In an ideal world, shippers and their third-party logistics service providers (3PLs) would operate in complete harmony. Contract negotiations would be amicable, and all parties would be satisfied with costs, payments, and service levels. In reality, though, there's often a gulf between theory and practice.

To get a realistic view of the shipper-3PL relationship, Dr. Robert C. Lieb, professor of supply chain management at Boston's Northeastern University, and Brooks A. Bentz, associate partner at the consulting firm Accenture, surveyed logistics executives of U.S. manufacturers on their use of third-party logistics, as well as chief executive officers (CEOs) of 3PLs in North America on the current and future state of their industry. The results of those studies build on more than a decade's worth of data to identify trends and forecast future developments.

That's valuable because it indicates what kind of cost and service benefits shippers have gotten from 3PL relationships. It also reveals what's driving 3PLs' behavior and priorities. "It's a unique opportunity to look at the 3PL industry from both sides, and to see if there are disconnects between providers and users," Lieb says.

And there are some disconnects. Although their relationships generally are mutually beneficial, shippers and 3PLs don't always see eye-to-eye on how things are going and what needs to be done. A comparison of the two studies shows that users and providers usually are on the same page, but have differing perspectives in some key areas.

Forty-eight (80 percent) of the respondents said they currently use third-party logistics services, a notable jump from the 38 percent recorded in the first survey in 1991. This year, respondents said they purchase 26 different services from their providers. As has been the case in past years, transportation and warehousing services were the most frequently cited. Less common were such services as order management, reverse logistics, and information technology. (See Figure 1.)

Only 40 percent said they rely on a single 3PL; the rest contract with multiple providers. That belies shippers' often-stated preference for "one-stop shopping," and some providers' claims that they can "do it all." Lieb and Bentz believe that contradiction stems from the fact that many U.S. manufacturers have become huge global players, and the scope and complexity of their outsourcing needs may exceed providers' capabilities. "The customers have become more global than the 3PLs," observes Bentz.

Respondents made it clear that 3PLs need to boost their global capabilities. Shippers typically prefer to use their current providers when entering new markets or expanding in existing ones. That's putting pressure on providers as the percentage of shippers using 3PLs in regions like India, China, and Eastern Europe continues to increase—depending on the region, by 33 to 61 percent since last year's survey. Now that many Eastern European countries have joined the European Union, that area will be a testing ground: Nearly one-third of the manufacturers said they would expand their operations in Eastern Europe, and almost all of them said 3PLs would be "important" or "very important" in supporting their logistics strategies there.

The 3PLs are well aware of this trend. Ten of the 23 CEO respondents ranked "increased pressure to internationalize service offerings" among the most important industry dynamics in their industry. "Providers should be developing market-entry strategies, identifying potential alliance partners and acquisition targets in China, India, and the expanded EU, and defining the appropriate service package to be offered in those markets," Lieb says.

Manufacturers' comments on the impact of using 3PLs were mixed. On the plus side, 70 percent reported a "positive" or "very positive" impact on logistics costs, a figure that's held fairly steady for the last four years. Similarly, 70 percent said that using 3PLs had a "positive" or "very positive" impact on logistics service levels. That's down from last year's record high 85 percent, but still on par with past years. More than half (55 percent) said 3PLs had a "positive" or "very positive" impact on customer service—again, down from last year (65 percent) but in the ballpark for the four-year period. Half praised the effects of 3PLs on supply chain integration, a sharp drop from 63 percent in 2003. The brightest spot was systems development/support, with a 45 percent "positive" impact. That's only 2 points above last year, but it's nearly double the number in 2002.

Looked at from another angle, those numbers are troubling. The percentage of users who said 3PLs had a "negative" or "very negative" impact on their companies increased in every category this year. For example, 40 percent said using 3PLs had a negative impact on employee morale—almost double the 22 percent recorded in 2003. Even systems development/support was in trouble, with a "negative" rating of 25 percent, up from 10 percent in 2003. Continued...

1 2 3 Next