Dot-com retailers give 3PLs their big chance

By Thomas Foster -- Logistics Management, 10/1/1999

The bickering and whining is as old as the third-party logistics industry itself. Shippers complain that 3PLs fail to provide innovation and true customer value, and merely offer basic warehousing and transportation that shippers could just as well handle themselves. 3PLs complain that any shortcomings are the fault of shippers who refuse to give 3PLs the commitment, trust, and latitude they need to perform. Shippers, they charge, are so focused on shaving costs that real supply chain improvement is impossible.

This tired old issue may finally be coming to a happy end.

The 3PL industry now has the opportunity to show just how good it is thanks to the burgeoning ranks of Internet retailers and other e-commerce companies that are desperately seeking logistics solutions. The growth of these dot-com companies has been so phenomenal that their original logistics plans (if any) have long since been overwhelmed by customer demand and furious competition. These logistically challenged companies need help, and they are primarily looking at 3PLs to be their saviors.

For example, a well-known online computer vendor offered to sell PCs for $299. Unfortunately, the company didn't factor in the cost and complexity of home delivery and hasn't been able to fulfill its orders efficiently, let alone cover its costs. The CEO is now looking for another job, while the company is looking for a reliable 3PL.

There are already several examples of total outsourcing, where a 3PL (or group of 3PLs) handles the dot-com company's entire backroom operations. The 3PL receives the goods from vendors based on Internet orders. The 3PL then performs warehousing, order picking, assembly, packaging, and shipping, as well as the huge job of handling returns. Other companies outsource portions of the e-commerce supply chain, such as the warehousing and order fulfillment or the shipping and delivery. In most cases, however, the Internet company is eager to outsource as much of the logistics portion of the business as makes sense.

With the Internet retail revolution in its infancy, the logistical demands on this industry are going to skyrocket, and 3PLs should be among the major beneficiaries--if they can perform.

The dot-com companies have quickly discovered a basic truth that has eluded more established businesses. They spend huge marketing and promotion dollars to acquire customers, but reliable logistics is the string that will keep these customers coming back. The profit comes from these repeat customers.

This faith in logistics is where the 3PL industry can score a double win. The Internet industry is very willing to give the 3PLs what they said they always wanted: a chance to show how good they are without the constraint of penny-pinching clients looking for cost savings in every activity. If the 3PLs are up to the task of providing competitive advantage, increased customer value, more repeat customers, or higher returns on fewer assets, the 3PLs will be huge winners. They will have an unshakeable foothold in the fastest-growing sector of our economy. They also will have gained tremendous credibility that old-line retail and industrial customers, which have kept them at arm's length, cannot deny. Finally the relationship between 3PLs and their clients will be what it should have been from the start--one of equals jointly serving an end-user who appreciates good logistics performance as much as a good product.

Tom Foster, the former editorial director of Distribution magazine, has been involved with the logistics industry for 25 years. Today, he is president of Logistics International, a consulting and communications firm based in Westtown, Pa. He can be reached at (610) 399-1728. His e-mail address is trafoster@earthlink.net.