America's wholesalers and distributors say they have met the enemy, and it is … UPS? Yes, third-party logistics divisions operated by the likes of FedEx, Ryder and Big Brown have already made big inroads into the wholesaler-distributors' traditional market, according to a new study produced by the National Association of Wholesaler-Distributors and Pembroke Consulting. And that competition's not going away anytime soon. In fact, the report, Facing the Forces of Change: The Road to Opportunity, warns that the group's members should expect competition for their core logistics and order fulfillment functions to intensify.
"Third-party logistics companies are on a collision course with distributors for control of the supply chain," says Adam Fein, president of Pembroke Consulting, the business strategy consulting firm that conducted the research.
"Third-party logistics companies and logistics companies [that] provided truck and shed services in the past are now moving inside the brown box to get access to some of the other revenue in the supply chain." Already, he says, 80 percent of the 200 largest logistics companies offer pick and pack services in direct competition with wholesaler-distributors.
What's more, they're finding it profitable. Revenue from value-added warehousing and distribution services reached $17 billion last year, nearly 25 percent of total sales for logistics companies. And those value-added services represent the fastest-growing revenue stream for third-party providers.
Though wholesaler-distributors have been slow to wake up to it, the threat is real, says Fein. Right now, less than half of industrial distribution executives say they expect competition from logistics companies in the future, according to the study. But Fein reports that more than half of the Fortune 500 currently outsource supply chain functions to logistics companies.
A big part of the logistics companies' appeal is flexibility. Compared with their wholesaler-distributor rivals, the logistics companies can offer their clients the following:
Apparently potential customers are taking notice. "Many manufacturers see logistics companies as a viable alternative to wholesaler-distributors for many core activities," says Fein. "Not only is it a viable alternative today, but it will be even more viable in the future."