Like the Energizer bunny, the third-party logistics industry, or 3PL, keeps on going and going, despite the recession.

That's because an ever-growing number of companies are turning their supply chain activities over to 3PLs that have the resources, best practices and scale to warehouse, distribute, and ship more efficiently and less expensively than others can do in-house.

Revenues of 3PLs increased 7.4 percent to a total of $60.8 billion in 2001, nearly double the revenues of 1996, according to Richard Armstrong, president of consultant Armstrong & Associates, Inc. (608-873-8929, www.3Plogistics.com).

In fact, nearly 75 percent of the Fortune 500 rely on 3PLs to support their supply chains on a global basis, or to provide niche applications like reverse logistics, crossdocking and order fulfillment.

That's not to say the industry doesn't face challenges. Consolidation is rampant and margins are thinner than ever as 3PL users demand more services, better deals and shorter contracts.

Still, the future looks promising. For one, companies already using 3PL services are expanding the activities they outsource. 'A major 3PL literally has every conceivable service that a supply chain organization might need,' says Mike Hickey, an associate partner with consultant Accenture (214-853-1000, www.accenture.com).

At the same time, companies with revenues below $5 billion are just now discovering the advantages of using a 3PL. 'Our biggest competitors aren't other 3PLs,' says Lynette McIntire, spokesperson for UPS Supply Chain Solutions (866-822-5336, www.ups.com). 'It's people who are still doing logistics in house.'

Going forward, several dynamics are shaping the industry. These range from the increasingly strategic nature of outsourcing logistics to the ability of 3PLs to offer more than basic contract warehousing and transportation services.

It's no accident that the 3PL industry has been transformed from low-cost providers of over-the-road transportation and public warehousing into supply chain professionals in the last decade.

During that same period, business has come to recognize that supply chain performance can make a difference in the market. 'In the past, a local distribution manager chose a public warehouse because it was a commodity purchase,' says Bob Bianco, president and CEO of Menlo Worldwide Logistics, Redwood Shores, Ca. (650-596-4000, www.menlologistics.com). 'Now, it's a CFO or CEO looking at the best way to get to market. These are very strategic business decisions.'

Using a 3PL allows a company to focus on its core competencies, and to remove capital expenses, like warehouses, trucks and materials handling equipment from the balance sheet. In return, a user gets predictable costs, with the option of varying services when business requirements change.

'No matter what industry you're talking about, outsourcing boils down to three things,' says Accenture's Hickey. 'How does an organization want to deploy its capital? What kind of return do they expect back from that capital? And is that activity a core competency or not?'

Because senior managers are involved up front, 3PLs are approaching the market differently than they did in the past. Instead of touting their warehouses and storage systems, they're emphasizing their ability to take time and money out of the order cycle.

'Everyone is trying to turn the cash-to-cash cycle quicker,' says Brian Hancock, vice president of operations for Schneider Logistics (800-525-9358, www.schneiderlogistics.com). 'Unless a 3PL understands that cycle, they can't fix that.'

The move into supply chain management means that today's 3PLs are offering much more than public warehousing and contract transportation services.

'Traditionally, a 3PL was very deep in one particular service,' says Mark Layton, CEO, PFSweb, Inc., Plano, Tx (888-330-5504, www.pfsweb.com). 'The trend today is to provide a single point solution for as many supply chain services as possible.'

Those needs may be as focused as: a cross-docking facility to combine LTL shipments into full truckloads or implementation of a supply chain solution that meets the compliance requirements of big box retailers. Or they may be as complex as a global solution that synchronizes the activities of offshore suppliers with global customers.

In fact, the pressure to offer international services was one of the most important market dynamics listed by 3PLs in a survey last fall by Accenture and Northeastern University.

'As manufacturing gets pushed farther from the consumer to lower cost operating environments, like China and eastern Europe, our clients want us to transfer our capabilities anywhere in the world and execute at the same level - and at the same costs - that we have in North America,' says Menlo's Bianco.

There is now a growing list of 3PLs, including UPS Logistics, FedEx, and Excel that can serve 90% or more of the world's Gross Domestic Product, according to Armstrong of Armstrong & Associates.

There are now a number of 3PLs, including UPS Logistics, FedEx, and Excel that can serve 90% or more of the world's GDP.

'Several 3PLs can now provide integrated fulfillment solutions with global track and trace capabilities, whether the inventory is in motion or in a warehouse, and whether it's domestic or international. Those capabilities will only get better over time,' says Armstrong of Armstrong & Associates.

In 2000, 3PL leaders cited the booming dot coms as the most significant business opportunity for their industry.

While that may not have panned out as planned, filling Web and catalog orders for retail consumers and business customers is still a growing niche for the 3PL industry.

That's because many established retailers and manufacturers realize they are unprepared to fill individual orders with their existing supply chains.

'Our manufacturing clients are now selling directly to large enterprise users and consumers through a variety of channels,' says Mike Therrell, senior vice president and general manager for Ingram Micro Logistics, Santa Ana, Ca (714-382-4834, www.im-logistics.com). 'Our job is to get their products to market through any of the supply chains out there.'

For instance, Canadian Tire replenishes stores from warehouse and distribution centers designed to ship full pallets and full truckloads. (For the full story, see the Warehouse of the Month.) The Canadian retailer relies on a third-party logistics provider, however, to manage catalog and e-commerce orders to individual consumers.

The advantage of a 3PL is that other clients share the cost of the warehouse space.

Managing those orders goes beyond picking, packing, and shipping. Increasingly, 3PLs are managing the entire fulfillment process, including capturing the order, value added services like gift wrapping and kitting, and the returns.

'Every one of our clients has their own business rules,' says Frank DiMaria, divisional president of APL Direct Logistics, Jacksonville, Fla (866-320-3266, www.apldirectlogistics.com). 'Our objective is to modify our operations to meet their requirements without going broke.'

APL Direct Logistics has designed shrink-wrap operations for a client that needed kits assembled and wrapped; storage for garments-on-hangers for a high-end retailer; and an order management system that merges products from multiple suppliers and locations into a single order. 'We have gone into a client's existing warehouse, and used our WMS (warehouse management system) to create a warehouse within a warehouse to complement their existing operations. And we've designed forward deployment systems that spray their inventory at APL locations around the customer so we can deliver closer to the consumer,' says DiMaria.

Regardless of whether a company is using a total supply chain or a niche application, one of the most important services 3PLs provide today is the information technology that ties these solutions together and provides visibility into the status of inventory and orders.

'Many people outsourcing today are not interested in making the investment in the increasingly complex information technology solutions you need to manage a supply chain today,' says Armstrong of Armstrong & Associates.

In fact, while materials handling is central to order fulfillment (see box below - How industry leaders are using 3PLs), 3PLs say that most conversations with customers begin around IT capabilities. 'Customers want us to be their order management system,' says Robert Toner, vice president of logistics for Innotrac Corp. (678-584-4000, www.inotrac.com). 'They want us to be able to take their orders from the customer; process the orders in our warehouse management system and report back to them on the tail end.'

For that reason, the information technology piece is usually the most time consuming aspect of implementing a 3PL strategy. 'Providing systems integration and connectivity so our customers can see what's happening in real time with their inventory can take 30 to 60 days,' says Therrell of Ingram Micro Logistics. 'Getting the inventory on the shelf can happen over a weekend.'

Globalization, information technology, and the demand for new services are trends that are likely to continue driving the 3PL industry as it goes forward.

And as 3PLs look to differentiate themselves from their competitors and make themselves more valuable to their clients, the list of services they offer will continue to grow with the industry.

Click the icon to see how Ingram Micro manages orders for its clients.