Third party logistics – the benefits and challenges

May 21, 2015 by Peter MacLeod
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Third party logistics – the benefits and challenges

Logistics outsourcing is an important strategic option for companies across a broad range of industries. Heading up key industry trade show IMHX 2016, and with a wealth of experience gained from working with providers of materials handling and logistics services, Rob Fisher examines some of the issues.

Third party logistics (3PL) the outsourcing of logistics and supply chain operations, is now a massive worldwide business, with an annual turnover estimated as approaching $750bn. This is a sector with major well established companies, such as Unipart Logistics, DHL, Clipper and Ceva, with real expertise and a proven ability to reduce costs and improve levels of service.

The sector continues to grow, with the obvious reason around this being the growth of e-commerce – however, there are other reasons. A number of companies who off-shored their manufacturing are now re-shoring back to the UK, but outsourcing their logistics operations when they do, rather than establishing their own.


IMHX 2019

The growth of omni-channel distribution is also a factor. Many companies expanding their business model to include retail store and direct customer fulfillment are finding such a dual operating model challenging, so often turn to 3PL providers to facilitate this part of the equation.

RETURN TO SENDER

A key part of today’s e-commence market is returns. It’s vital to have an efficient delivery service, but equally as important to customers is an effective returns operation – and of course it’s important to suppliers to get products repacked and back on the shelves.

Recent research* showed that online shoppers estimated they would return nearly a third (31%) of their purchases, with 39% of those surveyed saying they have returned items bought online in 2014.

Although retailers have significantly improved their returns processes in recent years, the overall convenience of the service remains behind customers’ expectations, with 27% saying they are deterred from ordering something online because they don’t want the trouble of returning it if it isn’t right.

But 3PL providers are about so much more than delivery and returns. Companies such as Unipart Logistics can manage the whole supply chain and logistics operation from top to bottom.

Such companies offer supply chain design, warehouse and facility design, forecasting and demand planning (to help meet the huge peaks and troughs caused by events such as Black Friday and Cyber Monday), and materials management to ensure optimum stock control.

Bernard Molloy, Global Industrial Logistics Director, Unipart Logistics, which will be exhibiting at IMHX 2016 said: “We design, operate and optimise complex supply chains for clients across a wide range of sectors on a local and global basis. Our understanding of complex supply chains means we can design and deliver resilient solutions created to meet specific needs that deliver exactly what the customer needs, while ensuring they retain strategic control.”

MIND THE GAP...

An increasingly important part of delivering these kind of total ‘joined up’ logistics and supply chain solutions is the use of IT. However researchers have identified the ‘IT gap’ – the gap between expectations around the IT abilities of 3PL providers and the actual satisfaction of users.

In the 2014 Third Party Logistics Study** 98% of the users of 3PL services said that IT capabilities are a necessary element of 3PL expertise. However only 55% of the same users when questioned said they were actually satisfied with their providers’ expertise.

In response to the growing importance of IT in logistics IMHX 2016 will feature a dedicated Supply Chain IT Village where providers will be on hand to help visitors meet these challenges – and discover the latest e-commerce solutions.

GETTING THE BEST FROM 3PL

On the broader 3PL front there will also be United Kingdom Warehousing Association (UKWA) third party logistics Pavilion. Peter Ward, UKWA CEO comments: “With over 650 member companies, UKWA is the leading trade association dedicated to the third party logistics sector. Our Pavilion will showcase the products and services offered by our members and how the thousands of visitors can get the best from 3PL.”

Of course there can be issues around 3PL, it isn’t always the solution to every problem. There can be concerns over the expertise of some 3PL providers, and of loss of direct control of deliveries – and of course when choosing to outsource logistics operations there is the issue of the transfer of existing staff.

However 3PL remains a cost effective option for many. Users of 3PL services questioned in the Third Party Logistics Study reported an average reduction in their logistics cost of 11% and an average reduction in their fixed logistics costs of 23% – which are savings well worth having.

For more information about IMHX 2016, taking place at Birmingham’s NEC, 13th-16th September and featuring over 400 exhibitors, visit www.imhx.biz

* Conducted by CollectPlus a joint venture between the PayPoint retail payment network and parcel carrier Yodel.
** The 2014 Third Party Logistics Study – The State of Logistics Outsourcing (Capgemini).

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