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The latest report on third party logistics highlights the pros and cons of outsourcing. Malory Davies examines the findings.

Many years ago the head of one of our largest third party logistics providers admitted to me that the one thing that would keep him awake at night was the thought that his customers might learn his operational secrets and take all the business back-in-house.

Of course, companies don’t outsource logistics simply because they are not very good at it. Investment priorities are often more important – and how many companies want the problems associated with recruiting and training professionals in a non-core business?

Nevertheless, a new survey shows that in the past year a quarter of companies have taken some third party logistics work back in-house, and 58 per cent say they are reducing or consolidating the number of 3PLs they use.

However, almost two thirds of shippers said they were increasing their use of third party logistics providers, according to the 16th Annual Third-Party Logistics Study produced by Capgemini Consulting in co-operation with Penn State University, Heidrick & Struggles, and Panalpina.

“While some companies are increasing outsourcing services, we are still seeing the consistent churn that occurs each year with 3PL respondents observing that some of their customers are returning logistic activities back in-house,” said Dan Albright, vice president and North American supply chain leader at Capgemini Consulting.

“It’s vital that 3PLs and shippers work in close collaboration and that 3PLs remain innovative by offering value added services to provide true value to shippers to help reverse this trend.”

On average, 42 per cent of logistics spend goes on outsourcing – the same as last year. However, the number of shippers that judge their 3PLs to be sufficiently agile and flexible, at 68 per cent, is down from last year’s 72 per cent.

Third party logistics providers are generally more positive about the quality of relationships than their customers. Some 88 per cent of shippers view their third party logistics relationships as generally successful, compared with 94 per cent of third party logistics respondents. Shippers’ ratings are consistent across regions: North America 89 per cent; Europe 88 per cent; Asia-Pacific 89 per cent; and Latin America 87 per cent.

However, fewer shippers, 71 per cent, indicate that third party logistics providers provide them with new and innovative ways to improve logistics effectiveness. That compares with 91 per cent of third party logistics providers who feel that this statement accurately characterises the services they provide.

The survey seems to suggest that interest in collaboration in the supply chain has declined with 44 per cent of shippers and 67 per cent of 3PLs expressing an interest – compared to 68 per cent of shippers and 80 per cent of 3PLs last year. The report suggests that the easing of global economic conditions has made collaboration less of a priority.

Of course, there have been some high profile examples of collaboration between non-competing companies – for example Kimberly-Clark and Kellogg’s.

But only last month came news of one of the most significant supply chain alliances between competitors – The Hershey Company, America’s largest chocolate producer, and The Ferrero Group – maker of Ferrero Rocher chocolates.

The North American alliance takes the form of a joint warehousing, transport and distribution initiative. The two companies also plan to work together to maximise corporate social responsibility efforts with the expectation of reducing carbon dioxide emissions and energy consumption in warehousing and freight, with fewer vehicle journeys needed to move products to customers.

Hershey chief John P Bilbrey said: “Collaborative supply chain operations are a growing trend across industries as companies seek fully to leverage their logistics infrastructure. Although we are initially focusing on one region of our business, we are excited about the full potential of this project.”

The 2012 Third-Party Logistics Study is based on more than 2,250 responses from both shippers and logistics service providers in North America, Europe, Asia-Pacific and Latin America, as well as other locations throughout the world such as the Middle East and Australia.

It highlighted the fact that the logistics industry is experiencing a shortage of capable supply chain managers prepared to work in vital management positions.

It revealed shippers and 3PLs most highly value operational execution (51 per cent and 60 per cent respectively) followed by people management and development skills (54 per cent and 43 per cent respectively) in their leaders.

It also suggested that many shippers and third party logistics providers are troubled with their talent processes. Too often, executives turn to talent management only when a key employee gives notice.

And it warned: “While current leaders were learning on the job for today’s expanded logistics demands, few organisations were indoctrinating these new competencies into middle management, limiting their suitability for leadership roles.

“Most shippers and third party logistics providers recruit from inside their own industries, but third party logistics providers are slightly more likely than shippers to look outside their own industries, a growing need as the talent pipeline dries up.

“Company success and performance, attractive salary and benefits and personal development opportunities within the company are top-three factors for attracting logistics talent.”

Right partner is crutial
Shippers believe that the most successful third party logistics model for emerging markets involves a global player partnering with a local operator.

The Capgemini study found that 80 per cent of shippers are active in the emerging markets with China, India, Brazil and Mexico considered the prime opportunities.

However, it said operational difficulties, including logistics challenges, threaten to erode the potential benefits associated with doing business.

“For shippers based in mature markets, difficult laws and regulations, cultural differences, the ability to deliver against promises or agreed-to service levels and complicated tax regimes top the list of challenges.”

The 3PL capabilities shippers most value when entering emerging markets are visibility, expertise on the latest global trade regulations and managing and optimising shipment routing based on free trade agreement knowledge.

Logistics manager conference
Turbulence is the new normal

Increased turbulence and uncertainty is the new normal, Julian Mosquera, director of LCP Consulting told conference delegates at Logistics Link North.

The combination of long-term financial stress and unpredictable events such as dust clouds, tsunamis and geo-political changes mean that companies more than ever must stay flexible, adaptable and ready to adapt at short notice. Julian gave some practical examples of how this might directly affect operations, pointing to a possible move away from large, central but vulnerable facilities to local and regional hubs, the need to align markets, products and suppliers, and that holding more stock – while a heresy to many – may turn out to be a vital shock-absorber in uncertain times.

While such issues may be with us in the long run, the unseasonally warm weather during the conference presented another speaker’s company with the immediate challenge of how not to be caught out – or more positively – take advantage of a few days sunshine in autumn. Andy Hadley, director of logistics, planning and supply management Molson Coors (UK & Ireland) used the theme “Flattening costs while ramping up customer focus” to explain how a strong working relationship between the logistics, sales and marketing teams is essential to be able to respond to such events. A hot weekend or a major sporting event can send demand soaring for a whole range of products including salads and barbecues, as well as beer.

He strongly endorsed the practice of looking at the company through customers’ eyes, understanding and delivering what the market needs. This requires constant and regular communication, as what the market wants and needs today may not be the same tomorrow, so that the logistics strategy needs to be lined up and integrated with the rest of the business.

Dr Mick Jackson of Skills for Logistics warned of an impending and potentially explosive issue waiting to happen to the industry. Around 2.3m people are employed either directly or indirectly in logistics, making it one of the UK’s biggest employment sectors. However due to retirement and other causes the industry will need more than 500,000 new recruits in the next six years simply to make good the shortfall. Sadly the image the industry offers is not overly attractive despite high unemployment levels and the considerable cost of obtaining an HGV licence does little to help.

Dr Jackson outlined the organisation’s programme to raise the status and appeal of the industry with a range of apprenticeships and qualifications in subjects such as warehousing, supply chain operations, retail and road transport. It is more than just an industry issue as the whole economy will be dependent on our national ability to move goods around, in and out of the country, efficiently and economically.

Eight speakers with a diverse range of logistics industry backgrounds shared their experiences and views with senior logistics professionals at Logistics Link North in Doncaster in September.

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