3 Key Reasons Outsourcing Logistics is Expected to Grow
Outsourcing logistics management has been on the rise for the past few years, and the trend is expected to continue through 2015. According to the 2015 Third Party Logistics (3PL) study by Capgemini Consulting and partners, 67% of shippers indicate that they plan to increase their use of outsourced logistics. A whopping 92% of 3PL service providers grew their client base by at least 5% last year. The numbers are clear, but why exactly are so many shippers outsourcing logistics?
The reasons are numerous. Businesses want to improve, simplify and streamline their businesses operations of course, but they face significant challenges in doing so. According to the Inbound Logistics 10th Annual Research Report, shippers face these top three challenges: cutting transport costs, improving business processes, and improving customer service. The role of 3PL’s is to alleviate these issues. There is a significant correlation between shippers’ self reported greatest challenges, and the services that 3PL’s offer. The beneficial role that 3PL’s play is reflected in the fact that 92% of shippers report successful relationships with their 3PL partners.
Consider the following 3 reasons outsourcing logistics is on the rise
1. Shippers save time and money
As mentioned earlier, cutting transportation costs is a top priority for those in the shipping industry, so it’s no surprise that of the logistics services outsourced, domestic transportation was outsourced by 80% of users. The services most frequently outsourced are transactional, operational and repetitive, and shippers are likely to save money by outsourcing these tasks to professionals with the necessary infrastructure and skill sets.
The reasons for outsourcing transportation logistics are numerous and varied, but at the bottom line is cost savings. Over the past year, businesses using 3PL’s have seen a 9% cost reduction in logistics costs, but shippers who use 3PL services report seeing year over year incremental benefits. These decreasing costs may be a result of slow global economic activity, but they may also be related to steadily improving logistics systems. As 3PL’s grow and expand their services, they may also be improving at what they do, to the benefit of their shiping partners.
Shippers also want to shift away from complicated transportation and warehouse management so that they can focus on their core competencies. Outsourcing with 3PL’s provides an efficient and less stressful way to deal with transportation costs and fuel surcharges. Because 3PL’s are no longer limited to the transportation and warehousing roles they once were, shippers can also take advantage of the added technology, capacity and talent that many 3PL’s provide. With 3PL partnerships turning into a long term business strategy rather than a short term fix, many shippers are outsourcing logistics to save money both in the short and long term.
2. The Changing Consumer Landscape
There has been much discussion about how omni-channel retailing is changing the consumer landscape and supply chain logistics. Omni-channel retailing focuses on delivering a seamless shopping experience for the customer, and that includes making shopping opportunities available on mobile devices, computers, brick and mortar stores, as well as tv or radio. According to Capgemini’s 2015 study,omni-channel supply chains are still maturing, but many are investing in warehouse and transportation management systems. Increasing the number of platforms for customer engagement means more potential sales, and a more complex supply chain.
As companies move towards omni-channeling, shipping will become more complicated and reactive to the market, and supply chains will need to become increasingly flexible and agile to meet demands. Rather than focus on logistics, many companies would prefer to focus on fulfilling customer needs, and many shippers find outsourcing helps them do so. Because customers and vendors may change distribution patterns from year to year depending on market changes, distribution centers may shift, or companies may be asked to ship directly to retail locations. Having the right resources in place to to deal with yearly changes is helpful, and logistics providers offer the needed agility and connections that shippers may have difficulty cultivating on their own.
3. Business Process Improvements
Improving business processes is part and parcel of the motivation for logistics outsourcing. Whether focusing on an entire supply chain or only parts of a whole, 3PL’s offer process expertise in supply chain management. Because 3PL’s focus on efficiently designing and improving supply chains, many businesses find that outsourcing logistics to 3PL’s can improve their own business process. Often, 3PL’s can help businesses fine tune niche areas of their business or help with new product introduction.
Because 3PL’s are specialized in transforming the supply chain for efficiency and flexibility, new sales channels like e-commerce can be more easily breached with the help of a 3PL partner. For example, if a retailer launches an online store with an option for returns, reverse logistics might be an additional and new segment of their supply chain. Reverse logistics, moving products in a reverse order through the supply chain (like returns or rental equipment), can be an area of added complication where 3PL’s can provide a source of relief for many businesses. By arranging the logistics of returning, transporting and storing items 3PL’s can ease transitions into new markets.
Each year, supply chain management becomes more complicated as transportation becomes more regulated, technology-rich and asset-intensive. As companies delve into emerging markets and strive to deliver efficient, on-time services, many are looking to 3PL’s as a way to aid in their endeavors. As the trend towards outsourcing logistics remains strong, companies and 3PL providers will need to collaborate closely to remain competitive and keep the supply chain running smoothly.