Today’s 3PL is not your grandfather’s 3PL. Third-party logistics used to mean basic transportation and warehousing, and it still does. But in addition, it now encompasses outsourcing for a wide range of logistics activities and planning services; such as supply chain modeling, consulting, analytics, and information technology. Third-party logistics companies are evolving rapidly from tactical providers of transportation and warehousing services to collaborative partners providing a wide range of products.
The 3PL phenomenon took root over a half-century ago, and since the mid-nineties has grown and expanded dramatically. Seventy-two percent of shippers expect to increase their use of outsourced logistics services in the next year. Ninety-four percent of 3PLs have increased sales by at least 5 percent annually over the past five years.
Overall the industry is huge. The United States third-party logistics gross revenue exceeds $150 billion and is continuing to grow at a rate of 5-8 percent annually. While this is somewhat slower than the rate 3PLs experienced from 2000-2008, when revenues more than doubled from $56.6 billion to $127 billion, it continues to be an extremely healthy industry.
Most companies selling or producing goods, use a 3PL for at least some distribution functions. The reason being, third-party logistic providers generate a range of benefits for companies who engage them. Companies we surveyed said they see benefits from using a 3PL in at least five areas:
- Current cost reduction by having an operator that knows how to run operations very efficiently.
- Future cost reduction by leveraging the 3PLs expertise and technology.
- Customer satisfaction improvement.
- Risk management.
- Start-up enablement.
Companies expect their 3PL to not only take direction, but also respond rapidly, and generate ideas for improvement. They further expect the 3PL to become a strategic partner in efficiently growing the business. Aggressive continuous improvement is the goal.
All of this third-party logistics activity and accelerating expectations does not mean firms are employing best practices to select and manage 3PLs. That is why we wrote the recent white paper: Best Practices for Selecting and Managing Your 3PL. We have access to many companies at the University of Tennessee’s Haslam College of Business, both shippers and third-party logistics providers. Based on extensive interviews with a wide range of these companies as well as industry data, we assembled the white paper guide. In the white paper we discuss in depth each of the criteria summarized below:
To select a third-party logistics provider:
- Start with an internal assessment of your current and future needs.
- Develop a detailed plan for the 3PL selection process.
- Review the checklist of 3PL capabilities as you develop your RFI/RFP.
- Evaluate, interview, and select.
To manage a third-party logistics provider:
- Develop the contract based on the type of 3PL relationship you are trying to create.
- Select the appropriate metrics based on the objective of your 3PL relationship, and develop a scorecard.
- Establish and implement governance mechanisms to effectively manage the
business and collaborate with your 3PL.
By employing these best practices, we strongly believe your 3PL partner can be a critical asset in creating sustainable competitive advantage for your firm.