JUST recently, the Georgia Institute of Technology released the results and findings of its 13th annual study entitled “The State of Logistics Outsourcing: 2008 Third Party Logistics”.
About the Study
The study identifies the latest key trends and views of the 3PL industry but mainly from the perspective of 3PL users. In addition, it provides a discussion of the current state of the 3PL market by:
- Summarizing the current use of 3PL services;
- Identifying customs needs and how well 3PL providers are responding to those needs;
- Understanding how customers select and manage 3PL providers; and
- Examining why customers outsource, or elect not to outsource to 3PL providers.
State of the 3PL Industry
We have summarized below some of the findings of the study based on the survey of executive and managers of 3PL users.
- 3PL users believe that their relationship with service providers represent a strategic and comparative advantage to their companies. In other words, these companies find the relationship as strategically beneficial to the company’s growth and competitiveness.
- 3PL providers continue to promote cost efficiencies to companies, by promoting savings on fixed assets and providing shorter order cycles. This is especially borne out by existing relationships with detailed contracts providing for clear service level expectations and metrics.
- Service providers are expected not only to meet service level commitments but also to demonstrate the ability to continue improving on service offerings (particularly on technology investment) and cost reduction.
- While customers are spending more for logistics outsourcing as a whole, the spending when compared to the overall budget have actually remained even over the past years. Meaning, the increase in spending is proportionate to the overall increase of the budget of most companies.
- Customer relation and strategic logistics continue to be provided in-house even if companies tended to outsource commoditized services.
The evolution of logistics service started out with offerings for individual logistics services, i.e., forwarding, customs clearance, transport, warehousing, kitting and consolidation, and distribution. Presently, 3PL not only provides an integration of the individual services but also the provision for managing these services.
This integrated service is now more commonly known as integrated logistics or bundled logistics. For companies with complex supply chains, 3PL providers remain as the main source for integrating processes, technology, people and services without the necessity of painful management changes and substantial capital expenditures.
For some companies, however, the decision not to outsource can be due to a combination of many factors such as loss of control, visibility and internal competency, or fear of dependency on the 3PL provider. To address the concerns of users, 3PL providers must be able to assist the customers in managing the risks involved in outsourcing rather than focusing more on cost saving opportunities.
Security Demands and Green Supply Chain
According to the study, while governments are concerned more with the threat of terrorism, 3PL users are more focused on theft in the supply chain. Additional concern covers potential cause for supply chain disruptions such as piracy, natural disasters, port or transport shutdowns, and product tampering. In general, customs is satisfied with most of the 3PL’s security performance.
As to concerns for promoting green supply chain, most users believe that green initiatives are important in selecting their 3PL partner although there is still a lot of uncertainty as to what initiatives should actually be taken to move towards green supply chain. In any case, most companies believe that 3PL should be providing green initiatives that are socially, financially and environmentally acceptable.
For customers, the choice of a 3PL for integrating logistics services and systems remain discretionary notwithstanding the clear benefits of outsourcing. For 3PL providers, however, initiatives towards promoting green supply chain and supply chain security must be taken as an imperative. “Green” is now the additional measuring stick for supply chain. Promoting security across the supply chain likewise remains a challenge and a continuing requirement. As confirmed by the study, environmental concerns and supply chain security are the emerging issues for the 3PL industry, in addition to the present global financial crisis.
The author is an international trade consultant and a licensed customs broker. He is a lecturer on logistics, indirect tax and customs, and a lecturer of Ateneo and BayanTrade on Supply Chain Management. Please contact firstname.lastname@example.org for your comments.