Now more so than ever, corporations understand the tremendous impact logistics and transportation can have on their overall business performance and are taking meaningful strides to optimize their supply chain operations. While some organizations have the human capital, industry depth and expertise, and IT infrastructure to manage their transportation on an insourced basis, a majority do not. It’s simply not viewed as core competency or they lack the significant technical infrastructure to do so effectively or efficiently. It’s for this reason they outsource this business function to a third party that specializes in this area.
Third party logistics (3PL) and outsourcing of nearly every conceivable logistics function is a known, proven, and highly mature strategy that delivers near immediate financial and operational performance efficiencies that assist companies to reduce costs and improve supply chain performance. It’s for this reason an estimated 80% of Fortune 500 companies and 96 Fortune 100 companies use 3PL services in some form or fashion¹. But it’s not just limited to large corporations. Global 3PL revenues grew to $676.9 billion (U.S. dollars) in 2012 – a 9.9% increase over 2011, according to Capgemini’s 2014 18th Annual Third Party Logistics Study. In the United States alone, 3PL gross revenue increased 3.2% (a rate greater than our GDP) from 2012 to 2013 to $146.4 billion, according to a recent research report from industry watchers Armstrong & Associates.
Here are 4 reasons why companies should consider outsourcing their transportation management:
- Access to a team of knowledgeable, experienced supply chain professionals: Unlike most organizations, a 3PL is filled with experienced logistics professionals – from entry level positions to the CEO. By outsourcing to a 3PL, a customer immediately gains a team – and an entire company – of supply chain practitioners with various areas of expertise around industry segments, mode, geography, regulations and much more.
- Leverage the 3PL’s size and scale: The size and scale of a 3PL presents greater optimization and cost savings opportunities than a shipper would have on its own. For example, a 3PL can combine the freight of 30, 40 or 50 clients to give shippers far more buying power than they would command “going it alone” in these trying times. Additionally, 3PLs can leverage their customer base to enable shippers to co-load freight or utilize a shipper’s private/dedicated fleet to reduce empty miles.
- Access to a comprehensive technology platform: The core IT systems that run companies focus on, by and large, the operating and financial aspects of the business, not the transportation and logistics functions. In many cases, it’s a passing afterthought – if not completely forgotten. However, for a 3PL, their technical prowess and differentiating agility is centered around the solutions they use to run their customers’ business and is their core IT platform, which receives their daily undivided attention not to mention research and development investment dollars. Instead of buying a system and hoping it works for them, for many, the optimal approach is to outsource to a third party with its own proprietary technology that is continuously focused on it and the implications of that platform on their customer’s business.
- Commitment to continuous improvement, not just short-term savings: Transportation optimization is more than moving freight for the lowest cost. 3PLs continue to enhance their ability to drive innovation and deliver “long run” value for their customers. And not just a one-time boost in performance, but continuous improvement that comes from the sum of services, solutions and expertise; in unique configurations that 3PLs are adept at providing to their customers.
While there are a few outliers whom excel at the management and execution of their logistics networks, a majority of companies understaff and woefully underinvest in the key critical areas that make up their transportation and logistics function. The supply chain effectively delivers goods to a customer, allowing that customer, whether a manufacturer, retailer or distributor to book sales and deliver economic value to their shareholders. Excellence ‒ as their core mission and purpose for existence with respect to that area ‒ is what third party logistics is all about.
To read how one customer views his company’s relationship with his 3PL as a partnership, click here.
¹Source: Armstrong & Associates
Matthew Menner is the Senior Vice President of Strategy for Transplace. He is responsible for the strategic and commercial leadership of Transplace’s eighty core transportation management (managed services and technology only) customers. He has more than 20 years of direct transportation and logistics industry experience and is currently serves as the President of the Council of Supply Chain Management Professionals (CSCMP) New England Roundtable.