Third-Party logistics providers play key role in integration, sustainability and security of the supply chain

Capgemini, one of the world's foremost providers of consulting, technology and outsourcing services, in cooperation with the Georgia Institute of Technology, Oracle and DHL today released an in-depth study into the current state of logistics outsourcing.

The study is based on a survey of 1,644 logistics executives from North America, Europe, Asia Pacific and Latin America and identifies a number of key findings:

• Green supply chain initiatives are essential for future business success according to 98% of logistics executives, yet the majority are unwilling to invest any additional funds in the greening of the supply chain.
• The theft of material goods continues to be the top security concern. But the changing business environment means that companies must focus more attention on other causes of supply chain disruption from the theft of intellectual capital and natural disasters, to the closure of ports and product tampering.
• Underpinning sustainability and security are strong relationships across the different parties in the supply chain achieved through integrated systems and services. Through deliberate efforts to form solid relationships with logistics providers using detailed contracts and metrics, companies can achieve significant cost savings, shorter order cycles, better customer service and improved business efficiency.

Although the survey shows that 3PLs and their users believe the associated costs of creating a more secure, integrated, environmentally-friendly supply chain should be split, there is continued resistance to collaboration and the unspoken assumption that costs will ultimately be carried by the customer.

Green supply chain

Companies are almost unanimous in their belief that green supply chain initiatives, such as local sourcing, are important but there is widespread uncertainty about how to move forward with sustainable supply chain operations. However, companies must begin to act before it is too late.

The survey shows that the 'greening' of the supply chain will have an increasing impact on network design, transport modes used, selection of equipment, business processes, behaviors and balance sheets.

Yet few users rate green capabilities as a deciding factor when choosing 3PL partners. Only 46% of respondents said that the effect of supply chain operations on the environment was a factor considered when selecting a 3PL. Collaboration is key; only when the source and impact of emissions can be accurately assessed can 3PLs and their customers become accountable and will the supply chain become more environmentally friendly.

"3PLs and their customers must be open about expectations and capabilities, if they are to find innovative ways to improve supply chain security and green credentials," said Hans Hickler, CEO, DHL Global Customer Solutions.

"When companies cooperate with 3PLs, there is often limited readiness for both parties to adequately learn current practices, develop joint solutions and share the benefits. But those willing to advance the 3PL-customer relationship beyond today's sticking points stand to be rewarded with supply chain efficiencies that deliver competitive advantage and customer satisfaction."

Security in the supply chain

Although 76% of respondents called their 3PLs secure, the survey reveals a gap between 3PL users' expectations and the current security capabilities of their 3PLs. Companies are becoming increasingly concerned about the costs of meeting compliance mandates designed to enhance supply chain security in the face of terrorist threats.

However, by working closely with 3PLs and setting up the right processes, companies can stand to gain considerable benefits that help recoup costs and improve the efficiency of the supply chain.

"Though the overall 3PL picture is similar to last year, it has become clear that green supply chain and supply chain security are increasingly becoming key drivers for success," said Dennis Wereldsma, Global Leader of Capgemini's Distribution Sector. "As compliance and regulation around green and security practices becomes increasingly prevalent, 3PLs and users that are greener and can tout their security capabilities can gain significant market advantage."

Integrated Logistics

The benefits of supply chain collaboration and logistics integration can be huge, but this can only be achieved by putting aside fears over loss of control, visibility, internal competency, and of being too dependent on a third party service provider.

However, through the use of comprehensive service level agreements that balance costs and risks and 3PLs investing in their own service offerings, companies will begin to experience the payoffs of working so closely together. By adopting integration-enabling, open standards-based technologies together with 3PLs, companies will be able to increase agility, lower costs and ensure stronger relationships.

Dr. John Langley from the Georgia Institute of Technology reiterates, "The greatest shared challenge is that of forming and growing successful collaborative relationships between users and providers of logistics services. Without a commitment from both sides little progress can be made in the greening of the supply chain and supply chain security. More than three quarters of 3PL users rate consolidation, routing, and mode selection as the top services 3PLs can contribute to green strategies. However, just 31% indicate that their 3PLs currently offer these capabilities."

Finally, technology is also a high priority for 3PL users. 3PLs continue to outsource web-enabled communications, visibility tools, warehouse/distribution management, and transportation management/execution. However, the IT expectation/performance gap persists, with only 38% of the respondents satisfied with their 3PL providers' information technology capabilities.

"The continued gap between the capabilities of 3PLs and what is required by their customers is extremely worrying," said Sundar Swaminathan, Senior Director, Oracle. "IT capabilities are critical to the integration of logistics services provided by 3PLs and the ability to facilitate green supply chains and supply chain security. 3PLs need to simplify and modernize their applications and infrastructure so they can bring new services to market more quickly, increase agility and operational efficiency and deliver service excellence."