With changing conditions both inside the warehouse and up and down the supply chain, many of today's organizations are further evaluating the possibility of outsourcing the fulfillment side of their business in order to better manage their overall cost of doing business. Today's third-party logistics service providers don't resemble those of yesterday in makeup or services provided. In many instances, today's service providers have multiple tiers of technology and services and can put together a solution that caters directly to the needs of the individual customer. In a highly competitive and margin-driven business, the ability to deliver a differential to the end customer is what can separate one provider from the next, creating a very rich market of opportunity for companies looking to find a third-party provider.

At the end of the day, the complexity of the supply chain, the rising costs of logistics and growth in new geographies or markets are the major drivers that lead companies to evaluate the use of logistics service providers. While these drivers provide the "why", most companies continue to struggle with the "when" and the "how." The biggest challenges are around data integrity and visibility to ongoing processes and performance. While the cost structure and service levels delivered via a logistics service provider are attractive, it requires the ability to have processes and connectivity in place to ensure that employees can continue to perform their valuable functions on a daily basis and without delay.

Over 70 percent of companies surveyed in a 2008 Aberdeen Group report indicated having a corporate culture that encourages outsourcing. Once in a relationship with a service provider, companies considered Best-in-Class have actually put in place a visibility platform to work with those providers (38 percent) versus 86 percent of Laggard companies solely relying on the visibility platform from their provider. The difference, not only in visibility but also in total performance, is the ability to see the service provider as an extension of the organization and ensuring that there is a holistic look and feel to all processes. With this mindset, deciding "what" gets outsourced can be a fundamental exercise in cost-benefit analysis and can be configured around attributes like product line, customer segment, geography, or any other combination of strategic options that provide a better alternative to delivering more value to the end customer at a cost advantage. Utilizing third-party providers is as much of a tool today as having your own WMS or TMS; each provides a value to delivering more to your customers for less.

The Outlook

As visibility and integration become easier and easier with third-party providers, organizations will continue to evaluate them as a cost-effective option  for driving business. With more and more options available for today's logistics executives that are encouraging more outsourcing (70 percent), the ability to provide unique differentiation for product lines, customer segments, or market segments will continue to be a differentiator to providing better customer service and more feasible from a cost saving standpoint.