More than 80% of domestic Fortune 500 companies outsource their logistics operations and most expect to use third-party logistics (3PL) providers more in the coming years, according to the University of Tennessee (UT) study sponsored by Kenco, a provider of integrated logistics and technology.
The study—“Selecting and Managing a Third Party Logistics Provider”—finds that companies are still struggling to optimize their use of 3PLs despite growth in every sector of the supply chain over the last quarter century.
“Today’s 3PL is not your grandfather’s 3PL,” says Paul Dittmann, Executive Director of the Global Supply Chain Institute (GSCI) at the University of Tennessee’s Haslam College of Business. “The scope of third-party logistics has widely increased and expectations of them accelerated, but that does not mean firms are using 3PLs to their full advantage.”
Dittmann partnered with Kate Vitasek, author of “The Vested Way,” to find the best practices for creating competitive advantages through use of a 3PL. Their research resulted in the GSCI’s latest white paper.
More than 60 executives interviewed for the study said the biggest mistake they made was not doing a thorough needs assessment before hiring a 3PL. The report also found that many, if not most, bids for third-party logistics providers contained unrealistic data on company operations. Omitting business leaders from the selection process was another common pitfall, leading to a lack of business-wide strategy for the partnership.
“Selecting and Managing a Third Party Logistics Provider” is the second in UT’s Innovations in Supply Chain Series.
“Communication is key to helping our clients succeed,” says David Caines, Chief Operating Officer at Kenco. “The companies that connect us with the right people and have clear strategies in place are the ones we can help the most. This paper reflects that and gives insight into how 3PLs can be better partners as well.”
The study emphasizes clarity of expectations and a balance between accountability and independence for best management of 3PLs. The most successful 3PL partnerships employ elements of Vested methodologies, focusing on outcomes instead of processes, and implementing contracts that provide incentives for 3PLs. The full report is available online.
