The state of Third-Party Logistics – 2007
A significant focus of the annual State of Logistics Outsourcing: 2007 Third-Party Logistics report this year is on the opportunity for improved collaboration between 3PL providers and users.
A recent study by consulting firm Capgemini, the Georgia Institute of Technology, DHL and SAP reveals that collaboration between companies and their third-party logistics (3PLs) is one of those areas for which both sides of the equation see benefits — but the application of the idea turns out to be a lot harder than the theory.
For the first six years of the annual State of Logistics Outsourcing report, which is based on a survey of 1,568 logistics executives from 61 countries, about 72 percent of the survey respondents described themselves as users of 3PL services. In the past four years, this number has increased to 78 percent to 80 percent.
The 12th annual 3PL report, released late last month, indicates the third-party logistics (3PL) industry is doing many things right. Most users are satisfied with the relationship, with 85 percent reporting that their logistics outsourcing efforts are successful. However, some users do report chronic problems with 3PL providers and a significant number of users say that 3PL information technology capabilities are insufficient.
The report's executive summary notes:
Discussions with logistics executives reveal a gap between the desire to work collaboratively with 3PLs and how to go about it. To drive change and improvement in the overall business relationship, 3PLs and customers must work toward a common set of goals and objectives, and establish a meaningful exchange of information relating to planning, management, execution and performance measurement. Preferably, the collaboration should involve not only 3PLs and their customers, but also the customers' trading partners, and other key stakeholders.
When asked about which business processes would benefit most from improved collaboration with 3PLs, respondents seemed o associate the greatest benefits with business processes such as inventory management, customer order management, customer service and supplier order management. “No matter the benefits, users feel successful collaboration should pay for itself in measurable financial terms,” IndustryWeek notes of the study’s findings.
The study found that 3PLs need to become a source of advice and innovation for their customers and the customers need to apply professional management skills to the area of logistics services to optimize the abilities of the 3PLs.
A good place to start would be defining just what collaboration between a client and 3PL really is. The report provides this perspective:
Supply chain collaboration between a 3PL and a customer occurs when both organizations work toward a common set of goals and objectives, and when there is a meaningful exchange of information relating to planning, management, execution and performance measurement.
The report cites the following potential benefits from improved collaboration with 3PLs, as summed up by Supply Chain Digest:
• A seamless, 360-degree view of the supply chain;
• Access and knowledge regarding the global marketplace by leveraging 3PL experience and relationships in other markets;
• Improved customer service;
• Enhanced business processes;
• Improved capacity during peak seasons or promotions by the 3PL working more closely with its customer on understanding forecasts and scheduled promotions;
• Higher service levels at lower cost;
• Product lifecycle management (improved new product introduction and management of new SKUs);
• Reduced inventory and stockouts as a result of collaborative forecasting activities; and
• Navigating governmental regulations, particularly where language and terminology issues may be an issue (such as in China).
While regional expansion is among the priorities currently facing 3PL providers (as noted in the 3PL study’s 12-year retrospective), it is expansion abroad that was a dominant theme throughout the recent 2007 Council of Supply Chain Management Professionals (CSCMP) annual conference, at which results of an annual survey of 40 CEOs — 21 from North America, nine from Europe and 10 from Asia-Pacific — from the world’s largest 3PL providers were presented.
IndustryWeek reports of that survey's results:
CEOs identified global expansion as one of the key challenges, as well as opportunities, facing the industry. In all three regions where the survey was conducted, these CEOs indicated that various forms of international expansion were the most important opportunities in their market. Large 3PLs are finding these opportunities in emerging regions, specifically Mexico, Eastern Europe, Russia, China and India. Additionally, these companies are facing increasing customer demands for logistics providers with a true global reach.
Turning the focus to emerging markets, the State of Logistics Outsourcing: 2007 Third-Party Logistics study placed China and India as clear leaders among the top five expansion destinations for companies, followed by Russia, Brazil and Poland.
