how are 3PLs expanding and sell- ing their value proposition to current and potential customers? The decision to outsource often emerges as a company grows beyond its management bandwidth to prop- erly control logistics and supply chain functions without negatively impacting its own core competency. The Prime Mover Transportation management is often a prime target, given its high cost and a general aversion among manufacturers and retailers to sink capital into non-core infrastructure and asset investments. As expected, a lion’s share of 3PLs (73.2 percent) report “cutting transport costs” as their customers’ top challenge ( see Figure 2, below ). While businesses are still inclined to outsource transportation-related activities, other strategic initia- tives are also closing the distance and turning heads in corporate boardrooms. Businesses may approach 3PLs with specific transportation and distribution challenges, but these flashpoints often illuminate strategic problems elsewhere in the demand/ supply network. Given the fact that transportation costs have become institutionalized – largely as a result of high fuel prices and longer supply
FIGURE 1
AMOUNT OF GROWTH + 20% + 15% + 10%
PERCENT OF RESPONDENTS
17.1%
3PLs RESPOND During your last measurement period, how much did your customer base grow?
9.8%
26.8%
SOURCE: IL 3PL Market Insight Survey, 2007
+
19.5%
5%
7.3%
0%
however, is still impressive. In 2006, the biggest obstacles 3PL customers faced were reducing costs and accessing capacity, say respondents. This year, with softening demand for truck capacity and growing accep- tance of rising transport costs, 3PLs tell us their customers’ top wishes run the gamut from “reducing costs,” “vendor management,” and “enter- ing new markets” to “global coverage” and “finding new alliance partners.” This shift in attention reflects varying economic conditions and consumer demand, but also points to the fact that 3PLs are ultimately following their customers’ lead and absorbing their costs and concerns. The Hunt As revenue chases sales growth, service providers are becoming more aggressive in how they grow exist- ing partnerships and target new ones. More than half (53.7 percent) of 3PLs polled specify augmenting their cus- tomer base by at least 10 percent during the year ( see Figure 1, above ). This further cements the importance manufacturers and retailers place on outsourcing initiatives. Respondents attribute this growth to a number of factors. One provider, for example, specifies “a general mar- ket increase in outsourcing and new
offerings to customers as a result of a recent merger.” Respondents also point to focusing on high-volume customers and ver- tical markets as means for increasing their customer base. Logistics service providers are capitalizing on exist- ing customers by helping them drive efficiencies further back in the supply chain to enhance their value prop- osition and organically grow their business. Interestingly, a number of 3PLs at both extremes of the sales growth spectrum identify “finding custom- ers” as their most important challenge, suggesting that diversifying and grow- ing client rosters is a pivotal strategy for leaders and laggards alike. An intriguing question arises from this analysis, and it’s difficult to ascertain by empirical data alone:
FIGURE 2
Cutting transport costs 73.2% Technology strategy and implementation 48.8% Reducing inventory 46.3% Business process improvement 43.9% Reducing assets and infrastructure 41.5%
3PLs RESPOND What are your customers’ top challenges?
SOURCE: IL 3PL Market Insight Survey, 2007
66 Inbound Logistics • July 2007
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