The Emerging Roll of the 3rd Party Logistics Provider
Competition in the global marketplace has resulted in greater demand for goods and services, but many companies still struggle with the logistics of providing customers with their product. Faced with the complexity of organizing and executing a supply chain, companies can become overwhelmed with the small details, which is why so many businesses are outsourcing transportation and logistics to third parties, or 3PL’s.
According to the 2014 Third Party Logistics Study by Capgemini Consulting, the number of businesses outsourcing their logistic services has grown by 72% this year alone, and 90% of shippers report that their relationships with 3PL providers have been successful. However, successful relations between 3PL’s and their clients are becoming increasingly complex, as the scope of services demanded from 3PL’s is expanding.
Traditionally, third party logistics providers (3PL’s) have aided companies by providing logistics services like transportation, inventory management, and warehouse storage, but today, 3PL’s are expanding into a greater role of strategic orchestration. These days, 3PL’s are orchestrating multiple supply chains rather than simply supplying logistics services. Think of 3PL’s as linking individual supply chain actors together by managing, coordinating, and focusing all aspects of the supply chain network.
Here are 4 reasons 3PL’s are critical to a well functioning supply chain:
- Companies and their products need focus to compete in a global market, but optimal coordination of shipping, storage, and delivery requires coordination that individual shippers alone can’t provide. Increasing demand on shippers can be handled more efficiently by hiring a 3PL with an extensive resource network. Shippers can gain flexibility while forgoing the financial commitments and long term agreements they would otherwise take upon themselves. Shippers are also realizing the appeal of working with one 3PL that provides a broader scope of services than working with multiple partners to achieve the same ends. According to the Capgemini Consulting study mentioned above, 75% of shipper respondents agree that more strategic 3PL relationships would help reduce overall costs and risks. For example, shipping methods can become standardized and more predictable, making transporting goods less risky and more reliable. Because experienced 3PL’s work with a multitude of supply chain partners, they can also provide standardization and data visibility across a wide network. Extensive standardization means a smooth flow of goods throughout the supply chain.
- Because 3PLs are engaging in a more partner-based relationship with their clients, 3PL’s are sharing in greater responsibility.
In an Oracle press release, Jim Morton, Senior Manager within Capgemini Consulting’s Supply Chain practice, writes, “Companies worldwide are still dealing with the effects of the economic downturn. But shippers should embrace the opportunity to rethink their supply chains and the role that 3PLs can play in helping to attain business goals.” As 3PL’s provide a bundle of services like inventory management and freight forwarding, responsibility is shared by the 3PL and the shipper, providing double the incentive for timely and quality deliveries. For example, no supply chain can function without transportation, but transportation often faces disruptions and therefore risks. Partnering with a 3PL can mediate this risk through their extreme expertise and wide network in the trucking industry. Over 91% of suppliers report that their relationship with their 3PL is strategic, meaning that the emerging role of 3PL’s is becoming an increasing necessity for most suppliers.
- 3PL’s can serve as neutral arbitrators between shippers and their customers while providing valuable standardization and visibility to a complicated supply-chain system. 3PL’s are excelling at their emerging role because they are ideally situated for exactly this sort of all-encompassing strategy management. 3PL’s can act as powerful change agents because of their neutral but integrated role in shipping processes. Conflicting issues amongst shippers and buyers can be acknowledged and addressed without bias by the 3PL, ensuring the fulfillment of all parties in the supply chain. Because 3PL’s focus on end-to-end supply chain methodology, clients (shippers) will experience greater productivity, less stress, more ease, and greater efficiency throughout the entire supply chain.
- In an environment of economic volatility, many companies value the agility and responsiveness that 3PL’s provide in their supply chain orchestration.
Forward looking companies are reaching out to 3PL’s to ensure competency and efficiency throughout the total supply chain. 3PL’s can bring greater versatility to transportation solutions than a traditional trucking company; while leveraging their own assets, 3PL’s can also use their network to find additional equipment, industry expertise, or greater storing capacity, and a fast solution at a competitive price. Businesses want to reduce costs and adapt to changing market demands in the most efficient way possible, but without a supply chain orchestrator, this sort of flexibility can prove challenging. Kai Peters, Head of Supply Chain Development, Panalpina explains, “As a provider of outsourced logistics services, we know that openness, transparency and good communication, flexibility and the ability to achieve cost and service objectives are key to the success of our customer relationships…But in order to be an effective partner for our customers, it is also increasingly important for us to understand the entire business, not just logistics.”
Peters summarizes the new direction 3PL’s are currently taking: logistics are part and parcel of a more holistic understanding of business practices that 3PL’s are using to orchestrate effective strategy.