3PL FACTS & FIGURES

 

Today’s business success to a great extent depends on logistics and supply chain performance. The role of Supply Chain has never been as critical as it is today. Supply Chain speed and flexibility have become two key levers for competitive differentiation and increased profitability.

Globalization has opened many lucrative avenues to the business world and also posed many challenges to be successful in the global trade. One of the biggest challenges in the Global Trade is the ability to manage seamless forward and backward flow of materials and information. Faced with increasing global competition in the last two decades, the popular reengineering strategy adopted by many successful companies to address these challenges involves outsourcing logistics and supply chain activities/processes to third-party logistics companies (3PL) and focus on Core Competency. These alliances are also known as Logistics or Supply Chain Outsourcing and Contract Logistics.

Trends and services offered in the 3PL industry

The third-party logistics (3PL) provider industry is expanding as global companies are realizing the cost savings of outsourcing their logistics services. Companies are focusing on their core competencies and outsourcing other aspects of their business, such as logistics.

Services offered by 3PL providers

3PL providers offer an increasing array of logistics services to their customers:

  • Outbound transportation
  • Warehousing
  • Inbound transportation
  • Freight bill auditing/payment
  • Customs brokerage
  • Freight forwarding
  • Customs clearance.

Trends in the 3PL industry

Each year, several logistics studies that reveal trends in the industry are released. The annual State of Logistics report, the annual Third Party Logistics Study, and the annual Accenture/Northeastern University 3PL Industry Study reveal trends across the entire logistics industry as well as the 3PL industry.

  • Seventy-eight percent of North American companies use 3PL services
  • Ninety-four percent of Western European companies use 3PL services
  • In North America, 43 percent of a company’s logistics dollar is spent on a 3PL service
  • In Western Europe, 51 percent of a company’s logistics dollar is spent on a 3PL service.

Using a 3PL service provider reduces costs on average:

  • Logistics costs are reduced by 11.8 percent
  • Logistics assets are reduced by 24.6 percent
  • Order cycle length is reduced from 7.1 days to 3.9 days
  • Inventory is reduced by 8.2 percent.

Using a 3PL service provider increases differentiation in these areas:

  • Flexibility/Special services
  • Unique delivery capability
  • Improved customer service
  • Improved reaction time to opportunities
  • Use of better technology
  • Supply chain management.

3PL provider of the future

The current annual revenues of United States-based 3PL providers are $ 127 billion (2010). Researchers predict that this number will grow as 3PL providers increase their service offerings. To improve customer service, 3PLs must focus on management and relationship processes, global offerings, comprehensive solutions for the entire supply chain, and information technology. In the future, the customer will expect more IT-based services. 3PL providers will invest in electronic markets, supplier management systems, and supply chain planning systems to utilize web-based customer services.

Ninety percent of survey respondents say that logistics represents a strategic, competitive advantage for their company. The respondents also say, “giving up some control of your supply chain through a joint client-and-provider management structure will actually give you more control of your business.” 3PL providers representing the highest customer service will offer “integrated, end-to-end solutions that provide significant financial and operational performance improvements.”

Reasons for outsourcing

Logistics outsourcing, once a mere option, has today become a necessity. The growth of Information Technology, increasing competition, globalization, rise of mass customization, product proliferation, scrambled merchandizing, demanding customer needs and pressure to reduce costs etc. has forced the organizations to re-focus on their core competencies and outsource non-core activities.

There are several reasons why outsourcing is becoming a necessity. The prime reason to outsource is to focus on core strengths and improve product differentiation and innovation in order to gain sustainable competitive edge in the market place. Many commercial establishments worldwide have turned to logistics outsourcing as a way to re-engineer their distribution networks in order to meet the global demand and also gain competitive edge.

Global logistics outsourcing major reasons:

  • Reduce operating costs
  • Focus on core strengths
  • Create a variable cost structure
  • Increase speed to market place
  • Conserve capital
  • Foster innovation
  • Improved customer service levels
  • To create a flexible supply chain.

Conclusion

Outsourcing logistics activities to a 3PL has been a means of leveraging economies of scale and tapping into a logistics infrastructure which includes IT systems, human resources and knowledge base that delivers increased robustness to a company’s logistics and supply chain operations. Logistics outsourcing has improved productivity and significantly reduced costs in many instances.

The success of partnerships with 3PLs requires a combination of trust and collaboration. That could be the reason that strategic alliances are now a day called as collaborative alliances. Trust determines the level of flexibility one can allow the 3PL in managing the operations to the best of their capability which, in its own right, should exceed outsourcing organization’s abilities. In order to achieve the agreed performance and cost goals, it is necessary to have a partner who can deliver best of the breed solutions. Therefore, it would be wise to acknowledge the abilities of the 3PL, agree on a mutually beneficial business arrangement, and trust that they will do what is in your best interest.