In Praise of 3PLs

Jan 29, 2008 11:27 PM  By

No doubt about it, 2008 will be a challenging year for business. With the Fed forecasting inflation rising between 1.7% and 1.9% in 2008 while GDP grows at a sluggish 1.8-2.5%, companies will need to be tightening their belts and looking for ways to make a profit anyway they can.

Dealing with tough problems isn’t new to logistics professionals. In spite of the explosion in gas prices in the past seven years, the third-party logistics market has thrived – often growing by double-digit figures.

According to a 2004 study by Dr. Robert Lieb, professor of supply chain management in the College of Business Administration at Boston’s Northeastern University, 3PL providers saw their revenues grow from $1.146 billion in 2000 to $1.864 billion in 2003. This represents an increase of 38.5% in three years.

While growth could slow in the logistics sector, bottom-line pressures on businesses across the economy could also create opportunities for nimble logistics firms to create new client relationships with companies seeking to improve their cash flow through outsourcing.

The success 3PLs have enjoyed has been driven by the understanding that outsourcing to a 3PL can create a higher performing supply chain. Third-party logistics providers can take advantage of their infrastructure, relationships, and the skill-set necessary to make logistics as efficient as possible.

By analyzing individual supply chain needs, a 3PL can evaluate how a company’s supply chain is working and how it can be improved. For instance, 3PLs need to begin by analyzing the existing supply chain for “low-hanging fruit”’ or easily realized costs savings and efficiencies.

After a detailed analysis of the current supply chain, a 3PL should start to find ways to reduce costs at every point in the process. This includes reviewing current trucking costs, warehousing costs, and the price of time spent in transit.

Once it has determined where cost reductions can be achieved, a 3PL will begin retooling the supply chain–changing distribution centers and warehouse locations as well as making the necessary staff adjustments. For example, a 3PL might renegotiate a small package pickup contract to reduce “milk run” costs.

Then a 3PL could realign the DC and warehousing system to make long-haul shipping more timely and effective. Through cross-docking plans at DCs and making the necessary schedule changes, a 3PL can reduce the number of costly less-than-truckload (LTL) shipments.

In a tightening economy, efficiency matters. Companies that need to improve their back-end performance might consider looking into outsourcing their logistics.

Ron Cain (ronc@tmsilog.com), author of As the Economy Slows to a Near-Halt, the Logistics Industry Kicks into High Gear, is president/CEO of TMSi Logistics (www.tmsilog.com) with locations in New Hampshire and Florida.

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