SUPPLY CHAIN MANAGEMENT UPDATE

As leading global organizations continue to outsource to reduce costs and focus on core competencies, it's no surprise that the market for third-party logistics (3PLs) is seeing steady growth. According to an annual report by Armstrong & Associates Inc.—a consulting and research firm that focuses on 3PLs and supply chain management—the US 3PL market has been growing at a compound annual rate of 14.2 percent since 1996. In 2004, 3PLs in the United States reported $89.4 billion in gross revenue.

With all this vigorous growth, the company looking to outsource its logistics should find it easy to select a qualified 3PL. But rapid growth is always followed by "shakeout"—when the market chooses the real market leaders. Today, it's looking like one of the ways to identify those leaders is to look for third-party logistics providers who have a fully developed systems backbone.

Integration is key
"Integration and what those backbone systems are going to be is the biggest issue for 3PLs," says Evan Armstrong, president of Armstrong & Associates. The backbone systems include a tier-one warehouse management system and transportation management system that can be deployed over and over at multiple customer sites.

Make sure that the 3PL you choose has an ERP system that is integrated with a tier-one transportation management system (TMS), which drives a warehousing operation run by a tier-one warehouse management system (WMS). In turn, that system needs to be tied to your financial system. In addition, look for some kind of visibility software on top of the TMS, WMS, and financials apps that lets your customers see the process. "Between those systems are different integration layers and EDI (electric data exchange) transactions," Armstrong says. "Integration is key to make things as seamless as possible."

Forecast for 3PLs
In the future, 3PL use is expected to continue to grow. "Even at $89.4 billion, we estimate that 3PLs have only captured about 12 percent of the total market," says Armstrong. "So there's still plenty of room for growth."

Yet, only the top 25 global 3PLs have a real strategy for developing an integrated supply chain management system backbone. Of those, 3PLs that use Oracle Transportation Management (OTM) can assure customers that they have the most advanced system in place.

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