Executive Briefings

Reasons for Selecting 3PLs Are Changing

Analyst Insight: Third-party logistics providers continue to be the recipients of outsourcing requirements and have grown to provide a critical business capability, but the business rationale in selecting an outsourcing partner appears to be changing. The use of 3PLs remains compelling, with shipping companies continuing to report productivity gains - along with cost reduction and service enhancement - but in discussions with clients, increasingly manufacturers are looking to leverage industry best practices and process knowledge as a first priority. - Simon Ellis, Director, Supply Chain Strategies Practice, IDC Manufacturing Insights

As more and more shippers of product move away from owned logistics resources, the 3PL industry has experienced significant growth. While initially, principally about the physical movement of freight, the intermediary nature of the 3PL has resulted in the requirement for shipment, delivery and inventory information management and the growing expectation for an integrated business-to-business capability.

In one example, a consumer products company was looking to use sensors and inventory management analytics to extend the definition of "inventory on hand" to incoming 3PL shipments. This put significant requirements on the intermediary 3PL to provide shipment and in-transit information in real time:

"¢ Integrating departure and arrival times

"¢ Initially based on anticipated "trip time"; subsequently real-time location and arrival time using sensor technology

"¢ In-transit stock added to "available" inventory levels based on order fulfillment and shipment arrival time

"¢ Reduction in order cuts and improved order fill performance

"¢ Linkage to mobile tools in destination distribution center

In another example, the 3PL was being asked by its customers to provide an integrated business-to-business platform, evolving from 1:1 connections with customers to an intermediary integration role between the primary customer and its other supply chain partners. Examples of the requirements were:

"¢ The ability to support varied communication protocols, both domestically and internationally

"¢ The ability to handle large volumes of data exchanges as well as large numbers of connections

"¢ Improved information flow and real-time visibility of data and data exchanges with partners and customers

It's also very interesting to note areas of logistics and distribution that are both outsourced and candidates for future outsourcing.  In our discussions with clients, it's pretty clear that more mature outsourcing includes either those areas that are transactional in nature or involve significant investment in physical assets, such as transportation and warehousing. Conversely, more strategic areas and core competencies are less likely to be considered for outsourcing.  Yet, many companies we speak with are exploring the viability of outsourcing customer service - not just the "800 number" consumer compliant center, but the fundamental order-management functions.

                                The Outlook

We'd also like to point out another element that should be factored into outsourcing - risk.  Our research reveals that risk is not yet well integrated into the relationship between shippers and 3PLs.   Look for risk metrics to make their way into service-level agreements with 3PLs.


Keywords: 3PL, third party logistics, logistics management, logistics services, supply chain management, supply chain risk management, transportation management, warehouse management

As more and more shippers of product move away from owned logistics resources, the 3PL industry has experienced significant growth. While initially, principally about the physical movement of freight, the intermediary nature of the 3PL has resulted in the requirement for shipment, delivery and inventory information management and the growing expectation for an integrated business-to-business capability.

In one example, a consumer products company was looking to use sensors and inventory management analytics to extend the definition of "inventory on hand" to incoming 3PL shipments. This put significant requirements on the intermediary 3PL to provide shipment and in-transit information in real time:

"¢ Integrating departure and arrival times

"¢ Initially based on anticipated "trip time"; subsequently real-time location and arrival time using sensor technology

"¢ In-transit stock added to "available" inventory levels based on order fulfillment and shipment arrival time

"¢ Reduction in order cuts and improved order fill performance

"¢ Linkage to mobile tools in destination distribution center

In another example, the 3PL was being asked by its customers to provide an integrated business-to-business platform, evolving from 1:1 connections with customers to an intermediary integration role between the primary customer and its other supply chain partners. Examples of the requirements were:

"¢ The ability to support varied communication protocols, both domestically and internationally

"¢ The ability to handle large volumes of data exchanges as well as large numbers of connections

"¢ Improved information flow and real-time visibility of data and data exchanges with partners and customers

It's also very interesting to note areas of logistics and distribution that are both outsourced and candidates for future outsourcing.  In our discussions with clients, it's pretty clear that more mature outsourcing includes either those areas that are transactional in nature or involve significant investment in physical assets, such as transportation and warehousing. Conversely, more strategic areas and core competencies are less likely to be considered for outsourcing.  Yet, many companies we speak with are exploring the viability of outsourcing customer service - not just the "800 number" consumer compliant center, but the fundamental order-management functions.

                                The Outlook

We'd also like to point out another element that should be factored into outsourcing - risk.  Our research reveals that risk is not yet well integrated into the relationship between shippers and 3PLs.   Look for risk metrics to make their way into service-level agreements with 3PLs.


Keywords: 3PL, third party logistics, logistics management, logistics services, supply chain management, supply chain risk management, transportation management, warehouse management