Why Divested Companies Need 3PLs
Today’s volatile marketplace conditions make it difficult for newly divested companies to succeed without the expertise of a third-party logistics provider.
That’s the central thesis of a white paper recently released by CLX Logistics.
Companies that decide to focus on their core capabilities to improve their service offerings and increase shareholder value often divest non-core business units as a result. But with increased regulations, unstable market conditions, and capacity concerns affecting shippers, it is very difficult for a newly divested company to its goals without the expertise and support of a 3PL, the white paper argued.
According to a recent survey, divestitures are driven by the desire to unload segments considered capital intensive and those which are not aligned with a company’s core business. Divestitures are reportedly increasing.
A 2015 report indicated that about three-quarters of private equity firms anticipate an accelerated level of exits within the next 12 months. On the corporate side, the report saw an increase in the number of company respondents expecting to shed businesses.
“This increase means a higher demand for third-party logistics providers with experience supporting newly divested companies,” said the white paper, “as their ability to maintain corporate continuity and supply chain performance during transitions is vital to the divested company’s livelihood. This reliance is also turning 3PL providers into long-term and enterprise-wide partners.”
Divestitures create challenges for supply chain executives who are tasked with ensuring the
performance of the new, smaller companies. For one thing, expertise provided by the original parent company will no longer be there for the new, smaller spinoff. Staff size will decrease and capability gaps will emerge.
“These major operational challenges, when not mitigated by an outside expert or combated by the additional resources gleaned from a 3PL,” the white paper said, “have the ability to hinder the four major goals set forth for the typical divestiture: maximizing price, minimizing disruptions to the retained business, keeping capabilities away from competitors, and handing the buyer something that can be operated successfully from day one.”
The paper cites reports showing the mergers and acquisitions, which include divestitures, have a failure rate of anywhere between 50 percent and 85 percent.
An experienced 3PL, according to the white paper, can offer immediate expertise and support in areas where a divested company has lost talent. The 3PL comes with valuable carrier relationships and knowledge for optimizing supply chain performance. It can provide input on best practices that have been gleaned from similar transitions with other shippers and assistance with evolving domestic and international shipping requirements.
“The most important element, the paper concluded, “is a 3PL’s keen awareness of the service requirements needed across the supply chain. This industry intelligence helps ensure that the divested company has accounted for all workforce needs before, during and after the transition. This intelligence, combined with the ability to quickly and effectively fill gaps, is what maintains a seamless and high-performing operation – making 3PL assistance critical for capturing maximum divesture value, from day one.”
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