If you go to any Council of Supply Chain Management Professionals (CSCMP) event, you’ll find out pretty quickly that third-party logistics providers (3PLs) are a big deal in the industry. Although 3PL revenues have somewhat “hit the skids” (to use a highly technical warehousing term) in 2009, nobody seems to find fault with the basic third-party model for the decline. The villain, as you would expect, has been the recession itself. If you’re a manufacturer, and your customers aren’t buying your products the way they used to, then your need for a 3PL is going to be somewhat diminished until sales pick back up.
Even so, 3PLs remain quite popular. Eight out of every 10 companies in the United States use a 3PL for at least one area of their supply chain. Nearly half (47%) of the total logistics spend in the U.S. and two-thirds (66%) of that in Europe is on outsourcing, and those percentages are expected to increase over the next five years, based on a 3PL study spearheaded by consulting firm Capgemini and presented at the recent CSCMP conference in Chicago.
Companies worldwide continue to deal with the effects of the recession, such as plant closings, financing constraints, a shrinking supplier base and diminished consumer demand. As a result, they’re looking to 3PLs to help contain costs while realigning their supply chains to be more agile, adaptable and efficient. As Jim Morton, senior manager within Capgemini’s supply chain practice, states, companies should take the opportunity “to rethink their supply chains and the role that 3PLs can play in helping to attain business goals.”
There’s one little problem, though: Companies don’t necessarily consider their 3PLs as strategic partners. Forty percent of those surveyed for the Capgemini report use their 3PLs strictly for operational and repetitive tasks, and 38% believe their 3PLs do not have sufficient business expertise to take on higherlevel logistics responsibilities. As Adrian Gonzalez, director of the Logistics Executive Council with analyst firm ARC Advisory Group, puts it, “3PLs are from Mars, clients are from Venus.” Looking at the study results, Gonzalez points out that, while 82% of the 3PLs surveyed feel they provide innovative services to improve logistics effectiveness, only 50% of their customers share this belief. In the same vein, Gonzalez observes, 88% of the 3PLs think they’re having a positive impact on service to their customers, but only 59% of their customers have the same opinion.
Capgemini (and its partners, including Georgia Tech) was hardly the only firm offering up its take on the 3PL market at the CSCMP show. Northeastern University, led by Robert Lieb, professor of supply chain management, has also been surveying the 3PL market for years, specializing in picking the brains of the CEOs at some of the major global 3PLs. According to Lieb, these are the top 10 trends on the minds of 3PL CEOs as they look forward to 2010:
1. Slow recovery of 3PL business, particularly in Europe.
2. Many adversarial customers will become ex-customers.
3. Stronger relationships will emerge with many key customers.
4. More emphasis on “quality” customers and solid verticals.
5. Less aggressive posture on mergers and acquisitions.
6. Slower pace of geographic expansion.
7. More emphasis placed by large 3PLs on alliances with other 3PLs, carriers and middlemen.
8. Failures among small/medium size 3PLs in all regions.
9. Chronic management shortages will be lessened due to provider and user layoffs.
10. Sustainability issues will receive greater attention, particularly in the Asia-Pacific region.
There’s an obvious disconnect between companies that rely on 3PLs primarily to get the dirty work done, and the 3PLs that are frustrated by companies looking to squeeze every last nickel out of their logistics spend and don’t mind pressuring their 3PLs to accomplish that. As the Capgemini study points out, a spirit of collaboration between manufacturers and 3PLs offers the best chance for both parties to recover quickly from the recession. The combination of “manufacturer plus 3PL” is greater than the sum of its parts.