Build or buy your own 3PL (page 3)

-- Logistics Management, 4/1/2005

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Yet some shipper spin-offs that fit that profile, such as JCPenney Logistics, have failed to make a go of it. "Things look a lot easier than they really are, but the more you understand, the more complicated you see it is," notes Dr. Robert C. Lieb, professor of supply chain management at Northeastern University in Boston. "One reason people fail is that they underestimate how difficult it is to deliver the kind of service levels they would like to deliver and still compete in a highly competitive marketplace."

Even KLS founder Goldsmith cautions against starting or buying a 3PL. "If you think you need to start or buy a 3PL subsidiary, let me introduce you to five competitors out there who do what you do twice as well as you can—at half the cost because they are managing way tighter than you could ever manage," he says. "Then tell me why you wouldn't hire those guys instead of buying your own competitive business."

Given those challenges, industry pundits foresee most companies continuing to rely on commercial 3PLs for their logistics requirements. At the same time, they expect more shippers will establish or buy 3PLs—when and if it makes sense, in terms of both cost and service quality. But they're not anticipating the 3PL equivalent of a gold rush. Says Rick Maicki, principal at consulting firm A.T. Kearney in Chicago: "It's really not been a rapid transformation. This is more an evolutionary than a revolutionary development."

Shipper Spin-Offs
The following are some examples of shippers that have spun off their own third-party logistics (3PL) subsidiaries.

3PL	Parent Company	Specialty	Website
Access Logistics	Alticor (Amway)	Personal and home-care products	www.accessbusinessgroup.com
ATC Logistics & Electronics	Aftermarket Technology Corp.	Electronics	www.atcle.com
Caterpillar Logistics Services	Caterpillar Inc.	Parts distribution	www.catlogistics.com
IM-Logistics	Ingram Micro Inc.	Computers, consumer electronics	www.imlogistics.com
KLS Logistics Services	Kaiser Aluminum & Chemical Corp.	Transportation management	www.klslogistics.com
Limited Logistics Services	The Limited Inc.	Serves Limited subsidiaries, suppliers	www.limited-logistics.com
OMSolutions	Owens and Minor	Healthcare	www.owens-minor.com
R.R. Donnelly Logistics	R.R. Donnelly	Printing, publishing	www.rrdonnelly.com
Sears Logistics Services	Sears	Serves Sears only	www.slslogistics.com
Vector SCM	General Motors and CNF	Automotive	www.vector.menloworldwide.com

Author Information

April Terreri is a freelance writer who frequently covers logistics practices.

Will Wal-Mart launch its own 3PL?

Wal-Mart has a reputation for doing things its own way. That's led to some speculation that the world's largest retailer may want to launch its own 3PL subsidiary. Attempts to reach Wal-Mart officials were unsuccessful, but experts on contract logistics offered their thoughts on the subject.

If Wal-Mart were to create its own 3PL subsidiary, it might focus on managing vendor relationships. "They could tie together not only their vendors, but also vendors of other retailers, and provide services for other retailers as well," says Dr. Robert Lieb, professor of supply chain management at Northeastern University.

The retail giant could serve in a "4PL" capacity, managing the 3PLs it uses, says Brooks Bentz, associate partner at Accenture. Or it could spin off its logistics organization as a traditional 3PL. "It would make sense for them to do it because they already run an enormous private-fleet operation and a huge DC network," he says.

The biggest players do often win in competition, says Foster Finley, director at AlixPartners LLC. "But I am of a mind that Wal-Mart already has passed that critical inflection point of amortizing assets in a fixed infrastructure, and they are on that part of the curve where incremental volume is good—but it is not a deal breaker," he says. "If they go out in the [3PL] market, it gives competitors access to a more efficient system, thereby leveling the playing field."

But would competitors be willing to contract with a Wal-Mart subsidiary? Rick Maicki, principal at consultants A.T. Kearney in Chicago, doubts it. "I think that would be something that would challenge the relationship a lot of companies have with Wal-Mart," he says. "Wal-Mart has a very strong logistics background and well-defined systems in place. I guess the fear might be the dynamics of having them be a service provider for you, in terms of how you go forward with them and how much leverage you would have in that relationship." —April Terreri

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