CSCMP's Supply Chain Quarterly
December 16, 2018
Forward Thinking

Businesses still struggle to improve 3PL relationships despite increasing demand for outsourced services, study finds

A University of Tennessee report identifies three common complaints in outsourced logistics.

Despite strong growth over the decades in the adoption of third-party logistics (3PL) services, U.S. businesses still struggle to maximize the benefits of the outsourced relationship, a University of Tennessee study reveals.

Drawn from interviews with more than 60 executives, the study identified three common mistakes that companies admit they make when starting a relationship with a 3PL: First is their failure to conduct a thorough needs assessment before hiring a 3PL. Second is providing inaccurate information about themselves when they send out bids to find 3PL partners. The third error is omitting their top leaders from the 3PL selection process, leading to the lack of a businesswide strategy to support the new partnership.

The inefficient relationship between businesses and their 3PL partners comes despite strong growth in the sector. More than 80 percent of domestic Fortune 500 companies use 3PLs to outsource their logistics operations all or part of the time, according to a 2015 CapGemini study cited in the report.

"Today's 3PL is not your grandfather's 3PL," says Paul Dittmann, executive director of the Global Supply Chain Institute at UT's Haslam College of Business. Dittmann and co-author Kate Vitasek wrote the study, which was sponsored by Kenco, a Chattanooga, Tenn.-based 3PL.

"The scope of third-party logistics has widely increased, and expectations of them have accelerated, but that does not mean firms are using 3PLs to their full advantage," Dittmann said.

Possible solutions for these hurdles include improved clarity of expectations and a balance between accountability and independence, the study concluded. The best 3PL partnerships focus on outcomes instead of processes, and implement contracts that include incentives for the 3PL to meet its goals, according to the report

The report from the university's Global Supply Chain Institute is titled "Selecting and Managing a Third Party Logistics Provider."

Ben Ames is Editor at Large and a Senior Editor at Supply Chain Quarterly’s sister publication, DC Velocity.

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