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The power of relationships
For many organizations, successful supply chain operations depend on there being strong and positive relationships between shippers and their third-party logistics providers (3PLs). Those partnerships are crucial for enabling the supply chain to improve service and innovation. Shippers and 3PLs alike should be heartened then by the overall results of the 2018 22nd Annual Third-Party Logistics Study, which show that these relationships are indeed strong.
The Annual Third-Party Logistics Study is produced by Infosys Consulting, Penn State University, Korn/Ferry International, and Penske Logistics. It examines the global marketplace for logistics outsourcing, surveying both shippers and third-party logistics providers.
[Figure 1] Information technology (IT) outsourcing services Enlarge this image
The survey found that shippers are relying on their 3PL partners for a broad range of logistics and supply chain services. The most frequently outsourced activities are domestic transportation (83 percent), warehousing (66 percent), international transportation (63 percent), customs brokerage (46 percent), and freight forwarding (46 percent).
Less frequently outsourced activities continue to be those that are more strategic and customer-facing. Examples include: service-parts logistics (18 percent), inventory management (17 percent), supply chain consulting services (15 percent), customer service (11 percent), lead logistics provider/4PL services (11 percent), and fleet management (10 percent).
In general, both shippers and 3PLs said they are satisfied with the quality of the services being provided. Among respondents of the 2018 study, 81 percent of shippers and 98 percent of 3PL providers agreed that the use of 3PLs has contributed to improving services to the ultimate (or end) customers. In addition, 73 percent of 3PL users and 92 percent of 3PL providers agreed that 3PLs provide new and innovative ways to improve logistics effectiveness.
Opportunities for improvement
There still remain, however, many opportunities for both 3PLs and shippers to improve on these relationships. For example, achieving effective and efficient relationships requires open and transparent communication between 3PLs and shippers. In the study, 98 percent of shippers and 99 percent of 3PLs agreed that there is an increased need for 3PLs to respond to customers more quickly and with complete, accurate, and consistent information. Both parties also agreed there is a need for improvement, with just over half of shippers—51 percent—and half of 3PLs reporting that 3PLs communicate well in responding to risks and executing operating objectives.
This need for complete, accurate, and consistent information means that the importance of data continues to increase. Both shippers and 3PLs can experience a range of consequences when information at the shipper-3PL interface is not complete, accurate, or consistent. These consequences include creating frustration at the organization (74 percent of shippers and 68 percent of 3PLs) and project delays or cancelation (54 percent of shippers and 51 percent of 3PLs).
Given the importance of collecting, centralizing, and analyzing information, an increasing number of shippers, 27 percent, said they were utilizing information technology (IT) outsourcing services from 3PLs, up from 17 percent in the 2017 study. However, the percentage of shippers satisfied by 3PL IT outsourcing dropped to 56 percent in 2018, down from 65 percent in 2017. (See Figure 1.) C. John Langley, a professor at Penn State University and the founder of the report, said this could be due to higher expectations among shippers as technology continues to make gains. Shippers could also be looking for enhanced analytical capabilities to help drive more effective supply chain decisions, he said.
Indeed, there is increasing interest among 3PLs and shippers in big data analytics. According to the survey, 41 percent of 3PLs are currently use big data analytics, compared to 25 percent of shippers. However, 67 percent of 3PLs and 69 percent of shippers said they will invest in big data analytics in the future.
The future in tech
Big data analytics is not the only technology that 3PLs and users are interested in. The majority of respondents—70 percent of shippers and 77 percent of 3PLs—reported that they are currently using core supply chain technology, such as transportation and warehouse management systems, and 68 percent of shippers and 64 percent of 3PLs reported that they plan to invest in the technology in the future.
Those within the supply chain are also adapting to emerging technologies, such as blockchain, which breaks each movement down into a block and documents transactions every time a shipment changes hands. Among respondents, 30 percent of 3PLs and 16 percent of shippers said they view blockchain as potential application. Automation solutions and equipment are also generating a great deal of interest. The survey shows that 62 percent of 3PLs and 57 percent of shippers investing in automation/digitization.
Third-party logistics providers that take the opportunity to be early adopters of emerging technologies could gain a significant competitive advantage from this expertise. For example, more than half of shippers (67 percent) and 3PLs (62 percent) said they don't know enough about blockchain to be able to fairly rate its potential future benefits to their business. Those that seize the opportunity now could benefit from a head start.
Technology is also reframing the demands on the workforce. Companies are increasingly looking for supply chain employees who have experience with automation, digitization, and data collection. The 2018 study found that workforce innovation and agility, which would allow those within the supply chain to create and redefine positions as the industry changes, will be particularly important for the 3PL industry as the industry changes. These needs will not be limited to entry-level employees or mid-level managers. Supply chain and logistics executives will need to increasingly shift from being focused on the supply chain's physical efficiency to being focused on its data efficiency.
The 2019 study, which will be released in October 2018, will take a deeper dive into several of these subject areas. Researchers talked with shippers and 3PLs about the need to keep the supply chain relevant, effective, and nimble, which is taking on greater significance given the increasing level of complexity within the supply chain. This is particularly relevant as retailers and manufacturing locations work to keep inventories low, respond to faster shipping demands, and react to changes in demand patterns within the global economy.
For example, the last mile, which generally refers to the final segment of a delivery process, has taken on enhanced significance with the growth in e-commerce and omnichannel distribution. As part of this year's upcoming study, researchers have taken the last-mile concept one step further to look at the "last yard," which is what happens to a shipment once it is delivered to a customer or consumer and how it is routed to the specific location where it may be needed or used. Last-yard logistics can be chaotic, but seamless execution is needed to drive customer service.
The 2019 survey will also look at how retailers are continuing to emphasize an "always-on, always-open" shopping experience that provides seamless interaction across all retail sales channels. Omnichannel retailing is forcing shippers and their logistics partners to be fluid and move quickly. The 3PL study last asked those within the supply chain about omnichannel retailing in 2015. This year's responses demonstrate that many shippers and 3PLs are still struggling to create a true, omnichannel retailing experience.
The 2019 study is also revisiting the topic of supply chain disruption, which it last visited in 2013. Supply chain disruptions are a major area of concern because they can result in increased costs, missed deliveries, and downed production lines. The 2019 Annual Third-Party Logistics Study is expected to show that shippers and 3PLs are placing greater importance on mitigating supply chain disruption.
The final version of the study will be presented during the CSCMP EDGE Conference in Nashville, Tennessee, on October 1, at 10:30 a.m.
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