Outsourcing logistics continues to rise, making the third-party logistics industry recession-proof. In fact, revenues are up 7.4% to a total of $60.8 billion in 2001—a figure that is almost twice as much as revenues in 1996, says Richard Armstrong, president of consultant Armstrong & Associates, Inc. Business is thriving because more and more companies are relying on third-party logistics service providers, or 3PLs, for their supply chain needs, and 3PLs are expanding their services. These logistics experts are the go-to guys when companies want to warehouse, distribute and ship goods more efficiently and economically. In fact, three fourths of logistics managers today turn to 3PLs, says Randy Koch in a white paper from Unisys.

According to Koch, the industry's growth is fueled by several factors: First, 3PLs provide logistics expertise and allow companies to concentrate on what they do best. Second, these logistics specialists can adjust labor, warehouse and trucking requirements depending on the client's demands and market fluctuations. Third, they improve lead times, fill rates, back orders, inventory and labor costs. Despite some challenges such as widespread consolidation and thinning margins, the outlook for the 3PL industry is decidedly rosy. Not only are current customers increasing their outsourcing, but companies with revenues under $5 billion are now starting to enlist the services of 3PLs.

The industry is widening its services—providing broader solutions such as global supply chain management as well as offering niche applications such as reverse logistics, cross docking and order fulfillment. "A major 3PL literally has every conceivable service that a supply chain organization might need," says Mike Hickey, an associate partner with consultant Accenture. Indeed, 3PLs have changed rapidly to fulfill customer needs. In the last decade, they have gone from being providers of public warehousing and contract transportation services to being supply chain managers. In fact, the pressure to provide global support was ranked as one of the most significant market trends by 3PLs in a survey conducted last fall by Accenture and Northeastern University.

Companies now expect more from 3PLs, making the selection of a provider a more serious process. "In the past, a local distribution manager chose a public warehouse because it was a commodity purchase," says Bob Bianco, president and CEO of Menlo Worldwide Logistics, CA. "Now, it's a CFO or CEO looking at the best way to get to market. These are very strategic business decisions." In turn, because of the involvement of senior managers from the outset, 3PLs have modified their marketing approach. They now promote their ability to reduce the order cycle's cost and execution time instead of stressing their warehouses and storage systems.

Companies increasingly turn to 3PLs for the management of the entire fulfillment process. Along with traditional services like picking, packing and shipping, 3PLs are also capturing orders, offering value-added services such as gift wrapping, and processing returns. Furthermore, 3PLs today are also providing information technology capabilities to track inventory and orders. "Customers want us to be their order management system," says Robert Toner, vice president of logistics for Innotrac Corp. "They want us to be able to take their orders from the customer; process the orders in our warehouse management system and report back to them on the tail end." In fact, IT capabilities are a major 3PL selling point. "Many people outsourcing today are not interested in making the investment in the increasingly complex information technology solutions you need to manage a supply chain today," says Armstrong of Armstrong & Associates.

The results of the 7th annual report on 3PLs outline these major trends. "This year's study highlights more demanding customer expectations of 3PL services and increasingly sophisticated requirements for technology-based and strategic supply chain services," says C. John Langley Jr., supply chain management professor and 3PL study leader at Georgia Institute of Technology. The university, along with Cap Gemini Ernst & Young and Ryder System, Inc., announced the findings on Oct. 1. According to the study, which polled 260 logistics and supply chain executives from across the globe, the five most commonly outsourced services in 2002 are: 1) warehouse/distribution center management, 2) Web-enabled communications, 3) transportation management, 4) shipment tracking/tracing/event management, and 5) export/import/freight-forwarding/customs clearance.

Indeed, with 3PLs improving the depth and quality of their services—from niche applications to global support and IT solutions—companies stand to gain many benefits from outsourcing logistics. Remember that by relying on the expertise of 3PLs, your company will be able to concentrate on its main competencies and minimize capital expenses such as warehouses, trucks and material handling equipment. Furthermore, by communicating clearly, outlining your specific requirements and setting performance indicators, you can establish a productive relationship with a 3PL and take advantage of the industry's rapidly expanding services.

Sources: 3PL Today: A Story of Changing Relationships
Helen L. Richardson
Transportation & Distribution, September 2002
http://www.totalsupplychain.com

Prep School
Norman Saenz Jr.
Operations & Fulfillment, July 1, 2002
http://opsandfulfillment.com/ar/fulfillment_prep_school/index.htm

Outsourcing of Logistics is Globally Recognized as a Primary Business Strategy with Significant Value, According to a New Study
Business Wire, Oct. 1, 2002
http://www.manufacturing.net/scm

Third-Party Solutions Take Charge
Bob Trebilcock
Modern Materials Handling, Oct. 1, 2002
http://www.manufacturing.net/mmh/index.asp?layout=articleCurrentWeb&articleid=CA246173