3PL Advantages: Is Bigger Really Better?

For shippers researching 3PL advantages and wondering how to get the most value from a 3PL relationship, one issue that comes up is the size of the provider. Do companies want the size and scale of a larger 3PL or the agility and focus of a small to mid-sized provider?

In CSCMP’s 2016 State of Logistics report (well worth the read, by the way), the report’s authors reached out to a number of industry leaders for comments, and one of these comments got my attention.

Bradley Jacobs, Chairman and CEO of XPO Logistics commented that “Over time, I think the industry will consist of a few very large players with very extensive capabilities to help customers take inefficiencies and costs out of their supply chain. There will also be superlative niche players, but they will be the exception, not the norm. The level of value add that I’m talking about requires a significant technology spend that will be out of reach for smaller players.”

We respect Mr. Jacob’s past successes outside of our industry and the energy and vision he has brought to XPO. But we question the implication that maximum value cannot be gleaned from any provider below $10 billion in revenue.

When it comes to maximizing 3PL advantages, is bigger always better?

If it is, why do Procter & Gamble, Kimberly Clark, Walmart and many other Fortune 100 companies rely heavily on smaller 3PLs to manage critical segments of their distribution supply chains?

Why did Sam’s Club just name Kane Logistics the retailer’s 3PL of the Year for the second consecutive year – a feat no other provider has ever accomplished, even the big guys.

Why did SalSon Logistics receive GAP’s Supplier Award for Service?  That’s the top award for ALL of GAP’s global suppliers, not just logistics.

Why does Unilever regularly award its DC of the Year to Shipper’s Warehouse?

All of these outsourced 3PLs are mid-tier providers who, in the minds of some pretty large customers, are delivering extraordinary value with technology-driven solutions.

Shippers Assess 3PL Advantages in Different Ways

Now let’s be clear here. Size has its advantages:

• Purchasing power for freight services
• An ability to leverage overhead costs over a large base of customers
• The perspective, and best practice know-how, that comes from providing a variety of 3PL warehousing and transportation solutions across a range of industries

But today’s sophisticated logistics buyer recognizes that BIG also has disadvantages, particularly when the 3PL is really just a conglomeration of many other 3PLs.

• Bureaucracy and poor direct communication with top executives
• Lack of agility
• Non-integrated IT systems that are the product of many acquisitions
• The lack of a uniform culture and value system that has been cultivated over decades

People define value in different ways. It’s why some love the one-stop shopping convenience of mega-retail stores, while others avoid them like the plague.

Shippers are no different. That’s why there is plenty of room in the market for large, global providers like XPO, for growing national 3PLs like KANE, and for small, specialty providers that deliver a niche solution.