Build or buy your own 3PL (page 2)

-- Logistics Management, 4/1/2005

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Sumitrans will operate ServiceCraft as a stand-alone subsidiary, but the companies will integrate their services. The acquisition will allow Sumitrans to gain warehousing and transportation expertise, while ServiceCraft will expand to include ocean services. "Our growth strategy is to offer these combined services so our customers will have a powerful, 'one-stop shopping' experience by tapping into the vast resources of Sumitomo Corporation's global network," Muhich says.

The other company that recently bought a 3PL is grocery chain Supervalu, which acquired Total Logistics Inc. of Milwaukee for a reported $233 million. Supervalu executives declined a request for comment, but many industry observers have thoughts on the company's motives. Jack Horst, principal at consultants Kurt Salmon Associates in Princeton, N.J., believes Supervalu will quickly gain more distribution capacity while expanding its capabilities in attractive geographic areas. Jack Ampuja, president and CEO of Supply Chain Optimizers in Buffalo, N.Y., thinks the grocer wanted to quickly acquire the capabilities it didn't have in-house. "It's not a new game for them because they operate lots of warehouses and trucking fleets," he says. "It reconfirms the fact that they are looking for more logistics expertise."

Although the acquisition has some obvious benefits, there is a potential downside. Ampuja, for one, wonders if Supervalu's suppliers might see the deal as creating a conflict of interest. "If I were Sara Lee, and Total Logistics is my major 3PL provider and Supervalu is my biggest customer, do I really want my biggest customer to [also] be my 3PL provider?" he asks.

The Changing 3PL Landscape

There's no single reason why some shippers want their own 3PL subsidiaries, say those who closely follow developments in logistics outsourcing.

"It could be a symptom that the commercial marketplace is not providing the kinds of services and value these companies need," suggests Dr. C. John Langley, professor of supply chain management at Georgia Institute of Technology in Atlanta.

Some shippers have, in fact, begun to take back some of the functions they once outsourced to 3PLs, mainly because performance expectations were not being met, agrees Richard Lancioni, professor of marketing and logistics at Temple University in Philadelphia.

In other cases, shippers see the chance to make some extra money. "They think they are pretty good at providing value-added warehousing services for themselves, so why not do it for others?" says Richard Armstrong of Armstrong & Associates in Stoughton, Wis.

In one case, the decision rested on a need to overcome internal roadblocks to achieving supply chain excellence. Foster Finley, a director at AlixPartners in New York City, cites the example of a retailer that can't develop logistics into a core competency within its existing corporate structure. "It recognizes it has a horribly inefficient supply chain and is giving earnest consideration to creating a new 3PL subsidiary," he says.

Some shipper spin-offs have been quite successful: Caterpillar Logistics operates more than 20 million square feet of warehouse space, ships over 16 billion pounds of freight annually, and reports compound annual growth of 25 percent. Access Logistics, with revenues exceeding $100 million, has seen a 35 percent increase in business in the last year.

Their secret may lie in their customer profile. "The guys who have been successful are the ones in the verticals they can exploit," says Armstrong. Adds Finley: "Most every industry has some unique dynamics that impact the overall performance of the supply chain. So a retailer that understands those dynamics might be a more effective [3PL] because they are solving the problem from an industry perspective rather than from a logistics perspective." Continued...

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