3PL Industry Overview
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What is a 3PL?
A simple definition of a third party logistics (“3PL”)
provider is an outsourced provider of logistics solutions
for a manufacturer, distributor or retailer. “Logistics”
broadly defined includes any part of the supply chain
in moving raw materials, Work in Process (“WIP”)
and finished goods from point A to point B to points
C, D and E, etc. The 3PL provider enables the customer
to focus on its core competencies rather than spending
valuable internal resources managing freight, warehouses
and deliveries.
3PL Growth
The 3PL industry has grown steadily over the past decade
as more and more companies continue to outsource non-core
functions. The logistics function is one of the last
business process outsourcing (“BPO”) segments
that has not matured. Both the middle-market and Fortune
1000 companies will continue to outsource more logistics
functions.
According to a 2003 Cap Gemini study, North American
organizations planned to outsource 56% of their logistics
expenditure by 2006 – 2008, with Western Europe
planning 81% and Asia-Pacific 60%. The same report revealed
that 78% of the respondents are outsourcing logistics
activities in North America; 79% in Western Europe and
58% in Asia Pacific.
3PL Trends
Outsourcing drivers
• Shippers derive multiple benefits from outsourcing
logistics, including the reduction of cost, assets,
personnel, reduction in order cycle time and improvements
in customer service
• Enables OEMs to focus on product development,
sales and marketing
• The trend to expand outsourcing logistics to
3PLs internationally is gaining momentum among leading
US manufacturers due to increasing satisfaction with
outsourcing this function domestically
• The economic climate has had a minimal effect
on slowing down this trend
• The greatest impact of outsourcing 3PL services
is in containing costs of the supply chain
Consolidation Trends
• Reduction in vendor base - Customers want their
vendors to do more and be the one-stop-shop provider,
this has spurred M&A activity as companies consolidate
to fill service gaps and geographic coverage
• Full service logistics solutions are replacing
traditional relationships with multiple independent
service providers
• Globalization – 3PLs have merged to provide
end to end solutions for large multi-national clients
• Companies are being acquired for geographic
reach and regional market share
• Increasing the scale of the organization also
allows the 3PL to negotiate advantageous pricing for
transportation
