… That members of IWLA—the Association for Logistics Outsourcing—may have to don Ray Bans when they gather for their annual meeting next March. The latest results of an annual study on Fortune 500 manufacturers' outsourcing plans indicate the third-party logistics (3PL) industry can look forward to a very bright future indeed.
It's no secret that the third-party logistics service business has been something of a revenue rocket in recent years. Fully 80 percent of the respondents to this year's survey reported that they were using the services of third-party providers. What's more, they're spending a lot of money for those services. Respondents said they set aside 40 percent of their annual logistics budgets for 3PL services on average. That figure —more than double that reported in 2001—is expected to climb to 46 percent by 2007.
"The three-year projection would seem to bode very well for the future demand for 3PL services," says Dr. Robert Lieb, professor of supply chain management at Northeastern University, who co-authored the study, The Use of Third Party Logistics Services by Large American Manufacturers, with Accenture's Brooks Bentz. The latest edition of the 3PL user study, released last month, surveyed 60 of the largest U.S. manufacturers. The first such survey was compiled in 1991, and annual editions have been published since 1994.
Further bolstering predictions that the 3PL industry will see continued growth was a survey conducted by Dr. John Langley of Georgia Tech. That study also found that more than three-quarters of the respondents used 3PL services, and more than eight in 10 felt their 3PL relationships were successful. Langley notes, however, that while logistics outsourcing has become entrenched in corporate planning, 3PLs must continue to expand their offerings to deliver better results while accommodating ever-increasing customer demands. (For a related story on 3PL trends, see our Industry Roundtable)
Though Langley's research focused only on users of 3PL services, Lieb's study included interviews with 23 CEOs of the largest 3PL providers in North America. Like their customers, CEOs believe their business faces a bright future—they expect 2004 sales to grow by 9 percent in North America and by 10 percent annually through 2007.
They're doing so well, in fact, that third-party providers can afford to be downright picky about the customers they'll serve. "While no one will admit to actually 'firing' [an unprofitable] customer, I think that will become relatively common as time goes on," says Lieb. "With few exceptions, these companies have become increasingly customer-selective, and nearly all believe that willingness to establish a collaborative working relationship is the single most important attribute of highquality customers."
When it comes to profitability, none of the 23 CEOs surveyed reported that their North American business units had failed to make money in 2003. Two companies said they were very profitable in 2003, 15 said they were moderately profitable, and one reported that its North American business unit broke even. But that doesn't mean they're necessarily meeting their goals. Eight companies indicated they failed to meet revenue projections last year.
Gartner, Inc.