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Value-Added 3PL Industry Overview

The Third-party logistics industry has enjoyed steady growth since the mid-1990’s, with total U.S. sales peaking at $127 billion in 2008.1However, the economic recession of late 2008-2009 was a serious stumbling block that contributed to an estimated $19 billion downturn in 2009. Value-added 3PLs (a category that includes Derby Supply Chain Solutions) actually experienced an increase in net revenue from 2008-2009 of 1.7%.1

Some industry analysts speculate that 2010 will be a better year for third-party logistics (3PL) companies, as inventories are replenished and product demands rebound. Gross revenues in the U.S. are forecast to be around $115.7 billion (a 7.2% bump from 2009). 2

Despite this growth, some Value-Added 3PL’s and their customers bring conflicting perspectives to several on-going issues, which have been magnified by the economy’s recent volatility. Manufacturers and retailers generally recognize the value that 3PL’s provide, but many of them also see opportunities for improvement. For example, while over 80% of 3PL providers believe they consistently offer their customers new and innovative ways to improve effectiveness in supply-chain management, only about half of their customers would agree.3

Another major area of concern among customers (about 46%) is what they perceive as a lack of continuous, on-going improvements and achievements in offerings from 3PL’s – yet less than 1 in 5 of 3PL’s regard this as an issue. 4



Lack of continuous improvements



Service levels not realized



IT capabilities insufficient



Cost reductions not realized



Lack of project mgmt skills



Unsatisfactory transition during implementation



Lack of global capabilities



Benefits not achieved in a timely manner



Promising services they do not have



Lack of business process integration



Lack of industry-specific knowledge



Inability to form meaningful/trustful relationships




However, the real issue may be with mutual communication as much as any deficiency in customer service. The first step toward improvement should permit both parties to sit down together and make certain they are measuring the same set of key performance indicators (KPI’s) and using identical measurement strategies.



Industry research has consistently indicated that a gap exists over the expectations that some customers have for their 3PL’s IT capabilities and the satisfaction level with those capabilities.

Both parties desire an IT system that is responsive, delivers valued information, and encourages innovation. However, the degree of investment required to create and maintain such a system often stands as a barrier toward attaining such a goal. The absence of an integrated IT infrastructure tops the list of concerns that customers voice about some 3PL IT capabilities.

Consequently, 3PL customers assert they lack the KPI’s and visibility required to run adaptive supply chains – while many 3PL’s counter that some customers could improve in their ability to communicate critically-needed data and commitment in a complete and timely manner.

Many 3PL’s and their customers share a mutual (and growing) expectation to develop IT systems that provide real-time interfacing with customer order-management systems. Such integration balances not only current inventory, but can be used to forecast demand and help the customer in scheduling future shipments more accurately. The result is creating greater efficiencies and reducing costs.

Unfortunately, issues of trust and risk between some value-added 3PL’s and their customers tend to impede progress in achieving these aforementioned goals. While there are 3PL’s who hesitate devoting business resources with a customer whom they suspect may not be willing to commit to a long-term relationship; many customers, in turn, may not want to become too invested with one provider – basically, both sides fear that sharing too much information compromises control. 5



Concerns over rising energy costs and the availability of finite resources have spurred efforts within the business community to pursue “green” and “sustainable” initiatives that minimize environmental impact. Going beyond traditional methods of recycling and energy conservation, companies are striving to enhance source reduction through the development and use of lighter, more flexible materials, as well as reducing package size and exploring alternate materials. The 3PL industry – particularly those engaged in packaging – are (or soon will be) in the midst of this evolution.

Although an increasing number of 3PL providers are pursuing “green” policies, its impact in terms of attracting new, like-minded customers is yet to be fully assessed. A 2008 study conducted by Northwestern University and Penske Logistics found that marketing “green” capabilities have (so far) made little impression in attracting or maintaining business. Most of the 3PL’s captured in the study stated they are spending funds on “green” activities primarily as a social responsibility rather than a response to customer demand. 6

While the study indicated that most 3PL’s believe sustainability will become increasingly important in the future, less than 3% of 3PL customers currently maintain performance metrics that track their 3PL’s ability to help customers achieve “green” goals. Manufacturers and 3PL’s that adopt “green” initiatives must also account for the added costs which often accompany such programs, and determine whether the marketplace will accept price increases as a cost of doing business to improve the environment.



The global economic downturn has increased the pressures upon manufacturers and retailers to remain competitive.

Many have closed their doors, while those who continue to survive are compelled to re-evaluate the ways in which they conduct their business – this includes relationships with their 3PL providers.

Manufacturers and retailers must be willing to reach out and provide needed information to 3PL’s, and many of them recognize the necessity to be more forthcoming with plans and data, as well as a willingness to team with 3PL’s in order to reengineer business processes.



The relationship between 3rd party logistics providers and their customers has reached something of a crossroads, and both sides must take a serious, objective look at their mutual business expectations and requirements.

An increasing number of 3PL’s want their customers to view them more as strategic partners, who are ready, willing and able to take an active role in helping them solve supply-chain management issues. However, many 3PL customers prefer their providers to remain primarily execution-oriented (i.e., receive, warehouse and distribute goods, per customer instructions). Unfortunately, some customers do not perceive the 3PL’s with whom they work as having the range of business expertise which they feel is sufficient to encourage them to increase their amount of supply-chain outsourcing. 7

The IT capability gap, as well as issues revolving around trust and risk, further impedes the development of more strategic, symbiotic relationships between 3PL’s and their customers.



The competitive environment of the third-party logistics industry is in a state of flux. A damaged economy has compelled manufacturers, retailers and other 3PL users to re-evaluate their supply chains, as well as the expectations and relationships they have with 3PL providers. On the other side of the fence, many 3PL’s are examining their own growth strategies, including the array of services which they provide customers, as well as whether to position themselves to be more of a strategic business partner with their customers, or remain as an on-demand vendor.


1 “For most 3PLs, the best thing about 2009 is that it is over…”, Armstrong Associates, Inc., January 4, 2010,
2 Armstrong Associates (Ibid)
3 The State of Logistics Outsourcing – 2009 Third-party Logistics, (June 2009), p. 7.
4 The State of Logistics Outsourcing (Ibid), p. 10.
5 The State of Logistics Outsourcing, (Ibid), pp. 22-29.
7 “The State of Logistics Outsourcing, 2009 third-party logistics”,(supra), p. 5.