Back in November, I conducted a series of think tanks at The Logistics & Supply Chain Forum, organized by Richmond Events, on maximizing the value of 3PL-customer relationships. Forty-three logistics and supply chain executives, from various manufacturing and retail companies, participated in these sessions. ARC also conducted a web survey, with the support of Richmond Events, on the same topic. More than 100 logistics and supply chain executives responded to the survey. Next month, we will publish a report for ARC clients highlighting the key findings from the think tank sessions and the survey results. I also plan to present the findings at our seminar next month on Performance-based Outsourcing (aka “Vested Outsourcing”).
I’m not going to steal the thunder of the report or my presentation here today. Instead, I’m going to focus on an area I didn’t address in the report: the reasons why some companies are not working with third party logistics providers.
Of the 102 survey respondents, 23 percent were currently not working with a 3PL. The chart below shows some of the reasons why.
The sample size is not big enough to draw statistically-significant conclusions, but the data is informative nonetheless. The reasons companies aren’t outsourcing their logistics operations to 3PLs boil down into two high-level categories:
- Companies believe that they can do a better job than 3PLs in terms of cost, quality, and service
- Companies have not explored the outsourcing option
The latter point accounts for almost half of the “Other” responses, which includes “We have yet to investigate,” “We haven’t reviewed the option,” and “We haven’t spent the time to investigate 3PL benefits.”
This finding represents both an opportunity and a threat to the 3PL industry. In many cases, if companies explore the outsourcing option, and if 3PLs can present them with a compelling and differentiated value proposition, they may decide to outsource. However, the fact that some existing 3PL customers are re-evaluating their outsourcing decision and opting to bring their logistics operations back in-house should be an area of concern for 3PLs. I first wrote about this trend in 2008, and although in-sourcing is still the exception, it isn’t going away either (see “Is Logistics Outsourcing Still a One-Way Street?”).
There’s also the question of what supply chain and logistics processes companies are willing to outsource. I didn’t explore this topic in the think tanks or the survey, but I as I wrote about a few months ago in “Drawing the Line on Logistics Outsourcing,” despite the efforts of logistics service providers to move up the value chain and become strategic partners, customers continue to draw the line between transactional/tactical activities and strategic responsibilities.
What are your thoughts on this whole topic? Post a comment and share your viewpoint. Better yet, join us in Orlando February 9-11 at our PBO seminar. Visit the website for the current agenda and registration information. Space is still available, but the slots are filling fast.