State of Logistics Outsourcing

The recent 2014 18th Annual Third Party Logistics Study results showed the continuing, positive overall nature of shipper-3PL relationships.

Shippers agree that 3PLs provide new and innovative ways to improve logistics effectiveness, and that they are sufficiently agile and flexible to accommodate future business needs and challenges. Both parties view them as being successful, and shippers are seeing positive results again this year including:

–An average logistics cost reduction of 11%
–Average inventory cost reduction of 6%
–An average fixed logistics cost reduction of 23%

Despite ongoing churn in shipper-3PL relationships, in general shippers are increasing their use of outsourced logistics services, and shippers and 3PLs are now about equally satisfied (70% and 69%, respectively) with the openness, transparency and good communication in their relationships.

Several ongoing factors are impacting progress toward the advanced end of the maturity model for shipper-3PL relationships. While gainsharing and collaboration with other companies, even competitors, to achieve logistics cost and service improvements would seem to be markers for advanced relationships, it seems these approaches are more preferred in certain shipper-3PL relationships, and less in others.

There are some encouraging results that suggest a slight increase this year in outsourcing of strategic, customer-facing, and IT-intensive logistics activities. However, the continuing economic uncertainties in the global marketplace may continue to dampen significant growth and innovation in the 3PL sector.

Signs indicate that the “IT Gap” — the difference between the percentage of 3PL users indicating that IT capabilities are a necessary element of 3PL expertise (98% in the current study), and the percentage of the same users who agree that they are satisfied with 3PL IT capabilities (55%)—is stabilizing to some degree. But the study finds that 3PL IT capabilities are becoming increasingly important to shippers, and that the shipper satisfaction ratings are also increasing.

Key Findings

Big Data
The survey results indicate that there is both great need and great potential for the use of Big Data by shippers and 3PLs in the supply chain. Shippers (97%) and 3PLs (93%) feel strongly that improved, data-driven decision-making is essential to the future success of their supply chain activities and processes. Ideally, Big Data can be leveraged not just to predict demand, but can begin to shape or change it.

Balancing the bid process
Globalization, competition and shifting economic conditions are now causing shippers to continuously re-evaluate their supply chain strategies, including their relationships with 3PLs. Many shippers view putting contracts out for bid and shortening contract lengths as important steps in containing costs and taking advantage of the competitive environment among 3PLs.

Understanding the cost of change—both to the shipper and to the shipper’s customers—is critical to organizations that are outsourcing or are considering changing service providers.

Exploring the Risks/Rewards of Africa
A growing number of international firms are noting in today’s Africa some of the same signals of growing opportunity that characterized Asia in the 1970s. These include fast-growing economies, an abundance of low-cost labor and a commitment to improve infrastructure and remove barriers to trade.

But like any emerging market, Africa represents risk as well, from politics and corruption, to inadequate security, to significant infrastructure deficits, particularly in electricity.

Opportunities in Omni-channel
Today’s empowered, smart phone-equipped consumer demands to engage with retailers when they want, where they want and how they want. They want to start a transaction from one sales channel and then shift to another, and they expect the retailer to get them the product they want quickly no matter where it is physically located.

They want to be individually recognized and rewarded for their business in ways they find valuable. And if they can’t get fast service and satisfying rewards from one retailer, they’ll quickly move on to another.But delivering this seamless customer experience is a significant and ongoing challenge for most retailers.

Think Globally, Act Locally for Talent
Most leaders in the global 3PL space would agree that more needs to be done in the interest of achieving diversity and inclusiveness, and also to broaden the look, feel, experience and collective of knowledge of 3PL talent.

Think globally in order to recognize the need for unity of a corporate strategy with shared Vision, Mission, Values, and Long-Term Objectives.

Act locally to recognize the need for regional and local action plans that take into account the particular location’s core inclusion issues, business case for managing differences, and utilize a culturally appropriate process for change.

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