resources to stay specific to
    the organisation’s requirements and perform optimally. If master data is not continually managed, your business will experience a degradation in freight management system performance.
  • Examples of master data points include, lane rates, carrier zone sets, customer locations and other customer-related data need to be kept updated.
  • As a SaaS system might be used by hundreds of businesses around the world, you may not be able to customise some aspects of it as specifically as you would an in-house system.

If you’re thinking about implementing SaaS, there are some steps you should take to ensure success.

Understand your chosen SaaS product and the ongoing subscription fees associated with it. This is key, so don’t be afraid to shop around.

There are many products on the market, and they differ in terms of functionality and the support they offer. Speak to the provider about the completeness of their system, the integration it offers and the ongoing investment it requires from your team to effectively manage your data.

Ensure you have a succession plan for years two and onwards as this is crucial for continued improvement. Typically, businesses perform well in the first year, but when team members move on, new resources aren’t adequately trained and systems are not maintained, there can be a downturn in the performance of your freight management system.

This means ensuring you’re able to provide the minimum internal IT or system administration resource required to run the SaaS solution at its optimum. You won’t need heavy-duty technical brains for this, but certainly a capable manager to oversee things. They will need to be responsible for liaising with the SaaS provider as well as integration decisions, ongoing maintenance, system optimisation and internal training.

If you’re thinking about engaging a 4PL partner, there are some factors to consider.

Transparency – understand how they make their profit and ensure they genuinely add value to areas of your business that lack the core competencies they provide.

Results – ensure they’ll drive overall performance, treat your business as an individual customer and act in your overall best interest.

Reporting – ensure this is well-defined so you can clearly understand and measure their performance.

Innovation – ensure they have their finger on the pulse of new trends and the latest innovations so your business evolves with the rest of the market.

Futureproof – understand how they will help you be competitive not just now (year 1 and 2), but in the future (years 3, 4 and onwards). Are cheap rates enough?

Involvement – understand how involved you can remain. After all, it’s your products that they’ll be responsible for delivering to your customers.

4PL v SaaS – is there a perfect fit for one over the other?

The simple answer is no. It all comes down to the profile and maturity of the business. Shippers who are established but don’t have deep IT capabilities in-house tend to opt for SaaS, whereas businesses who are coming off legacy systems or that are in their infancy often choose a 4PL partners to fast track implementation with a lower upfront spend.

When choosing what’s right for your business, important questions to ask yourself include:

  • What is my business strategy and what are my future goals?
  • Is logistics a core competency of my business, or do I want it to be?
  • What power does my business have when negotiating rates with carriers?
  • What stage of maturity is my business at?
  • Is my business upgrading to a new system or coming off a legacy system?
  • What capital does my business need to implement and maintain my logistics operations?
  • Does my business have in-house technical resources and capabilities?

When it’s time to make your decision, think about which option will allow you to provide the best experience to your customers based on the size of your business, availability of resources and personnel, and capital. Consider not only where your business is at now, but where you want it to be in the future.

MachShip is an independent cloud-based SaaS platform that supplies its services to both 4PL freight brokers and individual enterprises. Request a free demonstration today, or for further information about MachShip contact a member of our sales team on here.