October 2005 | Commentary | 3PL Line

3PLs Deliver on the Global Promise

Tags: 3PL

Businesses need many qualities to succeed in today's global market, but uniformity, consistency, and flexibility are the most critical. Strong organizations leverage these qualities to capitalize on the economic benefits of worldwide sourcing and distribution, while satisfying their customers' needs—whether the customer is around the block or across the ocean.

Best-of-breed 3PLs share the same traits. They have a global footprint, with one-stop solutions that touch every component of the supply chain. They focus on reliable service execution, mindful that today's lean manufacturing processes rely on consistently meeting shippers' time-definite demands.

And they are flexible, recognizing the dynamic and global nature of their customers' supply and distribution networks.

The Offshoring Effect

The value of 3PLs has amplified recently because of the increase in offshoring, which creates robust sources of supply and opens up new avenues of distribution as emerging markets gain wealth and buying power.

For now, offshoring's impact is most keenly felt on inbound trade to the United States; by some estimates, U.S. import volumes in 2005 will be 8 percent to 10 percent greater than 2004's robust levels, with no end in sight.

But offshoring is not without risk to the supply chain. As the chain stretches further and further from production source to market consumption, meeting or exceeding customer expectations reliably and cost-effectively becomes challenging.

Without a well-conceived plan, businesses offshoring production to far-off locales may discover that the cost of shipping, customs clearance, inventory financing, security, and warehousing—not to mention ill will from customers if delivery performance suffers—nullifies the savings that drove them to offshore.

Recognizing these hazards, savvy manufacturers have diversified their supply networks and developed multiple production and distribution points to cost-effectively serve their end markets.

Companies manufacturing U.S.-bound products with variable demand and relatively moderate value, for example, can source in North America or Latin America, position products in domestic distribution centers, and deliver them on-demand via low-cost surface transport.

This strategy helps companies avoid the expenses, service disruptions, and delivery delays that can occur when goods move halfway across the globe and through congested U.S. ports. It also allows companies to react quickly to changes in demand in the U.S. market.

The appeal of producing in China or India, therefore, must be balanced against the time and complexity required to deliver finished goods across thousands of miles.

Challenges Ahead

As today's businesses expand their global supply and distribution channels, the efficacy of a logistics provider's infrastructure takes on paramount importance. Helping shippers optimize inventory value by accelerating distribution accuracy and velocity, while also consistently meeting the ultimate customer's delivery demands, are the dual objectives of global 3PLs.

American companies have become enormously productive and efficient, as the secular decline in inventory-to-sales ratio shows. Yet the absolute dollar value of inventory continues to climb, as a result of the escalating value of goods.

Twenty years ago, for example, the $400-typewriter was the office machine of choice. Today, it is the laptop computer, which retails for three to five times that amount. This translates into rising inventory carrying costs, which can be exacerbated by elongated supply chains that can accelerate product obsolescence and erode value.

Unless the trend is reversed, the cost to carry and warehouse inventory will consume 70 percent of total logistics expenses by the end of the decade, according to research and consulting firm The Colography Group. To overcome this challenge, 3PLs' physical and IT networks must be more than mere transport facilitators. In fact, the mode and cost of transport is often irrelevant.

Ensuring satisfaction for shippers and their customers through rising service expectations is central to the 3PL value proposition. Delivering this satisfaction means offering near-perfect fulfillment rates and precisely timed deliveries supported by full pipeline visibility—while also minimizing inventory bloat.

3PL infrastructures must be able to move with shipper needs. After all, not every product will have "made in China" stamped on it; businesses will produce and distribute to, from, and on every continent.

Ultimately, consignee demands, product value, shifting tariff structures, and logistics partners' ability to reliably hit time-definite delivery benchmarks regardless of distance will dictate supply chain strategy and execution. Logistics providers' networks must reflect those realities.

Asset vs. Non-Asset

As commerce extends in reach and complexity, businesses will look for partners that can deliver flexibility as well as goods. Asset-neutral providers, with a wide array of transport services at their disposal, possess powerful competitive tools. They can often strike the optimum balance between price, transit time, and capacity.

And they have the capabilities to expertly manage product and information flow from purchase order to final delivery, all through a single point of contact.

Asset-based providers' "closed-loop" infrastructures, while formidable in many respects, may not be suitable for all transactions because the flow of goods must fit within their predetermined schedules.

Logistics companies come in all shapes and sizes. The best ones, however, share the common strengths of uniformity, consistency, and flexibility. Providing proper supply chain management requires meeting delivery targets and reducing costs.

But only when 3PLs fully understand their customers' business model can they provide and execute the best possible solutions.