It’s that time of year again when shippers will be analyzing budgets, putting out RFPs, and trying to lock in capacity for the coming year. They will be faced with the choice of doing things the way they’ve always done them or assessing business processes and evaluating partnerships in the hopes of doing them better.
Given today’s changing economic landscape, capacity concerns, and a looming driver shortage, most forward thinking companies will do the latter. Because there are so many angles to consider, it is important for those seeking to improve to stay abreast of industry challenges and trends. Inbound Logistics’ Market Research: 3PL Perspectives 2014 by Joseph O’Reilly is helpful in that regard. It provides a unique perspective on the supply chain landscape – taking into account feedback from both shippers and 3PLs.
What follows is a brief synopsis of some of the article‘s more salient points.
The “Is Map” — Challenges and Strategies
Market Research: 3PL Perspectives 2014 indicates that the biggest challenge faced by shippers has been cutting transport costs (63%). This is followed by business process improvement (32%) and improving customer service (31%). The ideal solution then, is one that not only cuts costs, but also improves processes and results in better on-time delivery levels.
From a strategy standpoint, it also offers some interesting insight into the most common strategies that shippers and 3PLs are using to manage these challenges – the top two being Intermodal Transportation (58%) and DC Network Realignment (58%).
The Need for Flexibility and Scalability is Intensifying
It’s important to understand the reasons that shippers are entering into 3PL partnerships. It’s not simply to reduce costs. As O’Reilly indicates, “Companies want cushion—not just in terms of inventory, but in supply chain management execution flexibility as well.”
When you take a look at the trends, it is apparent why the need for flexibility is so great.
- Inflation is expected to rise.
- Economic growth is expected to shrink.
- Fuel prices and freight rates are on an upswing.
- There is a threatening capacity shortage.
As a result, 3PLs that provide scalable solutions that assume the risk and can be turned up or down with changing market conditions are becoming increasingly more attractive. With so many variables in today’s market (changing sourcing locations, import/export, fuel prices etc.), it makes sense to opt for a network of facilities that is more flexible.
3PLs are Taking on Larger Roles as Strategic Partners
There are a number of other notable trends that are making 3PL partnerships more attractive, including the realization that 3PLs bring more to the table than just commoditized functions. In fact, the perception shift regarding the role of a logistics partner is significant. Whereas 3PLs often used to be thought of as a short-term fix, they are now more commonly recognized as an integral part of the partner’s enduring success.
To quote O’Reilly, “As shippers rely on 3PL partners to provide more strategic oversight, and help catalyze business process change within the organization, the relationship is growing more fluid… Service providers are becoming an extension of the enterprise.”
Also of Note
There were several other trends that struck us as significant when reading the article.
- Today’s rapidly improving technology is increasing visibility for all parties, removing the “fear of losing control” factor, and fostering greater trust between shippers and 3PLs.
- 80% of shippers who responded to a poll stated that they value customer service over cost when measuring the value of a 3PL. That’s a 16% jump from 2013.
- A number of factors, such as falling domestic energy costs and Asian wage inflation, are continuing to make nearshoring/reshoring more attractive.
- Exports are also growing. More shipper respondents state that they are challenged by expanding to new markets (17 percent) than source from (13 percent).