New research confirms that the current risk mitigating trend in the third-party arena will continue this year. Indeed, eighty-five percent of supply chain managers expect that their outsourcing budget will increase by more than 5% in 2020, according to Gartner, Inc., with a sizeable portion of that aimed at choosing multiple third-party-logistics (3PL) partners.
Outsourcing one or more logistics service types has become largely mainstream, says Courtney Rogerson, senior principal analyst with the Gartner Supply Chain Practice. Furthermore, risk mitigation and “hedging your bets” represent major reasons given by today’s global supply chain managers.
“The question no longer is whether to outsource, but what and how much,” adds Rogerson. “Evaluating different outsourcing strategies has become a priority for global managers.”
Based on the “Gartner 2019 Logistics Outsourcing Strategy Survey,” one explanation for the expected budget increase is that logistics outsourcing supports the business. Approximately 70% of respondents stated that functional, end-to-end (E2E) supply chain and overall business objectives have been met or exceeded with the help of supply chain outsourcing counterparts.
To be effective, the supply chain outsourcing strategy needs to be aligned with the overall logistics priorities. Almost half of surveyed supply chain leaders stated that updating their technology systems, increasing speed to customer and improving visibility are their most important goals for next year.
“Those priorities show that we are in the thick of the digital era. New routes to market and technology enabled products and services are rapidly disrupting industries and business models,” says Rogerson. “To respond to these accelerated and evocative changes, logistics leaders need not only understand the foundational elements of good overall strategy, but also rethink how their logistics outsourcing strategy is assessed and developed.”
For example, leaders can increase the “iterative frequency” of strategic planning across multiple time horizons, Rogerson posits.
“Rather than treating the outsourcing strategy solely as an annual process, they should include mechanisms, techniques and open communication channels for continuously capturing issues, ideas and insights that will increase the contribution of logistics outsourcing towards meeting the overall business goals.”
While 3PL outsourcing is viewed as helpful by a majority of supply chain managers, there are also risks and challenges. Gartner analysts maintain. The complexity of working with multiple partners is the most mentioned challenge, followed by cybersecurity concerns and the incompatibility of information systems between diverse logistics providers and the shipper.
“Low maturity organizations often outsource logistics with unrealistic expectations regarding ROI and service levels,” says Rogerson. “Outsourcing can help make your organization more efficient, but it requires a high degree of coordination. Make sure you have the appropriate resources and skills at your disposal.”
About the Author
Patrick Burnson, Executive Editor
Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at [email protected]