Facing Crossroads, 3PL Providers Need To Up Their Games

Third-party logistics (3PL) providers have undoubtedly reached a fork in the road.

The 2015 3PL Contracting Report paints a challenging picture for the 3PL industry, with a not-so-subtle message: Revamp your game—fast.

The annual report, published in July by the research and event management company eyefortransport (EFT), represents an in-depth analysis of the selection and contracting process of contract logistics based on a survey of more than 400 logistics and supply chain executives.

The results suggest that 3PL providers have an identity crisis, fueled primarily by a growing perception that they are merely commodity based and a declining faith in their ability to deliver.

Let’s start with the “C” word—commoditization. The report contends that 3PL providers are in an uphill battle to maintain relevance in an increasingly commoditized service area.

Translation: Companies don’t see much of a difference among providers.

So, although contributing to an industry that produced $160.2 billion in revenues in the United States in 2014, a 9.2 percent increase from 2013, 3PL providers have to do something different.

They’ve got a captive audience. According to consulting firm Armstrong & Associates, 86 percent of domestic Fortune 500 companies use 3PL providers for logistics and supply chain functions. Many companies use multiple providers; for example, General Motors uses 51 3PL providers, and Ford uses 41.

These companies, though, aren’t necessarily giving their providers a vote of confidence. Between 2012 and 2014, the survey found a 4 percent increase in customer dissatisfaction. And although 68 percent of respondents said they were satisfied with the performance of their current 3PL providers, only 14 percent believed that they performed better than expected, and only 5 percent thought performance was outstanding.

Reinforcing these numbers is the fact that 55 percent of respondents said they switched or intended to change providers.

The 3PL industry, financially, is doing fine. The report card on members of that industry needs to improve. The revenue growth trend is precarious because customers regard 3PL providers as mostly transactional, incapable of fostering the collaborative business relationships leading to the innovation required to solve the challenges of today’s global supply chains.

It’s the ultimate opportunity for 3PL providers.

How can they take advantage and renew the confidence of their customers?

One way is to develop services and expertise in emerging technologies. Technological advances are born and cultivated by forward-thinking and customer-centric 3PL providers willing to take risks and bent on thriving. And as manufacturers intensify their search for more efficiencies and savings in their operations, it’s imperative that their 3PL providers invest in technology to effect the desired outcomes.

3PL providers also have to be an extension of their customers’ businesses. This means offering insight and recommendations into customers’ logistics challenges—being proactive, not reactive.

For manufacturers, providing strategic, technology-driven services that produce impactful results will allow them to meet the varying, specific needs of their increasingly diverse customer bases.

By adapting to their customers’ needs and identifying solutions, 3PL providers become partners in a highly competitive marketplace while offering efficiency, flexibility, scalability, and responsiveness.

Business is robust for 3PL providers, but the outlook is uncertain, as customer satisfaction lags and the call for innovation, quality, and cost efficiency gets louder.

The 3PL providers willing to break out of their comfort zones, by capitalizing on the huge untapped potential in technology, expanding their service offerings, and instituting Lean cost savings will be recognized by their customers as true partners.

The industry is at a crossroads; it’s up to 3PL providers to choose the right path.