WHEN Au Bon Pain, a French bakery/cafe chain, decided to open a restaurant in Santiago, Chile, it needed more than just a good recipe for croissants.
``We were moving perishable products to another continent, and we needed to do it cost-effectively,'' says Ruth Cherneff, special projects manager for Au Bon Pain.
Instead of taking a crash course in customs law, freight management, and trade routes, Ms. Cherneff hired INTRAL Corporation, a Boston-based international logistics-management firm, one of a growing number of third-party consultants helping manufacturing and consumer-products companies.
``We moved everything from frozen dough to paper cups, enabling Au Bon Pain's managers to focus on developing and selling the best French-style food that they can,'' says INTRAL president Jay McCabe.
Third-party logistics began in the 1980s as companies restructured to cut costs, says Mark Fagan, a logistics management consultant at Mercer Management Consulting in Lexington, Mass. ``It's hard to compute exact revenues ... since many of the providers are subsidiaries of larger transportation companies, but I think it's safe to say that it's a billion-dollar industry,'' Mr. Fagan says.
Hundreds of companies are now turning to third-party logistics providers because ``the economics are very attractive,'' Fagan says. ``The third parties have core competencies in areas like transportation or warehousing and, even with their fees, can usually do the job cheaper and [more] productively than their clients can.''
Some logistics providers are independently owned spinoffs of manufacturers that restructured or eliminated their distribution functions. USCO Distribution Services of Naugatuck, Conn., a privately held spinoff of Uniroyal Inc., is one of the most profitable companies in the business, Fagan says. Mr. McCabe is an industry veteran who started INTRAL after 22 years as a logistics manager at Gillette Company.
Other third-party providers own truck fleets or warehouses and are subsidiaries of larger transportation companies. GATX Logistics of Jacksonville, Fla., a subsidiary of Chicago's multibillion-dollar GATX Corporation, had $212 million in revenues last year. The logistics division started out solely as a warehouse provider but now offers services such as package design, shrink-wrapping, and in-store product displays. ``We'll even put the price tags on,'' marketing manager Russell Dixon says.
``In the auto, pharmaceutical, and grocery industries, outsourcing is now almost de rigueur,'' writes E. J. Muller, senior editor at Distribution magazine. Mr. Muller says recent deals such as J. C. Penney's shipping contract with the United Parcel Service, and Apple Computer's contract with Skyway, show that the trend is here to stay.
``Outsourcing is an evolution of services that transportation companies were already providing,'' says George Gecowets, executive vice president of the 7,800-member Council of Logistics Management Industry Association.
While he says many companies are turning to outsiders for advice, not all need to give up their internal distribution functions. Some companies strengthen their internal-distribution departments by hiring a third-party logistics manager to work on-site, Mr. Gecowets says. According to Distribution magazine, retailer Laura Ashley, Polaroid, and General Motors are all experimenting with this approach.
Companies with customized distribution requirements, such as those shipping liquid gases, nitrogen, or explosives, are probably better off doing it themselves, Fagan says.
Some companies, impressed with the achievements of the Gulf war, have turned to the military for logistics guidance. Last month Sears, Roebuck & Co. hired Lt. Gen. William ``Gus'' Pagonis, director of troop and supply movement during the war, to take charge of shipping, distribution, and delivery for all Sears merchandise. Mr. Pagonis is author of ``Moving Mountains: Lessons in Leadership & Logistics from the Gulf War,'' which is aimed at corporate managers.
Clients should weigh management skills most strongly when choosing a third-party logistics manager from the hundreds of new firms springing up, Gecowets says. ``Some companies are billing themselves as full-service third-party providers when they really aren't,'' he says. ``Others do only one or two things really well and have a vested interest in having you use their facilities.''
Fagan and other industry experts say third-party logistics providers are offering smaller firms a level playing field. ``Because of our extensive industry experience, we can offer a company like Au Bon Pain the same international capabilities that large multinationals have,'' says INTRAL's McCabe. ``And as the client base grows, INTRAL obtains economies of scale by dedicating higher freight volumes to carriers.''