Bangkok Post, Thailand, Business Weekly Link Column.

Dec. 4--With an average 20 percent annual growth, outsourcing of supply chain operations to professional third-party logistics (3PL) companies in Thailand has been one of the success stories in recent times, as manufacturers and retailers look to cut costs and lift service from within their supply chain activities.

The rationale is simple: outsourcing logistics allows manufacturers, retailers and others to save money and focus on their core business of creating, marketing and selling better products.

There are many reasons for using a 3PL: to acquire expertise, talent and resources that don't exist internally; to let the company focus on its core competency which it has determined is not logistics; to develop value-added capabilities to better service its customers; to improve operations or customer service; or simply to improve processes. Outsourcing also allows a firm to avoid the related capital expenditures, labour problems and costs of regulations.

The entry of global 3PLs in the mid-1990s resulted in a market for outsourcing developing as these companies worked hard to create a niche. Their task was to build trained workforces from scratch while educating prospective customers who were unsure how to manage these new and more complex relationships.

Information systems and availability of clean data on which to build advanced supply chains was scant or incorrect at the time. Many 3PLs were tempted to over-promise as they saw huge potential to improve supply chains but lacked the local Thai experience on how to actually deliver these promises.

Less than a decade later, international companies have adapted themselves to the local market, becoming "multi-local multinationals", and Thai logistics firms have developed at a rapid rate to a stage where they are openly competing against the global giants.

The logistics industry has not escaped the global trend of consolidation and in the end, the customer is the winner, as buyers of logistics services now have access to information from around the world and can leverage outsourcing relationships from one country to another. With this leverage inevitably comes discussion of pricing. As a result, 3PLs in Thailand have seen margins steadily eroding as buyers become more savvy at valuing the benefits.