- THE MAGAZINE
What prompts companies to turn to an integrated third-party logistics provider? According to a recent industry study sponsored by Saddle Creek Logistics Services, top business drivers include: controlling costs and reducing capital expenditures (53.8 percent), accommodating business fluctuations (19.8 percent), focusing on core competency (18.7 percent) and streamlining operations (17.6 percent). The report is based upon online survey responses from respondents who have influence over logistics functions at their companies and outsource some or all of their logistics services.
Controlling costs. The desire to better manage costs is the biggest motivator for outsourcing to a provider offering a broad range of logistics services. Respondents say the best opportunities for cost reduction come from transportation (46.2 percent), labor/training (33 percent), warehouse space (29.7 percent), and equipment (25.3 percent). An integrated provider also can help build to order instead of build to stock, allowing companies to reduce production and inventory carrying costs. Moving product customization closer to the end customer can help to shorten the cash-to-cash cycle.
Survey results indicate that the value of integrated logistics can extend even beyond the logistics function. In fact, 20.9 percent of respondents say their company is able to achieve total supply chain cost reductions by outsourcing to an integrated logistics provider.
It is worth noting that this subset of respondents tends to outsource a significantly wider variety of services than survey respondents as a whole – adding services such as customs brokerage, order fulfillment and contract manufacturing to more conventional choices like warehousing and transportation.
Greatest value. Integrated logistics outsourcing is especially effective when 3PLs expand beyond traditional services. Utilizing an experienced third-party provider for any business activity that isn’t officially supported in the manufacturing or retail environment can help to remove unnecessary links from the supply chain.
For example, an integrated 3PL might warehouse multiple SKUs for a customer, assemble them into holiday gift sets based on customer orders, build displays, source transportation, and ship them to retailers across the country.
More and more companies are discovering that this deeper integration can be the key to optimal logistics performance.