Third party logistics (3Pl) emerges as a key industry that supports and elevates the core competencies of shippers in their supply chain management using the best innovations of technology.
The market size of the third party logistics (3PL) was $695.78 billion in 2013 and it is expected to reach $925.31 billion by 2020 at CAGR of 4.2 percent. Deployment of latest technology innovation, particularly cloud-based logistics solutions, is most likely to support market growth. Increased convergence on core competencies by outsourcing secondary business activities such as logistics is expected to drive the 3PL market over the forecast period.
Using 3PL enables companies to enhance their customer service offerings because they can use the international distribution networks and insider knowledge of importing and exporting that have been established by the 3PL.
The underlying message is that shippers increasingly believe that these process improvements are not sufficient to drive their supply chains. Innovation needs to be more significant, and 3PLs and shippers need to work on game-changing innovations to compete in today’s environment.
“All of my 3PLs can innovate. This is part of the selection of partners,” says Johan Jemdahl, Vice President, Supply Chain Operations EMEA, Cisco Systems. “But it’s about disruptive innovation and how providers can help us change the game to improve our supply chain.”
It is important to note here the role of Big Data and how it has emerged as a critical opportunity for improvement for shippers and 3PLs. But is the path towards Big Data a mature rollout of last decade’s technology (web applications and EDI), or in fact a disruptive innovation opportunity for 3PLs? Initial indications indeed show that Big Data is not a linear extension of the data paradigms of the 2000s, but what makes Big Data so… big?
Consider, for example, the rapid growth of available data along these lines like variety, where more objects are being measured; frequency, in which the same object (such as a shipment) is logged more times during its life cycle; breadth, where a single record contains more specific information points; accessibility, where data is more standardized and more easily accessed by trading partners and finally accuracy which provides more data standardization due to “key once, share often,” increasing data quality. These factors just demonstrate how the perception of the supply chain is growing, and as a consequence, supply chain leaders are often drowning in data. Converting the data into business value is the heart of the challenge, and a driver for expanded 3PL relationships.
Shippers feel strongly that information technology capabilities are at the core of a 3PL’s ability to provide value. Shippers want 3PLs to offer comprehensive and easily integrated solutions. Yet there is noticeable difference between shippers’ satisfaction with basic IT services and 3PLs’ ratings of their own capabilities, such as for IT operations, applications, integration and staffing. This is an indication of the significant opportunity for 3PLs to improve their technical relationships with shippers. And in fact, a major portion of shippers want to develop a strategic technical relationship with their 3PLs.
Infeasibility in managing geographically dispersed supply chain operations as a result of increased globalization has led to several companies outsourcing their logistics function. Emerging trends such as Big Data and availability of industry-tailored 3PL services are expected to drive the market over the forecast period. Lack of internal control for addressing logistical challenges has led to increased outsourcing by wholesalers and retailers, thereby providing a fillip to the 3PL industry.
Smaller companies might not benefit from using a 3PL because their logistics structure might not be large enough to justify the commissions that the 3PL will charge to take over planning and managing the functions. However, many major companies, such as IBM, use 3PLs for their logistics functions.
With an eye on further expansion of its e-commerce business and related reverse logistics processes, transportation and logistics bellwether FedEx in December last year acquired Pittsburgh-based GENCO specializing in product lifecycle and reverse logistics. “The acquisition of GENCO will transform our global portfolio through the addition of new best in class supply chain management services,” said Frederick W. Smith, Chairman and CEO of FedEx in a statement. “As e-commerce continues to grow, customers of both companies will reap the benefits from the broadened capabilities and powerful new services.
The IT gap appears to have stabilized over the last few years, with many of them on the view that IT is a necessary element of 3PL capability. However, there is a substantial portion of shippers who think that they are currently satisfied with 3PL IT capabilities. Supply chain innovation is a critical driver of growth, differentiation, and profitability, but as the logistics industry matures and markets become more global, innovation in this industry is becoming more challenging. The solution lies in evolving toward fundamental changes in 3PL-shipper relationships. Until recently, 3PLs could demonstrate innovation by introducing process improvements, adding technology, improving execution, or offering new services. But shippers no longer see these as truly innovative, instead seeking disruptive innovation: a new product or service idea that when implemented significantly disrupts a market and/or value chain by simplifying, automating, generating value, or reducing costs.