If you've been struck by the changes that have swept through the third-party logistics industry, just wait until next year ... or the year after that. A new study by IBM Business Consulting Services predicts a shakeup in the global logistics service provider industry. The report suggests that the suppliers with the most to gain are the "lead logistics providers"—companies that offer end-to-end integrated services by hiring and managing other third-party services, much the way a general contractor manages subcontractors.
According to the study, Building Value in Logistics Outsourcing, the transformation will be sparked by shifts in customer demand. Though some customers will continue to seek traditional execution-level services, others appear set to take their outsourcing relationships to the next level. They're requesting more non-traditional services, including historically untouchable planning and control activities. Once they realize the possibilities for boosting performance via end-to-end integration, the IBM researchers say, companies are generally willing to buck tradition and outsource even strategic functions like demand planning and inventory forecasting.
As the trend takes off, IBM predicts a significant gap will open up between buyer demands and current provider capabilities. Many traditional logistics providers will face the choice of either reinventing themselves with the prospect of higher margins, or continuing to serve commodity buyers at lower margins.
Those who choose to reinvent themselves will emerge as "synchronized providers," offering end-to-end supply chain integration, visibility, and broad-based business process capabilities for global customers. These processes could include supplier management, procurement, contract manufacturing, logistics services, global trade financial and tax management, performance management and customer service. This group could eventually represent up to 5 to 10 percent of market volume.
Open to all
Not surprisingly, the news has captured service providers' attention. "In a way, this represents a little bit of the catnip that keeps all of us in the logistics outsourcing field stimulated," says Bob Auray, a former executive with Kuehne + Nagel and current president of the International Warehouse Logistics Association (IWLA). "Everyone wants to get to an increasing strategic relationship with their customers. This is the way the market is going. It's the promised land that keeps everybody excited every day. But it'll take time."
The capacity to reinvent themselves as the type of synchronized provider envisioned by IBM may seem limited to only the biggest of companies. But Auray thinks that more agile, mid-sized companies may actually have more success.
"There is an assumption that this is a game for the biggest of the big," says Auray. "The biggest providers certainly have the resources and the desire to do this, but there are certain organizational inhibitors that will tend to slow it down. But there could be some interesting plays in the mid-size and emerging market that have a lot less organizational inertia and may be willing to take some risks and try to re-invent themselves to focus on this customer need."
Gartner, Inc.