OUTSOURCING LOGISTICS

Outsourcing Logistics

Outsourcing Logistics: Can competitive advantage be created?

Introduction

The outsourcing of logistics functions to partners, known as “third-party logistics providers”, has increasingly become a powerful alternative to the traditional, vertically-integrated firm. A growth in the number of outsourcing partnerships has contributed to the development of more flexible organizations, based on core competencies and mutually beneficial longer-term relationships. Analytiqa's latest research, “Western European Logistics 2007” reveals that spending on logistics services across the Automotive, Consumer, Pharmaceutical, Retail and Technology industries is set to increase by EUR 30 billion over the next five years as the size of outsourced logistics market grows by 33%. However, Analytiqa's research warns third party logistics providers (3PLs) that opportunities must be earned as they will no longer be able to simply rely on greater outsourcing penetration and sustained margins to recognise growth. Country and sector specific opportunities drive market growth As supply chains extend across Europe and around the globe, so managing those chains requires greater focus. Where a manufacturer or retailer once considered itself to have competency in managing the flow of goods within a country so today, managing the same flow across several countries, often under pressure from just-in-time processes, becomes that much more demanding. Analytiqa forecasts significant growth in logistics spend in Western Europe over the next five years. For 3PLs to gain an increasing share of this market they must become more closely aligned to their customers and demonstrate greater understanding of the differences in both national cultures and regional market characteristics. (Susan McIntyre Analytiqa 2008 P. 73)

Logistics markets vary by just about every measure available - size, growth, supply chain complexity, outsourcing culture and sophistication. What works in the UK may not work for customers at present in Spain, whilst opportunities for 3PLs in Pharmaceutical markets are very different from those in the Automotive sector. Growth brings higher service expectations Nowhere is this more apparent than in Western European Retail markets, where logistics spend is set to grow by EUR15.7 billion over the next five years. Not all of this will go to 3PLs, however, as a number of retailers are bringing logistics services back in-house. For 3PLs, growth in retail markets will be driven by both consumer demand and supply chain trends. Whilst outsourcing rates in southern European markets will continue to flourish, across the more mature northern European markets growth will come from booming online shopping trends and environmental legislation requiring the recycling of electrical products. Within the Automotive sector, logistics outsourcing rates will continue to climb as manufacturers seek to reduce costs and increase efficiency in supply chains that extend further across Europe. By 2012, Analytiqa forecasts that logistics providers will command more than 57% of the sector's supply chain requirements. These trends, together with tighter environmental legislation, will provide opportunities for 3PLs to win business and add value to their customers.

The End-of-Life Vehicles Directive (ELV) sets rising targets for re-use, recycling and recovery across the industry. In Consumer markets, 3PLs will look to capitalise on lengthening ...