Are You Sure It's Cheaper to Go Offshore?

June 14, 2011
3PLs are helping manufacturers better understand the total cost of their supply chains.

Manufacturers are good at making stuff, but not always that good at delivering the stuff they've made. That pretty much sums up why manufacturing companies use third-party logistics providers (3PLs) to manage some aspect of their supply chains. Historically, 3PLs have performed basic logistics tasks such as transportation, customs brokerage and warehousing, but as the economy shows some signs of recovery, manufacturers are looking to 3PLs for more specialized types of services.

"Despite a challenging environment, 3PLs have an opportunity to continue to mature and grow by offering an increasing number of value-added services for shippers," says John Langley, director of development at Penn State University's Center for Supply Chain Research. As Langley sees it, 3PLs can take at least some of the credit for helping manufacturers weather the recent economic storm. In recent years, for instance, many companies have turned to 3PLs to help them with sustainability initiatives.

Another area where manufacturers are increasingly looking for help from 3PLs is in calculating and reporting total landed cost (TLC), which consulting firm Capgemini defines as the sum of all costs associated with making and delivering products to the point where they produce revenue. "TLC enables companies to capture both the obvious and hidden costs associated with product movement, revealing the true cost of sourcing and logistics decisions," explains Dennis Wereldsma, global transportation sector lead with Capgemini.

Accuracy in calculating TLC can result in improved supply chain visibility as well as a better read on how well a company's products are performing in the marketplace. However, quite frankly, TLC reporting is a very complicated process, involving the collection of numerous pieces of information and then making sense of it all.

It's worth it, though, because getting a clearer picture of what everything costs, not just line item by line item, can result not only in substantial savings but even in entirely different supply chain strategies. In a recent 3PL study, Capgemini offers an example of a European manufacturer trying to identify the best opportunity for sourcing its product: China, Vietnam or another EU country. Looking only at the product cost, the lowest-cost country would be Vietnam. However, transportation costs would be somewhat cheaper coming from China, and substantially cheaper coming from across Europe. Then there's the matter of customs and duties, which would be significant coming from either Asian country but zero coming from the EU.

As manufacturers begin to seriously look into the viability of adopting near-shoring strategies -- bringing production work back closer to home -- they are finding that their 3PL partners can offer the expertise needed to get a better handle on managing their total supply chain costs.

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