3PL study sees reduced demand for outsourcing
Staff -- Logistics Management, 11/1/2002
A new study conducted by the investment firm J.P. Morgan Securities Inc. indicates that the U.S. recession has forced shippers to reconsider plans for outsourcing distribution operations. The survey's 53 respondents said they planned to increase their outsourcing by a meager 19 percent over the next five years, a drop from the relatively robust growth rates seen in the past five years.
Though the 3PL industry's growth may be slowing, shippers remain convinced of outsourcing's benefits, especially where cost control is concerned. A full 48 percent of the survey respondents said they used 3PL services to reduce personnel costs, and another 13 percent said they outsourced to reduce transportation and distribution costs.
When companies outsource distribution functions, they often make their selection on the basis of price. Using a scale of 1 to 5 (with 5 being the most important), survey takers ranked price at 4.90, making it the top criterion used in awarding a logistics contract. They ranked financial strength and business expertise as the next most important consideration, with a score of 4.20.
The study also noted that customs processing had emerged as the supply chain function most suitable for outsourcing. On a scale of 1 to 3, respondents ranked customs processing's suitability for outsourcing at 2.60. The second leading function was inbound transportation. (See chart.)
The survey also explored respondents' future transportation spending plans. Some 38 percent of the respondents said they planned to make more frequent, larger shipments over the next five years, while 28 percent expected to make more frequent, smaller shipments. Some 4 percent said they expected to make less frequent, smaller shipments, while 30 percent forecast no change at all in their shipping patterns.
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