Spotlight: 3PLs

Jan 01, 2006 10:30 PM  By

Every year the Georgia Institute of Technology, along with several corporate sponsors, conducts an in-depth study of the third-party logistics (3PL) industry in North America and other major regions. And every year, the 3PL business shows remarkable growth as well as remarkable vulnerability to challenges. The year 2005 was no different.

Pointing out the upside of the 2005 results — based on 1,091 respondents from four regions of the world — survey director Dr. C. John Langley Jr. of Georgia Tech notes significant U.S. 3PL market growth, from $31 billion in 1996 to $85 billion in 2004; the increasing strategic importance of logistics to companies; and the growing technical and managerial sophistication of 3PL service providers. For clients, the quantifiable results of using 3PLs have been spectacular: On average, users during the past six years have enjoyed logistics cost decreases of 10%, asset reductions of 16%, declines of three days in order cycle times, and inventory reductions of 8%.

So satisfied are clients with these numbers that they plan to keep increasing their spending on contract logistics services. From 31% of logistics expenditures in 2001, outsourcing investments rose to 49% in 2005 and could go as high as 60% in the next five years. Customer satisfaction with 3PLs is high as well, remaining at around 90% for the past four years.

Still, service and knowledge gaps remain. The Georgia Tech report summarizes them as follows:

Lack of advanced services

Many 3PL providers supply basic warehousing and transportation services but lack more-sophisticated capabilities such as inventory/asset-based services, contract manufacturing, strategic management, business process outsourcing, and technology innovation.

Stale relationships

Much like marriages, relationships between 3PLs and their users need to be “reinvented” from time to time. Clients complain that their logistics providers are not creative or flexible enough to cope with changing business conditions.

The need for standardized solutions

Users expect 3PLs to leverage their solutions and technology across several customers and offer deep industry knowledge at a reasonable cost.

Weak supply chain integration

Clients demand improved IT and knowledge integration on the part of 3PLs, as well as clearly defined “strategic services” that streamline the supply chain. The widespread use of jargon to describe service models — for example, 4PL, SCM, and LLP — has created confusion and frustration among users, states the report.

Inadequate global capabilities

Although many 3PL providers tout their global services, clients indicate that “significant” improvement is needed in process and systems integration across vast international boundaries.