Know When to Say When

Timing is key to successful outsourcing in logistics.


Just ask BI-LO and Bruno's Super'markets, based in Mauldin, SC. Both chains were sold off recently by Royal Ahold to Lone Star Funds, Dallas, and, as part of the reorganization that followed, the chains transferred ownership of three warehouses and all their distribution and replenishment functions to 3PL C&S Wholesale Grocers, Keene, NH.

"After a careful and comprehensive analysis of our business performance and future prospects, we have developed a plan that is designed to make our company more efficient by reducing costs and more responsive by simplifying the way we do business," explains Dean Cohagan, president and CEO of BI-LO and Bruno's. "The plan is also aimed at focusing our efforts and resources more sharply on what we do best—operating great supermarkets and providing exceptional customer service."

Outsourcing its supply chain functions, he says, "will enable our business to focus our efforts on our core retailing activities and allow us to free up capital to reinvest in store development and systems."

But, whether the changes are minor or major, they have led to another trend that is emerging in the 3PL arena—companies bringing on a 3PL for a much shorter term. Previously, most 3PLs required long-term contracts, but now, many more are signing on for the short haul. Nebraska Warehouse's Meyers, for ex'ample, sees "a lot of companies that go back and forth" between outsourced logistics and running them in house. "They have a management change, huge employee turnover or other economic impacts, and need someone just to get them through the transition," he says.

Adds Forte's Tyng, the decision to outsource often depends on the level of changes being made. "If you're bringing in new systems across the enterprise, you may choose to outsource some functions rather than putting in the expense, or you can [outsource] for a year or two until you get your processes back up to speed "

The Whens Of Outsourcing

According to Tom Sanderson, president and COO of Transplace, Plano, TX, companies may need to consider outsourcing:

  • If transportation rates are getting too high;
  • If you own your own fleet and it is running a high number of empty miles;
  • If your customers are complaining about your service, such as on-time delivery, damage, lack of visibility, etc;
  • If many of your processes are manual and you need to upgrade them, but do not have the resources to do so;
  • If you're still calling carriers by phone, and you can't do track and trace; and
  • If you are about to embark on capital expenditures for a new facility or to upgrade systems and software.

3PLs Posted Strong Gains in 2004

Total revenue for U.S. third-party logistics providers (3PLs) rose to $89.4 billion in 2004, showing an increase of 16.3 percent, according to new research by Armstrong & Associates, Stoughton, WI.

According to Armstrong, 3PLs have seen a total growth of 14.2 percent since 1996. That growth has been fueled by international transportation management, especially in product movements into the United States. Domestic transportation management also showed 16.8 percent growth, reaching $25 billion. The dedicated contract carriage market reached a new high of $8.7 billion in 2004. In value-added warehousing and distribution, 3PLs experienced 7 percent growth in 2004, and 15.3 percent growth since 1999.

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