Industry Outlook: The Role 3PLs Will Play in Supply Chain Transformation.
Product based companies looking to gain a competitive advantage are beginning to transform the “traditional” supply chain process. Some companies are further ahead than others, and we could talk about Amazon at length, but I’m talking about a shift in the traditional model, industry average and the status quo. Third party logistics firms (3PLs) are becoming an instinctive lateral move for many companies trying to reduce costs and save time. That said, firms are demanding more out of their providers. This could probably be said about a number of service provider verticals (especially corporate real estate), but we’re talking about 3PLs today. This post highlights the changes to the supply chain industry that are directly related to the 3PL industry.
Partnerships are overtaking contract warehousing
The landscape is becoming one of “outsourced partnerships”. I emphasize “partnerships” to symbolize a change from what 3PLs are used to seeing from their customers. It’s not just storing and transporting finished goods or raw materials anymore, and in order to shift the paradigm, companies are getting 3PLs more heavily involved in their business. 58% of shippers indicate they are increasing their use of outsourced logistics services in 2017. A major driver for this increase comes from increased online e-retail solutions that are easier to outsource than building internal processes/infrastructure.
Some shippers and e-retailers have fallen flat trying to “do it all” themselves. A good example of this was the downfall of NastyGal (it’s a women’s clothier, safe for work…). NastyGal invested heavily in its own distribution facility. Costs were too much for it to manage, and they ended up selling to Boohoo.com to avoid bankruptcy. This is a classic case of where leasing would have allowed NastyGal to put more capital toward growing its customer base. Some e-retailers have even gone so far as acquire 3PLs (see Rakuten buys Webgistix) to move their process forward or achieve a competitive advantage. The partnership of BlueJay Solutions and Lineage Logistics is a prime example of 3PLs consolidating to expand service offerings and grow into new markets. (Also see — Geodis buys OHL or this article regarding XPO.)
John Langley’s 2017 Third-Party Logistics Study found that “91% of 3PL users and 97% of 3PL providers reported that their relationships are successful and that their work is yielding positive results.” Third Party Logistics providers (3PLs) are moving away from a traditional transaction based relationship to reciprocal partnerships that instead take a strategic hand-in-hand approach. A tight partnership brings out the strengths of each party, but it also means that the two are more intertwined; making it all the more difficult to unwind yourself from the other. The Marvel comic-book character Eddie Brock and the story of his symbiotic relationship with Venom comes to mind (#comicnerd).
Patterns in processes being outsourced illustrates the desired roles for 3PLs
Shippers and e-retailers seem to favor outsourcing activities like transportation, warehousing and freight forwarding that are more transactional, operational and repetitive in nature. Strategic initiatives, client facing activities and IT-intensive projects are seeing more action by 3PL providers, but to a much lesser extent. You see more strategic outreach where 3PLs specializing in more complicated e-fulfillment connect with start-ups and early growth stage e-commerce firms. It is extremely rare for companies to put 3PLs in a customer facing position (i.e. business development, sales and sales support, tender and trade management). Below I’ve listed out the top logistics functions most commonly outsourced by shippers and manufacturers today.
Top Five Logistics Functions Outsourced
- Transportation Management (Planning)
- Electronic data interchange (EDI)
- Visibility (order, shipment, inventory, etc.)
- Warehouse/distribution management
- Transportation management
Thanks for reading!
- 2017 21st Annual Third-Party Logistics Study: The State of Logistics Outsourcing” — Capgemini and Dr. C. John Langley, 2017 http://www.3plstudy.com/media/downloads/2016/10/2017-report_new.pdf