Outsourcing Logistics
Scope Needed for Global Supply Chains
The largest third party logistics firms are likely to benefit from trends identified in recent research released by Dr. Robert Lieb, Professor of Supply Chain Management, Northeastern University in Boston. Simply put, as shippers increasingly outsource a growing range of services within an expanded geography, they will need 3PLs that offer more scope.
As more companies do business internationally and require global supply chains, they will require a 3PL that will serve as an LLP and take charge of a larger segment of the supply chain. This is supported by Dr. Lieb’s study in which he found that the number of shippers that use more than one 3PL has increased from 40 percent in 1998 to 63 percent in 2001, indicating that the demands of shippers are now too large for one 3PL to handle.
There are measurable benefits provided by those 3PLs who are creating a global footprint. First, by providing more integration and visibility within the supply chain, a global 3PL can achieve important cost efficiencies and service improvements from an otherwise segmented supply chain divided among multiple partners. Until now, it has only been logistics players with strong operational expertise in regional market segments that effectively played the role of LLP. Non-asset players with little operational expertise have a very difficult time demonstrating their added value to the business.
In addition to operational expertise, the key to developing a congruent set of logistics services vital to cross-border use is the technology that supports specific supply-chain applications on a global basis. As global 3PLs develop these applications, they virtually become ‘de facto’ standards for global requirements. When these applications are shared between business units (and trading partners), the benefits to customers are cost reductions and increased value as the functionality of these applications meet more needs across wider geographies. In other words, 3PLs have the best opportunity to offer a continuous flow of information with a high degree of in-transit visibility. Also, start-up costs are virtually negligible as applications have been tested and proved over previous customer bases.
With global 3PLs focusing on the entire supply chain and not just the gains from the delivery of efficient warehousing and transportation, dramatic customer service improvements can be realized. These can include working capital reductions and reduced order-to-cash cycle times. The importance of threading consistent applications through a supply chain becomes even more critical as the supply chain expands across geographies that require different tariffs, duties and restrictions. Too often, companies have had to spend money to upgrade multiple systems within their organizations. Custom brokerage may use one system while airfreight uses another. The problem is magnified when logistics participants attempt to communicate with their suppliers’ systems. But with one global 3PL, the applications are integrated to provide seamless transactions throughout the supply chain as transportation and warehouse management systems operate on a common platform across geographies. The immediate result for companies is a cost reduction in their technology implementation regardless of their level of sophistication. Global 3PLs have become the important integrators reaching up or down to connect with a customer’s technology.
| “Globalization has created the need for truly comprehensive supply-chain solutions.” | ||
More importantly, globalization and the transformation of border processes have created a new environment of data rich, hyper-competitive processes. Companies, particularly in the automobile and electronic sectors, are realizing that just producing an excellent product is no longer the key to success. It is equally important that the product be in the right place when needed and competitively priced, with price influenced heavily by global supply chain economies.
As companies focus on core competencies, they realize that one of the primary drivers for succeeding in a hyper-competitive environment is supply-chain performance. By focusing on certain sectors, global 3PLs are meeting the demands of these companies by being able to respond to requests anywhere in the world with a set of proven logistic services. Their ability to leverage current knowledge on country-specific trade and regulatory content, as well as proven operational infrastructure, gives them first-mover value. The time required to develop and integrate strategy is eliminated, thereby producing returns more quickly. Obviously, not all solutions are template driven, but in many industries where global 3PLs have expertise there is no need to start from scratch.
Globalization has created the need for truly comprehensive supply-chain solutions – those that reach from Asia to America and from Bologna to Brazil. But more importantly, in order to be truly effective, these supply chains must deliver value. To that end, shippers in the international marketplace are finding that a global 3PL with competitive service offerings is not a commodity, but is instead vital to boosting their cost savings, enhancing their cash flow, and improving servicing levels in getting their products to market.