A recent survey from Raleigh, NC-based supply chain solutions provider Tompkins Associates finds that despite its rapid growth, outsourcing is still a maturing industry,” according to Steven Simonson, principal and author of the “Outsourced DC Operations” report. “Currently, only a third of respondents to the benchmarking and best practices survey are outsourcing some portion of their distribution operations. Much room exists for continued expansion,” he says.
Although sometimes viewed negatively, outsourcing DC operations can be beneficial to companies who have determined that distribution is not a core competency. The top three factors cited as driving the decision to outsource DC operations were:
–Peak season or overflow capacity
–Flexibility to grow capacity and adapt to changing requirements
–Improved service
More than 100 retail and retail supplier companies responded to the study.
Other survey findings include:
More than three quarters (76%) of DC operations outsourced by respondents are 100,000 sq. ft. or less.
Only 9% of outsourced DCs are more than 300,000 sq. ft. in size
The most frequently outsourced operations are receiving, storing, picking and shipping.
Most companies that are outsourcing allow 3PLs to provide the major systems and technology functionality that drives their DC.
60% of respondents have a negotiated rate structure for their contracts with 3PL providers, while 40% are in a cost plus contract.
80% of respondents indicated that their company has a formal process for outsourcing.
The survey also found that cross docking and flow through, which many companies have been unwilling to outsource in the past, were outsourced by 63% and 74% of the survey respondents. This may point to the growth of some providers in the 3PL industry and their commitment to providing niche services that can distinguish them from their competitors.