The third-party logistics (3PL) industry continues to go through an evolutionary change. Not only are 3PL providers and their capabilities changing, but the expectations that user firms have of their 3PL providers and their services are also changing. In fact, the 3PL industry itself is moving forward and showing signs of progress toward maturity.
During the spring and summer of 2005, Dr. John Langley of the Georgia Institute of Technology, with Capgemini, DHL, and SAP, conducted an extensive study about using 3PL services in North America, Western Europe, Asia-Pacific, Latin America, South Africa, and the Middle East to examine critical trends and issues among key markets and key customers in the 3PL industry. Since 1996, this study has helped to identify and track key trends and views of the 3PL industry from the perspective of the customers who use 3PL services.
From 1996 through 2001, the percentage of 3PL users remained relatively constant among North American respondents (between 68% and 73%). In the years 2002 to 2005, however, the percentage of North American users has shown modest growth, and this year is at 80%. Based on the three most recent years of survey data, the percent of firms using 3PL services in Western Europe has been 77%. In Asia-Pacific, the use of 3PL providers is high (84% in 2004 and 83% in 2005), but in Latin America, outsourced logistics is less prevalent than in the other regions (67% in 2004 and 72% in 2005). In South Africa, the 3PL usage rate was 74%.
The 3PL survey also shows continued improvements in overall service levels from suppliers. Moreover, 3PL users continue to view a collaborative partnership approach with their 3PL providers as key to improving the user-company 3PL performance. However, unlike in past surveys, pricing has become the most important attribute in selecting a 3PL provider. This is different from last year’s study where value-added services was ranked first. In fact, this year the proficiency of a 3PL provider’s core services was considered more important than the provider’s ability to deliver value-added services. This shift from frills to core services is a major change.
For management and relationship issues, 88% of those surveyed view their relationship with their service provider as successful. Although users are generally satisfied with their 3PL providers, the providers are continually pressured to expand their service offerings. For 3PL providers to properly address this challenge, they must determine their market positioning, business models, and approach to exceeding customer satisfaction.
Across all the regions studied, 3PL users are benefiting from their choice to outsource certain logistics services. Logistics cost reductions were relatively consistent at 10% or 11%. Order fill rates increased in all regions. Reductions in average order-cycle length of approximately 25% to 30% were seen in North America, Western Europe, and Asia-Pacific, while the average order-cycle reduction in Latin America was halved. Inventory turns increased for 3PL users in North America and Asia- Pacific, and decreased in both Western Europe and Latin America. In terms of cash-to-cash cycles, the number of days reduction ranged from 2.8 days in Latin America to 4.5 days in North America. Last, 3PL users in all regions agreed that service levels had improved.
Implementing information technology (IT) ranked third behind cost pressures and improving supply chain management as a leading factor affecting 3PL user organizations in 2005. While approximately 90% of users identify IT as a necessary element of overall 3PL provider expertise, far fewer are satisfied with their providers’ capabilities. In general, 3PL users have yet to think of their 3PL providers in a newer, more strategic light. The survey suggests that as more firms progress further into outsourced logistics relationships, the complexity of those relationships necessitates a combination of effective IT services for a broad spectrum of supply chain processes.
Since the inception of this survey, customer evaluation of outsourcing success has ranged between 82% to 90%. Along with high satisfaction rates, users have stated continued benefits over the last six years. Plus, the 3PL industry has continued to achieve annual growth rates greater than 10% over the last decade, while also experiencing a tremendous amount of mergers and acquisitions.
While the 3PL industry continues to prosper, gaps exist in several areas:
* Disappointment with the 3PL provider’s abilities to develop advanced services.
* Need for relationship reinvention, mechanisms for continual improvement, and solution innovation.
* Increasing importance on repeatable and leveraged solutions.
* Emerging role of supply chain integration.
* Global evolution of 3PL usage.
Among the priorities currently facing 3PL providers are regional expansion, broadening services to meet the needs of current and future customers, integrating information technologies, and developing relationships with customers and other business firms that will facilitate the growth and expansion that lies ahead.