BY ART VAN BODEGRAVEN AND
KENNETH B. ACKERMAN
basictraining
don’t fumble that handoff
OUTSOURCING, IN GENERAL, HAS BEEN A HOT
topic in American business for the past several years.
And the debate only heats up when the outsourcing
discussions start focusing on supply chain functions.
In theory, outsourcing is simply another procurement exercise, subject to the same basic procurement
rules and recommendations as everything else. But
we tend to regard supply chain outsourcing in a special light. Supply chains are our lifelines, the way
products reach customers.
Providers of outsourced logistics services are
prominent—even leaders—in our profession. Yet
despite the visibility and good reputations of these
providers—call them 3PLs for the moment—
estimates are that 25 to 50 percent of outsourcing deals
fail, or at least fail to meet expectations.
So, the topic is important; many companies are
making “bet the business” decisions on supply chain
outsourcing, whether they realize it or not.
Who are the players in the game?
First, what is the game? We’ve used the term 3PL for
a long time. Then 4PL came into vogue. One consultant attempted 5PL, but that didn’t fly. A friend in
the U.K. tried to tell us that he was heading up a
4½PL (which is no longer in business).
We prefer the terms promoted by Cliff Lynch:
logistics service provider (LSP) and lead logistics
provider (LLP). But we’re pretty relaxed about calling
all of them 3PLs in conversational shorthand.
The distinctions between and among providers are
changing. We used to talk about those who had their
origins in transportation and those who began life as
public warehouses—and it was easy to tell which
were which. That was before globalization.
Today, the marketplace is very fluid, with almost
daily changes. After waves of acquisitions domestically and internationally, the LSP world is moving
toward what will ultimately be a bimodal model,
with a few large multinational/global players at one
end, and several niche specialty (by function or geography) companies at the other.
As the major leaguers assemble portfolios of skills
and establish a presence across the globe, the objective becomes clearer: to plan, manage, and control
execution of supply chain activities from manufac-
turing/extraction sources to customer delivery.
Today’s LSPs routinely offer a panoply of services
in warehousing, transportation, inventory management, reverse logistics, freight audits, freight bill payment, sourcing, order management, assembly, customs brokerage, and more. The scope of services, and
continually growing capabilities, change the traditional analysis of when to consider using LSP services and how to do it.
Why consider using (
outsourcing to) an LSP?
There are loads of really
good reasons to evaluate
what an LSP can do for a
specific company. They
include high internal costs,
expansion to new geographical markets, introduction of
new products or materials, a
need for overflow capacity,
expansion into new roles
(like order fulfillment or
value-added services), a
need for operational flexibility, and a desire to preserve capital. The lack of internal resources or skills,
or decisions to shed non-core businesses might also
provide motives to outsource.
Experience indicates that there may be more reasons to contemplate the possibility than there were
10 years ago. The supply chain world demands more
skills than ever before. LSP successes in activities
beyond transport and warehousing continue to
demonstrate the feasibility of an LSP solution.
Buyer beware
But all is not roses. There are ample opportunities for
disappointment, even failure. The major disconnects
center on two points. First, contrary to popular opinion, customers are unlikely to see savings from LSP
outsourcing in the short term, especially when business processes don’t change and communications are
less than complete. Second, the transition to the LSP
