Logistics, Warehousing & Distribution

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Supply Chain Outsourcing, a Logical Decision

30 Jun, 2004

By: Joel Hoiland

In the recently concluded Presidential election, outsourcing, or rather off-shoring, was a major campaign issue. The loss of massive amounts of white-collar jobs to overseas destinations in India and China has ignited a fierce political debate that is likely to continue.

Outsourcing of logistics functions is growing rapidly as well, but there’s little debate over its value or political correctness. As supply chains and their business processes continue to disperse, manufacturers and retailers are increasingly dependent on external partners such as third-party logistics (3PL) providers for success. Approximately 8 percent of the FORTUNE 500 currently outsource supply chain functions to logistics companies – twice the percentage of 10 years ago – and every indication is that this trend will accelerate.

In fact, an IWLA poll of 3PL providers earlier this year found that more than one-third expected double-digit revenue gains in 2004. Another 35 percent expected increases of between 5 percent and 10 percent.

Logistics industry revenue totaled $936 billion in 2003, the latest year for which statistics are available. Of that total, $593 billion is transportation, $300 billion is warehousing and carrying costs, and $43 billion is industry-related services (profit sharing, information technology, etc.)
What does a 3PL company look like? While most firms in the 3PL industry aren’t household names, they are a vital cog in the global economy. While they don’t manufacturer the finished product or sell it to the end user, logistics companies make sure the manufacturer has the raw materials it needs and that the store’s shelves stay stocked in a timely manner.

The modern logistics operation consists of state-of-the-art facilities operated by skilled professionals. The warehouses hold everything from computer chips to soybeans in sanitary conditions that are safeguarded by the latest security measures. Sophisticated computer systems track inventory, ensuring just-in-time delivery.

This is a far cry from the old days, when most logistics companies were basically warehouses that stored excess inventory until it was needed. Today, logistics is the process of strategically managing the movement and storage of materials or products and related information from any point in the manufacturing process through consumer fulfillment. It includes packaging companies, suppliers to the industry, transportation brokers, rail, consultants, steam ships, air, ocean vessels, small package shipment, site management, fulfillment companies, warehouses, ports, motor carriers, contract companies, intermodal companies, packaging companies.

But it has progressed even further. Today’s logistics firms are continually looking to provide value-added capabilities that differentiate themselves from the competition and make themselves more indispensable to their customers. They focus on key objectives, such as implementing information technologies, instituting effective management processes, integrating services and technologies and delivering comprehensive solutions that create value for 3PL users and their supply chains.

Overall, logistics executives see solid growth of 20 percent or more occurring in the following warehouse services categories:

  • Cross docking

  • Distribution warehousing

  • Food-grade warehousing

  • Fulfillment/catalog warehousing

  • Reverse logistics

  • Temperature-controlled warehousing

  • Overflow warehousing

On the value-added front, the IWLA survey identified seven areas where 3PL executives expect to see growth of 20 percent or more:

  • Assembly

  • Customization

  • Inventory control/vendor management

  • Labeling

  • Lot control

  • Packaging

  • Pick/pack

Survey respondents also predict strong, double-digit growth in light manufacturing, call centers, kitting, pool distribution and returnable container management.

Opportunities also abound in transportation services. Almost 30 percent of respondents predict strong growth in brokerage operations, while one-third point to huge opportunities in just-in-time services.

3PL providers add to the bottom line of both the retailer and the manufacturer through accurate, well-managed inventory and supply chain solutions. 3PLs offer expertise that manufacturers, distributors and shippers can tap into, allowing users to achieve supply chain solutions with and for their customers that minimize total delivered costs. This has made the outsourcing of logistics functions extremely popular.

IWLA: WORKING TO SUPPORT ITS MEMBERS

IWLA defines the standards of excellence in warehousing and logistics outsourcing and promotes the growth and success of logistics companies. It provides its more than 500 member companies with resources, information and educational programs designed to advance their businesses and provide greater value to their customers. Collectively, the Association is the largest shipper of products in North America, with over three trillion pounds shipped annually.

In addition, our membership operates more than 400 million square feet of public and contract warehouse space ranging in size from 10,000-quare-foot, single-city warehouses to international logistics companies with more than 50 million square feet of warehouse space and fleets of trucks and ships. IWLA members employ nearly 500,000 people worldwide and are a vital and growing component of the overall logistics industry. For more information about IWLA and logistics outsourcing, visit the association website at www.iwla.com.

 

About the Author

Joel Hoiland

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