Outsourcing gains momentum

By Staff -- Logistics Management, 1/1/1999

A new survey of international shippers by Gerard Klauer Mattison & Co. Inc. estimates that the third-party logistics (3PL) industry will grow by 19 percent annually for the next five years. The Wall Street investment firm surveyed about 70 shippers throughout the United States for its study.

The survey also found that global reach had become a key selection criterion for 3PL users. When asked to rate criteria in importance, the survey respondents ranked geographical scope first, followed by breadth of service offerings, product/business expertise, and price.

Respondents to the study cited improved customer service and personnel reductions as the biggest benefits of using contract distribution. These two benefits tied for first place and were cited by some 28 percent of the respondents.

Those surveyed said that the distribution functions most suitable for outsourcing were customs processing and inbound and outbound transportation. Sourcing and purchasing, client order processing, and inventory management were considered the functions least suitable for outsourcing.

Although shippers in the survey rated the U.S. economic outlook as "average," the study's authors noted that inventory levels were less in sync with demand than they appeared in last year's survey. Gerard Klauer said that corporations seemed to be entering 1999 with more sluggish demand growth and higher inventories, setting the stage for production cutbacks this year as businesses begin to realign stockpiles with demand.

In a separate survey by the University of Tennessee's Center for Logistics Research--a study that was funded jointly by a grant from third-party provider Exel Logistics and the consulting firm Ernst & Young LLP--respondents said one of the most important information services shippers were demanding from third parties was shipment tracking. Some 52 percent of respondents who now use contract distribution services reported that third parties provided them with shipment-monitoring services. The study also found that many 3PLs offered information technology for distribution center operations, performance reporting, billing and payment, and carrier selection.

When asked which areas of information technology 3PLs could improve in the future, the survey respondents cited the need to focus on inventory management, supply chain integration, and seamless integration of information systems.

The UT study found that outbound transportation was the most frequently outsourced activity, cited by 61 percent of the respondents. Other commonly used services included freight-bill auditing and payment, warehousing, and inbound transportation. The study noted that cross-docking, which placed sixth overall, had grown faster than other services when compared with previous studies. Thirty-one percent of respondents to the 1998 study used cross-docking, compared with 22 percent in a 1996 survey.

The survey also found that 3PL users generally were satisfied with third-party logistics services: 86 percent of those who now use third parties said that their outsourcing experience had been successful.