Controlling Costs in Hard Times

In this time of economic downturn, third-party logistic providers can control and monitor costs, insuring a competitive edge for their customers.


They aren’t your father’s third-party logistics providers.

Today’s operators are bigger, more sophisticated and offer total supply chain visibility.

The outsourcing strategies that grocery distributors are relying on nowadays call for reducing costs, improving customer service levels, meeting cold storage needs and providing value-added services.

“Consolidation in the industry continues to be a key driver in the evolution of the third- party logistics (3PL) service sector,” says Jim Marcoly, vice president-client solutions, consumer packaged goods, food and beverage at Weber Distribution LLC, Los Angeles. “Mega-companies with mega-national infrastructure are bringing more and more diverse product offerings to the client in an attempt to capture more revenue.”

Stephen Dean, vice president of sales and marketing, Supply Chain Solutions, Ryder System Inc., Miami, says the top-tier 3PL providers are now offering supplier inbound control and transportation management, whereas the previous fulfillment model only operated within the four walls of the distribution center. This visibility includes in-transit tracking of item data and cold chain control via GPS, insuring product delivery and integrity of orders.

WHAT’S PROMPTING THESE CHANGES?

Evan Armstrong, president of Armstrong & Associates, Stoughton, WI, believes that 3PL market growth is driven by companies outsourcing logistics functions to concentrate on core competencies, the need for sophisticated supply chain information technology solutions and the ongoing globalization of trade and logistics.

“The underlying structural support of 3PL market growth being three to four times higher than the overall U.S. economic growth as measured by gross domestic product (GDP) continues,” says Armstrong. “Despite an ongoing recession in 2008, third-party logistics service provider revenues grew an estimated 5.5 percent to $128.7 billion. We project that U.S. 3PL revenues will reach $145.3 billion in 2010 after a difficult year (4.5 percent increase) in 2009 and an improving year (8.0 percent increase) in 2010.”

According to Matt Parrott, director of Northern Border Operations, A.N. Deringer Inc., St. Albans, VT, the largest change in the industry involves clients wanting many value added services, such as light manufacturing, client specific labeling, kitting or other such services. Whatever they may be, they are now expected.

“Many of the large retailers and even regular clients are putting more and more expectations on their suppliers prior to purchasing,” says Parrott. “From RFID tags to simply building pallets to certain specifications, customers are demanding shipments be delivered according to strict rules in order to gain efficiencies.”

PROFIT CENTERS WITH CAPABILITIES

Armstrong refers to 3PLs as profit centers that often have the human resources, information technology and engineering capabilities that very few shippers can match. Third-party logistics providers are very good at managing transportation, value-added warehousing and dedicated contract carriage operations; these functions should be considered for outsourcing, he adds.

“Therefore, we recommend outsourcing significant portions of your supply chain while maintaining command and control for strategic supply chain management within your company,” says Armstrong. “Every shipper should be its’ own lead logistics manager and monitor 3PL service levels and ongoing costs.”

Dean of Ryder System says third-party logistics providers offer state-of-the-art WMS and TMS solutions that would be prohibitive if purchased and operated by a single user. “In the transportation arena, a large 3PL usually has existing contracts within lanes used by multiple suppliers, further reducing costs to the outsourced wholesaler.”

By managing all aspects of logistics, Dean continues, the 3PL can control and monitor costs, insuring a competitive edge for its customer. By offering client companies order management with transportation management, the 3PL can manage inbound, including merging orders to reduce overall transportation costs.

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