A Story of How a SME Logistics Company Transformed to a 3PL in China

by Case Studies on 2011-04-12 03:01:29

For logistics industry, there are many Small to Medium Enterprises (SME) participate in the Supply Chain as different roles,  for examples, warehouse operator, transportation, freight forwarder and shipping agent. SME are specializing in a particular function while working together to complement each other. Most of their businesses are connected by personal relationships within a small community. Such business model is common in Hong Kong and China.

The global trend of logistics industry is to transform from a segregated and isolated labour-intensive business to a customer-driven, integrated and one-stop service business. This transformation is driven by the globalization of trade and advancements in information technology.

Large logistics players have adapted quickly to this trend in the market, including acting as a total solution provider, namely 3rd Party Logistics service provider (3PL), in order to drive volume through their own or contracted assets (warehouse, truck, container, chartered freight.. etc). Inevitably, consolidation will occur in the industry and those SME, who is unable to adapt to this new ecosystem, will likely be squeezed out of the game.

Most logistics SME are competitive in term of cost, flexibility and customer relationship. However, compared to large players, they lack behind in the IT infrastructure, business process, methodology and management.

Many logistics SME understand their situation and struggle to transform themselves. They tried to build silo IT systems tailored to their companies’ specific needs. Most of them have spent high cost in building complicated and silo proprietary systems but failed to transform their business model with connected system service to their customers and partners.

To address the problems facing logistics SME, Right Station Ltd. is developing an Open Logistics Platform (www.shippingatom.com). The idea of the Open Logistics Platform was evolved from a software development project for a local SME logistics company. The local company is a medium size transportation company running for 20 years on a traditional business model. The company has over 200 container and ton trucks delivering cargos across Hong Kong-Shenzhen borders for their customers. It owns a small warehouse in Hong Kong and entered a joint venture with a bonded warehouse partner South-china International Logistics Center in Shenzhen (www.silc.com.cn/en/ in the special economic zone of China near Hong Kong) in 2006.

At the beginning of the joint venture, they could only get low volume warehouse business and struggled to get high volume business from Multi-National Corp. (MNC) clients. The problem facing this company was that its IT systems were developed in silo. They had a few standalone PC applications for different departments. They needed to export data from different databases and worksheets and consolidated them and manipulated the data manually and hence it was difficult and time-consuming to provide information and report to their managements and customers.

They relied mostly on telephone, email and fax for communication and information interchange but it was inefficient because they have offices and warehouses in various locations in Hong Kong and China. Fast responses to ad-hoc enquiry and data request were not possible. They were incapable to meet the system-to-system connection interface required by their MNC clients. The MNC client was not confident in giving them high volume contract because of the incompetence in their IT systems and infrastructure.

Realizing their short-coming, the local company worked with Right Station Ltd. to bid a new high volume tender of the MNC client. Right Station Ltd. developed, within a short time, a Web-based Warehouse Management System (WMS) in conforming to the client’s system interface and the China bonded warehouse operational requirements. The WMS was hosted and supported by Right Station Ltd. It is offered to the local logistics company and their clients on a Software-as-a-Service (SaaS) model by a monthly subscription fee so that the local company could lower their bidding price without hefty IT investment up-front.

With this arrangement and business model, the local logistics company had won the high volume contract of the MNC from the competitor, a global logistics company. Today, the local logistics company has got more and more high volume contracts from their existing and new MNC clients. The local company has also got one-stop logistics solution contract by positioning the Web-based WMS connecting directly to the client’s system for real-time inventory track and trace and email alerting as the key selling point.
The local logistics company has successfully transformed from a traditional transportation company to a highly competitive 3PL service provider by combining the advantages of low cost bonded warehouse logistics hub in Shenzhen and the advanced IT infrastructure and Web Solution offered by Right Station Ltd. A customer reference is attached in the Appendix.

Going through this real-life logistics business transformation process, Right Station Ltd. has developed a solid understanding of the existing problems and corresponding IT solutions for struggling local SME in logistics industry.

Consequently, Right Station Ltd. has conceived an idea to develop the Open Logistics Platform to help SME in logistics industry to upgrade their business and services by leveraging the experiences and know-how of the Web-based WMS.

www.rightstation.com