Analyst Insight

A decade of staff downsizing, rapid globalization of supply chains, and new complexities of today's demand-driven value networks have created a "perfect storm" environment that will propel growth in third-party logistics outsourcing. The rise in popularity of offshoring back-office processes to low-cost firms in the form of business process outsourcing (BPO) will provide further catalyst. This particular trend has generated awareness and, frankly, a new level of acceptance, of outsourcing in general in the executive office. There is no reason that logistics outsourcing shouldn't leverage this trend.
-Greg Aimi, research director at AMR Research

For the next 10 to 15 years, customers will be morphing their supply chains as they take on demand-driven strategies. With executives increasingly outsourcing various business functions, the door opens for logistics service providers (LSP) to get into the executive office. Experience shows that successful relationships between an LSP and its customer are directly influenced by exceptional performance. Those providers that perform well are rewarded with trust and increased business. Tactical performance and lower costs alone, however, will not be sufficient to drive demand-driven, value-chain-based advantage. LSPs need to be sure the operating relationship can provide agility, adaptability and alignment as the provider will be expected to respond flexibly to changes in supply and demand and to enable its customer to adapt quickly to the market dynamics.

If aligned properly and positioned strategically, LSPs have a tremendous window of opportunity. Consider the following:

• Help customers capitalize on emerging global market opportunities.

• Make demand-driven network operational requirements your specialty. Make changes to your services, relationships, and culture to become an enabler of, if not a guide to, the demand-driven transformation for your customers.

• Capitalize on the outsourcing "perfect storm" by providing customers with just what they need, including:

- People with highly-specialized supply chain competency-especially global skills

- Ability to execute complex network inventory and product movement strategies

- Availability of low-cost, global labor markets for sourcing and manufacturing

• Take advantage of the acceptance of BPO outsourcing in the executive office and position your business and services accordingly.

• Be sure to have a strategic technology investment plan that coincides with customer-based expectations. Technology will be the only way to keep up with the constant downward pricing pressures. Position yourself to exceed customers' IT expectations in a time when the dissatisfaction with LSP technology services is growing.

The Outlook

Probable Upside with the Right Investment. The political environment will likely wreak havoc on economic issues in 2008, and that may make weathering the short-term storm difficult. There is no doubt, though, that in the end buyers of services will need partners that are instrumental in transforming from traditional commodity logistics services and practices to demand-driven capabilities that help them excel in a global economy. That transformation requires investment in change to be an agile and responsive supply chain network provider powered by efficient, enabling technology. Create a strategic plan and technology road map to align your company with the opportunity now.