Taking More Direct Control of Your Supply Chain

Back in March 2014, I wrote the following in Keeping Control: What 3PLs Must Convince Their Customers:

For many years, companies viewed logistics as a cost center, a “non-core” business function that made more sense for a third party to manage. Logistics professionals, as well as analysts and consultants, always hated this “cost center’ characterization, and they tried (with limited success) to change upper management’s perspective. Well, it seems like the CEO finally got the memo. Companies are starting to realize that logistics is indeed a strategic function and a competitive differentiator. Nowhere is this trend more evident than in omni-channel fulfillment, where retailers are providing customers with a wide range of delivery options — including ship-from-store and same-day delivery — to win the sale, whether it happens online or at a store.

My hypothesis is that as manufacturers and retailers start to view logistics as a core strategic function, their desire to take more control will increase, and so their desire to outsource will diminish.

Over the past 7 years, there have been several examples of companies retaining or taking more direct control of their logistics operations. For example, Domino’s Pizza and Panera have kept control of their delivery operations instead of outsourcing to GrubHub, DoorDash, or UberEats. 

Two other examples were highlighted last week in the Wall Street Journal. First, retailer American Eagle Outfitters is buying Quiet Logistics for $350 million. Here are some excerpts from the article by Paul Berger:

The acquisition announced Tuesday is AEO’s second in the logistics arena this year…Quiet Logistics, based in Devens, Mass., has eight fulfillment centers in six cities where workers aided by robots fulfill shipping orders for digital apparel and lifestyle brands such as Mack Weldon, Outdoor Voices and Peloton.

“Supply chain is becoming more of a consumer-facing activity,” said Shekar Natarajan, AEO’s chief supply-chain officer. “And in that world, you need to basically have consistency and control of your experience [emphasis mine].”

Taking more direct control of your supply chain. That was the main theme of another Wall Street Journal article by Thomas Gryta and  Chip Cutter titled, “Farewell Offshoring, Outsourcing. Pandemic Rewrites CEO Playbook.” Here are some quotes from the article where CEOs and other executives talk about taking more direct control of their supply chains (I’ve bolded the word ‘control’ in the quotes):

“It’s about control. I want to have more control in an uncertain world,” said Ellen Kullman, chief executive of 3-D printing company Carbon Inc. and the former CEO of DuPont.

“I’m not waiting for [contractors to find enough people to clean planes or push wheelchairs in U.S. airports],” Delta Chief Executive Ed Bastian said in August. “I’ve in-sourced it, and I’m not looking back.”

“You’re in a bit more control of your destiny” by having your own [manufacturing] facilities, PulteGroup Chief Executive Ryan Marshall said.

Sherwin-Williams Co. decided to buy one of its suppliers with operations far from the Gulf of Mexico, where bad weather has hampered production. “These plants on the East Coast and West Coast get us out of the heavy reliance on the coast down in the Louisiana, Houston area,” Sherwin-Williams Chief Executive John Morikis said in a September conference call.

“We’ve learned that we need to have control,” Bartesian CEO Ryan Close said. “We can’t be at the mercy of our suppliers.”

Are you planning to take more direct control of your supply chain? Is this a temporary trend or lasting shift in strategy? What does this mean for logistics service providers?

We will ask our Indago supply chain research community members for their perspective on these questions next week. If you’re a supply chain or logistics professional from a manufacturing, retail, or distribution company, join Indago today to participate in the research and receive the results. It is confidential, there is no cost to join and the time commitment is minimal (2-5 minutes per week) — plus your participation will help support charitable causes that need our help today more than ever.

I’ll end with what I wrote 7 years ago in my post:

What does this mean for third-party logistics providers (3PLs)? It means that you have to convince your customers and prospects that outsourcing does not necessarily mean loss of control.

It means that outsourcing relationships are becoming more dynamic. The services 3PLs provide to customers today will be different from what they will provide to customers in five years. Customers might bring some functions back in house because they now view them as core competencies, but they will likely outsource other functions that they’re currently managing in-house today. This implies 3PLs must innovate their business models, and the nature of how 3PLs and customers manage their relationships must also change.