The idea behind third-party logistics providers (3PLs) is as basic as wanting to have somebody else do the work for you. Rather than employing and managing a staff of transportation or distribution workers, many manufacturers turn at least a portion of their key logistics tasks to an outside firm that specializes in logistics services. It's all a part of the "core competency" strategy that has manufacturers concentrating on developing and making their products, and then letting an outside firm direct exactly how those products will get to the customer.
Going the 3PL route has become an increasingly popular strategy, as the domestic market for 3PLs has more than doubled since 2000, from $56.6 billion in 2000 to $113.6 billion in 2006, according to supply chain consulting firm Armstrong & Associates Inc. Of that amount, fully one-third is spent by the automotive industry; in fact, General Motors and DaimlerChrysler both employ at least 30 3PLs.
U.S. 3PL Market 1996 To 2006 ($ Billions)
|EGL Eagle Global Logistics||www.eaglegl.com|
|J.B. Hunt Dedicated||www.jbhunt.com|
|Kenco Logistics Services||www.kencogroup.com|
|Kuehne + Nagel||www.kn-portal.com|
|Pacer Global Logistics||www.pacerglobal.com|
|UPS Supply Chain Solutions||www.ups-scs.com|
Armstrong & Associates has calculated that 80% of all North American companies and at least 70% in other industrial areas of the world use a 3PL for at least one logistics task. The global 3PL market as a whole stands at $391 billion.
The main reason why manufacturers use a 3PL is to avoid the costs of expanding their distribution systems, according to a survey conducted by market research firm Eyefortransport. Other prevalent reasons for adopting a 3PL are to coordinate warehousing, manufacturing and inventory management; to remain competitive with transportation and distribution capabilities; to accommodate frequent shifts in customer demand; and to avoid losing money and customers due to late shipments.
Among manufacturing companies, high-tech/electronics companies are seen as the sector with the most growth potential for 3PL activity, says Eyefortransport, followed by industrial products manufacturers, consumer packaged goods makers and pharmaceutical/health care companies, respectively.