Price becomes tops in outsourcing logistics, supply-chain

By Ahmed ElAmin

- Last updated on GMT

Related tags Supply chain Supply chain management

A global study of logistics and supply chain executives finds that
for the first time in 10 years price has overtaken value-added
services as the most important attribute in selecting a third-party
logistics (3PL) provider.

However technology still remains an important requirement for executives when choosing a 3PL provider, according to the survey by Capgemini. Survey respondents identified the top three futurerequirements of IT-based services as being radio frequency identification, Internet-based transportation and logistics markets, and supplier management systems.

Third-party logistics, as a sector within the transportation industry, is growing exponentially as manufacturers try to cut supply chain costs, according to Food processorsand other industries contract 3PL providers to broker transportation and other supply chain management services. As such it is a form of outsourcing supply chain management so that the processor canconcentrate on in-plant operations.

Small businesses are more likely to use 3PL providers since they generally cannot meet the economies-of-scale that bigger businesses can achieve. All companies may turn to 3PL providers whenexpanding globally into countries in which they have no experience or units.

The annual Capgemini 3PL study, published this week, finds that for the first time in the 10-year history of the survey, price is more important than the value-added services providers offer.

"At the same time that 3PL users closely examine cost, they also are demanding more strategic offerings," Capgemini stated in its survey of 1,091 logistics and supply chainexecutives in North America, Western Europe and Latin America.

The report stresses the importance of the use of technology in the 3PL supply chain process to balance cost concerns and strategic needs. While 90 per cent of respondents agreed that IT capabilityis a necessary element of overall 3PL provider expertise, only 38 per cent are satisfied with their providers' capabilities.

The survey results suggest that as more firms progress further into outsourced logistics relationships, the complexity of these relationships necessitates the use of effective IT services for abroad spectrum of supply chain processes, stated Erik van Dort, Capgemini's global sector leader for distribution.

"In the current 3PL landscape, there is far too much diversity when it comes to processes and IT systems,"​ van Dort said. "There are good reasons for this-but withconsolidation ever-increasing, global coverage a must, and intense pressure to remain profitable-change is essential."

The survey responses also confirmed that the proficiency of a 3PL provider's core services was considered more important than the provider's ability to deliver value-added services during theselection of a provider.

This shift from frills to core services is a major change, likely driven by recent global consolidation that may have given the perception of weakened core services, van Dort stated.

The study confirms that the 3PL industry continues to evolve. Not only are 3PL providers and their capabilities ever-changing, but the expectations that user firms have of their 3PL providers andtheir services are becoming more strategic, the analyst found.

"3PL providers also need to move up the value chain to provide expertise in the area of supply chain management, beyond traditional asset-focused capabilities,"​ Capgeministated. "These enhancements will position 3PLs more effectively as LLPs that help customers to reduce supply chain complexity."

The study surveyed 1,091 logistics and supply chain executives. About half of responses (516) came from North America, and one-third (339) from Western Europe. A total of 144 responses came fromLatin America. Responses also were received from Asia-Pacific (53), South Africa (31), and the Middle East (8).

More than two-thirds of overall respondents came from the manufacturing sector, with significant responses from the automotive, chemical, consumer products, food and beverage, high tech andelectronics and pharmaceutical industries, Capgemini stated.

According to World Trade Magazine the 3PL market grew by about six per cent, to an estimated $80 billion in 2003.

Related topics Processing & packaging

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