New 3PL Study: The State of Logistics Outsourcing

In the 2015 19th Annual Third Party Logistics Study, survey results showed the continuing, positive overall nature of shipper-3PL relationships. Both parties view themselves as being successful, and shippers are seeing positive results again this year: an average logistics cost reduction of 9% an average inventory cost reduction of 5% and an average fixed logistics cost reduction of 15%.

In addition to seeing cost reductions, shippers said they’ve seen average improvements in their order fill rate and order accuracy. The 2015 3PL Study showed that 73% of those who use logistics services and 77% of 3PL providers are satisfied that they have received open, transparent and effective communication from their partners. A distinct majority—92%—of shippers report that their relationships with 3PLs generally have been successful. Among 3PLs, 98% say their relationships with shippers have been successful.

While there are more positive business environments in certain geographies, industry verticals and niche types of services, the global logistics industry is one that does have its challenges.

Similar to last year, several ongoing factors are impacting progress toward the advanced end of the maturity model for shipper-3PL relationships. The generally less-than-exciting levels of global economic activity are driving highly variable and sometimes sluggish or neutral demand for outsourced logistics services. Shippers report an average of 36% of their total logistics expenditures are related to outsourcing compared to an average of 44% reported last year.

Again with this year’s study, the most frequently outsourced activities tend to be those that are more transactional, operational and repetitive. Activities that are strategic, IT-intensive and customer facing tend to be outsourced to a lesser extent.

However, there is some indication that those activities, particularly the provision of capable IT services, can be a key element in the value proposition in shipper-3PL relationships. The results from this year’s study again confirm that the IT gap continues to narrow to some extent.

The New Landscape of Omni-Channel Retailing

Today’s consumers are looking for always-on, always-open shopping opportunities, and retailers are investing in technology, supply chain resources and fulfillment strategies that will provide a seamless experience across all retail sales channels. While retailers understand the importance of the omni-channel network, this year’s survey shows that omni-channel supply chains are still maturing. Nearly one-third of the respondents participating in the study said they are not prepared to handle omni-channel retailing and only 2% of respondents rated themselves as high performing in the omni-channel space.

About half of respondents said they are not testing new fulfillment strategies. However, several are either already investing in or considering home delivery from local stores (16%), Sunday delivery (15%), customer delivery in which an in-store shopper delivers goods (12%) and locker pickup (11%).

Since retailers are increasingly dependent on technology for real-time visibility into operations, they are gradually moving all of their platform-based solutions to the cloud. They are also using integrated technologies to improve the omni-channel network. Respondents are investing in warehouse management systems (58%), enterprise resource planning software (54%), transportation management systems (54%), supply chain visibility (43%), warehouse management system add-ons (33%) and RFID (21%). Respondents also said they are investing in technologies that allow them to personalize and customize the shopping experience, such as mobile apps (33%).

By obtaining and transmitting information more efficiently and in new ways, retailers are able to better meet customers’ needs and offer more fulfillment options, further improving their customer service, which is a priority. About one-third of respondents—32%—listed customer service as the top reason they are investing in omni-channel fulfillment; 23% cited service levels; 11% listed freight costs.

Strategic Workforce Management Throughout the Supply Chain

Strategic workforce management will be particularly important for the 3PL industry as it is expected to face a shortage of talent. Nearly 50% of respondents said they are already having difficulty in finding or attracting talent, and the average hiring growth rate within the supply chain industry is expected to be higher than the average growth rate across other occupations. Estimates show that 60 million people will exit the industry by 2015, but there are only 40 million people to fill the gap.

Existing positions within the supply chain industry are changing rapidly. By 2015, three out of four jobs within the industry are expected to change. Furthermore, the dynamics of supply chain professionals are changing. In the future, only having hard skills in operations management will not be sufficient. Instead, there will be a mix of both soft and hard skills involving leadership qualities and cross-functional competencies that will shape the industry.

Logistics providers face competition for employees. Not only do they compete with other 3PLs, they also compete with manufacturers, retailers and consulting firms. Many managers in leadership roles leave large 3PLs for better opportunities in other industries.

Without strategic workforce planning, companies may struggle to grow. The return on investment from strategic workforce management is substantial, contributing to a boost in morale, increased productivity, increased discretionary effort, lower turnover and higher customer satisfaction.

One study found that a one standard deviation increase in investment in aligning and integrating human resources practices is associated with a 7.5% decrease in employee turnover and, on a per employee basis, $27,044 more in sales, $18,641 more in market value and $3,814 more in profit.

Download the report to read more about:

  • Customer Relationship Management and Use of Mobile and Cloud Technologies in 3PL Sales Processes
  • Mexico Rising as Manufacturing and Logistics Hub
  • Evolution of the 3PL Business Model: New Competition
  • Supply Chain Risk Management
  • The Intensifying Truck Driver Shortage
  • Working Corporate Social Responsibility Into the Supply Chain

Download the full report here>>