This is the first of a two part series where we talk about shippers of freight and the relationship with third party logistics providers or 3PLs, as they are commonly known. If you are curious to better understand the layers of logistics, make sure you read our very popular post regarding all of the layers of logistics explained. Tomorrow, we will then provide you with some more education regarding all the types of 3PLs that exist. “More than one type of 3PL AND different layers of logistics,” you say? Yes, there are many types of 3PLs as well…no wonder everyone, especially shippers are confused!
In today’s post we will cover the rising increase of the use of 3PLs and the relationship as it relates to the effective use of 3PLs by shippers to better manage their supply chain, logistics, and precious freight.
In the supply chain, some things just go together, beginning with the most obvious, supply and demand. Demand directs supply in an endless cascade of order and shipment transactions, manufacturing, transportation, and warehousing/distribution processes, and countless functional synapses firing every which way in between. Everything occurs in harmony with demand. For many companies, it’s all a purposeful blur as in today’s economic and competitive environment, as a shipper, there is a lot to keep up with to remain effective.
But connectivity is paramount in today’s supply chain. Nowhere is this more important or apparent than in the synergy that exists between companies and their 3PLs. Pairing third-party with logistics creates somewhat of a paradigm shift to have a level of objectivity in the middle of the buyer and seller relationship (see benefits of Vested Outsourcing in logistics). Tactically, 3PLs can fill a very basic need. Strategically, 3PLs have the ability to offer an outside (read, “not in the weeds of tactics”) perspective offering the clarity, oversight, and vision necessary to plan and execute several transportation and logistics processes along the supply chain.
3PLs and their partnerships with shippers have always shared these features to a certain degree. But the springing up and sophistication of value-added and niche logistics capabilities beyond transactional services, the emergence of vested outsourcing or gainsharing, and economic crisis have collectively upped the ante for outsourcing logistics. This reality has become abundantly clear over the past few years.
The success of the third-party logistics industry is evident in the generally high marks given to 3PLs by respondents to a survey as part of the 2013 17th Annual Third Party Logistics Study, which identifies trends and explores how both 3PLs and shippers are using these relationships to improve and enhance their businesses and supply chains. According to the study:
Despite challenging business conditions, aggregate global revenues for the 3PL sector continue to rise, and far more shippers (65%) are increasing their use of 3PL services than returning to insourcing (22%) some 3PL services. Nearly three in five (58%) shippers are reducing or consolidating the number of 3PLs they use. Shippers report spending an average 12% of revenues on logistics, and an average 39% of that figure is spent on outsourced logistics services. Outsourcing accounts for 54% of shippers’ transportation spend and 39% of warehouse 0perations spend.
Both shippers (86%) and 3PLs (94%) largely view their relationships as successful, with shippers posting some impressive results from outsourcing:Just over half (56%) say their use of 3PLs has led to year-over-year incremental benefits. They also report significant savings from logistics cost reductions (15%) inventory cost reductions (8%) and logistics fixed asset reductions (26%). Shippers are more satisfied than 3PLs (71% to 63%) with the openness, transparency and good communication in their relationship, and 67% of shipper respondents judge their 3PLs as sufficiently agile and flexible.
Demand for transportation and logistics outsourcing remains on a solid increase as shippers look to divest non-core functions and focus on their own unique value propositions and growth efforts. Businesses understand the growing importance of properly managing supply chain functions, and have targeted 3PLs to fill this corporate need.
While transportation and warehousing is still core, 3PLs continue to adapt as shipper demands evolve. Today’s service provider is capable of piecing together and integrating multiple transportation and logistics disciplines, from playing freight broker and providing managed TMS services, to operating co-shared distribution facilities and pooling freight. Increasingly, investments in proprietary technologies offer additional incentives for shippers to partner with 3PLs. This allows outsourcers to tap best-of-breed solutions without the cost and liability of constantly updating and upgrading systems.
At the same time, 3PLs remain committed to filling core needs, especially equipment, freight capacity, and warehouse space.
We will delve deeper into these types of services offered by various 3PLs in tomorrow’s post.
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