Explosion of SKUs and 3PLs Transform Demand Driven Supply Chain

3 minute read

Upland Admin

Every day I walk through the lobby of Ultriva and pass a table laden with the latest Supply Chain Magazines. When I open my inbox, I am swamped with many more email notifications for supply chain and manufacturing news from magazines online. So for an article to resonate with me, it must speak to an issue relevant to Ultriva, particularly one that we solve.

One recent article caught my eye. Patrick Burnson, executive editor for Logistics Management and Supply Chain Management Review magazines, recently reported that eighty-six percent of Domestic Fortune 500 companies use 3PLs for logistics and supply chain functions according to a new report just issued by Armstrong & Associates. That is a significant enough number to make me pause. The report entitled “Trends in 3PL/Customer Relationships – 2013” leverages Armstrong & Associates’ proprietary database of 6,398 3PL customer relationships to provide detailed information on the top outsourcers to 3PLs, trends in service demand, and 3PL market size by vertical industry segment from 2005 through 2013E.

According to the report, General Motors, Procter & Gamble, and Wal-Mart each use 50 or more 3PLs. The report also quantifies the Global Fortune 500 3PL market at $250.2 billion, a 67% increase since 2005. Within the Global 500, “Technological” industry 3PL customers spent $66.8 billion with 3PLs in 2012 and are on track to spend $71.1 billion in 2013. The compound annual growth rate for Technological 3PL revenues was 9.3% from 2005 to 2012. “Electronics, Electrical Equipment” companies led all Technological industry sub segments with over $25.7 billion in 2012 3PL spend.

The editor went on to share that the average customer is utilizing each 3PL for just under three different logistics services with Transportation Management being the most frequent service utilized. Of the total 6,398 3PL/Customer relationships, 1,184 or 18.5% are strategic with the 3PLs performing supply chain management and/or lead logistics provider services. While these strategic relationships were dominated by Automotive and Technological industries in the past, there are increasing numbers of strategic relationships within the Retailing and Industrial industries.

In the last few years alone, I have seen a huge increase of SKUs. Look at the Apple Ipod or now the Iphone with the abundance of colors. Ultriva believes that this 3PL is part of a transformational strategy. With several changes in the market – an explosion in the number of FG SKUs, more and more configurable options based on customer demands, shorter lead times –  companies are moving towards a Demand Driven Manufacturing model with a need to build a Demand Responsive Supply Networks.

Both these models need a different way to respond to customer orders and replenish components and raw materials. So companies have to rethink their long term supply chain strategy on how to implement the end to end pull process. Customers will be forced to take a holistic view to transform their supply chain management whether in-house, on the manufacturing plant floor or interacting with 3PLs.

As global supply chains are becoming more complex, Ultriva’s Collaborative Supply Portal works with buyers, suppliers and 3PLs to provide and improve collaboration as well as present a single version of truth. If you would to request a demonstration of our Collaborative Supply Portal software, please click this link.

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