Putting 3PLs in Perspective

Here are the results of Inbound Logistics’ latest survey of the 3PL market. The information 3PLs provided will help interpret market trends, and assess the current state of the market as you attempt to match your specific logistics challenges with a 3PL’s expertise.

As the global economy expands, manufacturers and retailers demand new logistics capabilities and more complex solutions from their 3PL partners. Factors such as economic growth, expansion into new markets, and a greater acceptance of demand-driven logistics practices introduce complexities into the supply chain and generate the need for contract logistics providers to deliver more specialized services.

Bottom line: more companies are turning to 3PLs to help them manage supply chain processes and ensure operational success. As third-party logistics providers demonstrate their ability to bring down conventional logistics costs, and handle more complex tasks, customers will continue to give their 3PLs more responsibility and input into their business process.

To gain perspective on the expanding 3PL segment, Inbound Logistics regularly surveys the 3PL market. The 300 respondents to our latest survey serve all industries: manufacturing, retail, e-business, wholesale, distributors, services, and government. The information they provide can help you assess the current state of the market as you attempt to match your specific logistics challenges with a 3PL’s expertise. You can also use the information to benchmark the segment based on your needs and see if your 3PL is in line with others.

The Global Marketplace

While many companies are eager to expand into new markets, globalization creates added logistics challenges. This pain point is driving more companies to partner with providers who are already operating in global markets and can offer the benefit of that experience.

According to Inbound Logistics’ study, almost half of U.S.-based 3PL providers offer solutions in the global market. Of the providers surveyed, 47.8 percent classify their operations as global. The shift of manufacturing to lower-cost offshore locations continues to make global operations a necessity, and customers are turning to 3PLs to provide logistics and trade-related services supporting that migration.

But with global expansions still in their infancy for many companies, the North American market continues to be an important focus for many 3PLs and their customers.

Among 3PL survey respondents, 52.2 percent do business in North America, with 41.5 percent doing business only in North America and 10.7 percent operating solely in the United States. The United States imports many products and, given the importance of demand-driven logistics practices, many 3PLs manage the supply chain at the point of demand.

From Push to Pull

Inbound Logistics has always promoted the importance of accurately matching supply to demand, so we were not surprised by survey results showing a greater acceptance of demand-driven logistics practices. Ninety-three percent of providers surveyed offer inbound logistics services, with warehousing next in line, offered by 86.2 percent of respondents.

The concept of practicing demand-driven logistics has spread from tier 1 companies to the middle market. Many mid-sized companies now recognize that practicing inbound logistics can drive efficiencies, making the requisite complexities worthwhile. They will do more of the same next year.

Only about one-third of 3PLs surveyed offer product lifecycle management and global trade services. The need for these capabilities will likely increase as customers source and manufacture offshore.

Cost-saving pressures will cause more companies to consider product lifecycle management as a way to squeeze every efficiency out of their operations. They will increasingly turn to 3PLs to become extensions of their operations and provide these services.

Another trend to look for: increased collaboration among 3PLs. With business processes becoming less centralized and more intertwined, customers may require services beyond the scope of just one 3PL provider. Sometimes making sense of trading partners’ tangled supply chains drives 3PLs to work more closely to deliver the integrated solutions customers require.

In outsourcing arrangements that include a lead logistics provider (LLP) or 4PL component, 3PLs can be competitors in one realm and partners in another in order to provide customers with collaborative, end-to-end solutions.

Of the providers surveyed by Inbound Logistics, 73.6 percent indicate they are able to act in a lead logistics provider capacity. Look for the emergence of more LLPs in the future as logistics projects become more complex and a desire for shared risk-reward dealings continues to drive relationships toward a 4PL solution.

Transportation continues to be the linchpin of solutions offered by 3PL providers. Truckload and LTL services rank as the top two transportation services offered by contract providers, with more than 96 percent offering truckload services and more than 95 percent providing LTL services for customers. Intermodal services are offered by almost 80 percent of 3PLs responding to the survey.

ISO: To Certify or Not to Certify

In an industry where benchmarking processes and performance measures are so integral to service levels, we find it interesting that only 38.2 percent of 3PLs report being ISO-certified, with 61.8 percent of providers choosing to forgo the certification process.

Some 3PLs report that they are reluctant to go the ISO route because of its direct cost, the business process change needed to implement ISO, and the expense of the bureaucracy needed to maintain it. The push for 3PLs to become ISO certified ultimately comes from the customer.

Making the IT Investment

When it comes to technology, shippers—retailers, manufacturers, and others—must maintain visibility and connectivity with suppliers in order to remain competitive. Financial pressures, however, make new investments in state-of-the-art IT solutions difficult for many companies.

Ninety-six percent of providers surveyed offer EDI as a capability, acknowledging that the legacy infrastructure still provides connectivity between OEMs and the extended supply base.

But while EDI may be a sufficient solution for some, the availability of the Internet as a business process integration enabler is rapidly growing.

In addition to EDI, most providers surveyed offer web-based interfaces, with more than half of respondents listing e-operations (60.3 percent), e-commerce (64.4 percent) and e-fulfillment (57.5 percent) as capabilities.

With logistics technology becoming more economical, mid-market companies are starting to realize the value of web-based solutions in providing supply chain visibility, especially given the growing acceptance of inbound logistics practices. As costs to entry for new technology continue to fall, then more investment will be made in newer technology.

When it comes to complex technology implementations such as wireless and RFID, many companies do not want to make an internal investment and look to a 3PL for help in providing the value proposition.

Of the providers surveyed, 66 percent say they offer wireless, RFID, cellular and satellite communication services.

One reason why companies partner with 3PLs is to get the latest technology. This trend will continue in 2005, given the pace of logistics IT change.

Making Sense of the Market

The pressure to reduce costs and inventory, and increase efficiency, is driving growth in the number of companies outsourcing their logistics and supply chain functions. As globalization continues, manufacturers, retailers and their customers and vendors will rely more heavily on contract logistics service providers to navigate international trade complexities and expand their supply chains into new geographical areas.

And with cultural and compliance issues adding obstacles to bringing product into the United States, many more firms understand that outsourcing these functions is a way of sidestepping the investment required if they perform these functions internally.

With the trend toward 3PLs incrementally getting more and more involved in their existing customers’ business processes—working back to the vendor base or forward to the customer base—there is no doubt that the importance of the 3PL segment will continue to grow.

If you are seeking to establish a solid 3PL relationship you must do your research on all prospective partners as well as the industry as a whole. We hope this data provides a helpful perspective on prospective partners.

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