Both in the UK and around the world, the last few years have certainly presented their fair share of challenges, with businesses across a multitude of industry sectors having to simultaneously combat market disruption and drive continued commercial growth. Ultimately, this has led to many organisations looking inward to drive cost-competitiveness, de-risk operations, and thereby drive profits in a much more sustainable fashion. Quite interestingly, this has led many organisations to consider transitioning to an asset-light business model as a means to improve financial stability and ultimately focus greater time and investment into their core business capabilities.
According to a survey conducted by Ernst & Young LLP (a global leader in assurance, consulting, strategy and transactions, and tax services) in 2021, 31% of the study’s 1,000 C-Suite participants expressed that digitisation and technology shifts had prompted them to consider pursuing asset-light strategies, with 25% nodding to the imperatives to meet customer demand, and 21% indicating that the capital requirements to fuel growth are a key factor in considering asset-light strategies. [4] And while there are many ways to reduce asset weight and strive towards an asset-light business model, perhaps the simplest way for many organisations actually lies within the logistics function.
Interestingly, we aren’t alone in thinking that the logistics function is the best place to start – at least, according to “The Future of Fulfilment”, a 2023 data study published by Ware2Go (a UPS company). Looking at the current state of fulfilment, the report showed that while 89% of small to medium businesses in the study were managing at least some of their fulfilment in-house, 45% actually indicated a desire to divert time away from fulfilment and back into core business competencies. Critically, the report also nodded to shared warehousing resource (71%) as the most supported solution for the future of fulfilment. [5] All of this aligns with an overarching desire to reduce asset weight within the logistics function, facilitate greater scalability, and reduce costs.
The Asset-Light Business Model: What is an Asset-Light Logistics Function?
On the surface, an asset-light business model is a one where an organisation has either minimal fixed assets on its balance sheet, or the ratio of variable assets to fixed assets is such that the organisation maintains minimal fixed assets within the context of its commercial output. Naturally, the business model is well suited to the service sector, where business operations are typically not underpinned by significant capital investment. This is in contrast to industries such as that of manufacturing, mining, and logistics , where an asset-heavy model is actually more common.
When it comes to the logistics function (as opposed to those operating within the logistics industry), there’s far greater nuance to the asset weight of the model; this is primarily due to the difference between an asset-light organisation that may have transferred asset ownership to an asset-heavy third party provider (typically a forwarder or 3PL partner), and an asset-light organisation that may have partnered with a similarly asset-light business for the purpose of enacting the complete logistics strategy (a 4PL). Both of these models share many of the key benefits associated with an asset-light model, but there remain some that are unique to working with an asset-light Fourth Party Logistics (4PL) partner.
The Benefits of Asset-Light Logistics: Boosting Service Levels, Efficiency & Competitiveness
In the first instance we’ll focus on the benefits that organisations can reap from pursuing an asset-light logistics model, regardless of whether they are working with a 3PL or 4PL.
The most evident benefit of reducing asset weight within the logistics function is the intrinsic rebalancing of the ratio between CapEx and OpEx. Through transferring asset ownership to a logistics partner, organisations similarly transition the responsibility of asset maintenance and investment to said partner. In outsourcing this responsibility, organisations no longer need to concern themselves with asset depreciation (a particular problem for vehicles), day-to-day maintenance costs, or even the changing regulatory framework when it comes to emissions standards (such as Euro 7, due in 2025 and 2027 for new light and heavy duty vehicles respectively [1]). All of this is ultimately addressed by the logistics partner instead.
Furthermore, organisations shifting to an asset-light model are also able to tap into greater efficiencies and cost-competitiveness within the logistics function, all while bolstering overall service levels. In fact, according to NTT Data’s 2023 report on the state of the 3PL market, some 71% of shippers indicated that using a 3PL had contributed to improving customer service, with similar results demonstrating how 3PLs have provided innovative solutions to improve logistics effectiveness and lower logistics costs. Unsurprisingly, this led to 52% of shippers saying that they would collaborate with other companies to achieve logistics cost and service improvements. [2]
When it comes to working with an equally asset-light logistics partner, not only are the aforementioned benefits still prevalent, but they’re compounded yet further due to the 4PL’s own rebalancing of the CapEx to OpEx ratio. Similarly operating on an asset-light logistics basis, 4PLs minimise their own capital ownership and manage logistics services through an expansive network of their own logistics partners (including 3PLs). As a result, 4PLs also benefit from the aforementioned factors, but can offer greater operational scalability thanks to unparalleled access to logistical infrastructure; this is due to the 4PL’s links into a multitude of logistics partners on-demand, with each maintaining their own fleet, drivers, and warehousing infrastructure.
A number of factors do come into play when assessing the scale of these benefits, however. On the client side, considerations must be made in terms of volume, weight, and distance between the client, partner and end-customer to ascertain if shifting to an asset-light model can deliver the desired improvements. Regarding the logistics partner, the ability to create these improvements also depends on the scale and quality of infrastructure available, with the strength of a 3PL relying on the quality of its fleet, warehousing, driver network, and IT systems. For the 4PL, greater emphasis is drawn onto the IT services and strategic oversight of the partner network, with the scale of the logistics partner network providing a limitless pool of physical infrastructure.
Vic Faulkner, Operations Director, at X2 (UK) explained: “By and large, shifting to an asset-light logistics function is a critical means of de-risking operations, creating opportunities for greater efficiency, and importantly focusing on what you do best as a business. As a Fourth Party Logistics (4PL) specialist with over 1000 logistics partners in our network, X2 (UK) has access to far greater resource than a client could ever want for and we can ‘turn on’ or scale up those resources at the flick of a switch. We call it our ‘dimmer switch’ capability.
“But it doesn’t end there. We complement the strengths of our partner network with strategic oversight across the entire logistics operation. Through route optimisation, efficient asset utilisation, consolidation of shipments, backhauling where appropriate, advanced IT systems and more, we’re able to all but guarantee greater efficiency within the logistics function. As a 4PL, we can do this regardless of the scale of service a client demands, even at the shortest of notice. For the client, it’s a stress that’s rarely missed, while for us, it’s a job we love doing and we do it well.”
Importantly, as a 4PL, X2 (UK) is also able to pursue strategic decisions impartially. Particularly in the case of shipment consolidation and shared warehousing, use of a 4PL can also detach political decision making from strategic decision making and ensure a logistics function is as efficient as can be. Especially considering the potential gains of these measures (with research indicating the potential for shipment consolidation to reduce total costs by 40% in some cases) [6], use of a 4PL is arguably the easiest and most efficient way to deploy these strategies effective immediately.
Recent high profile examples of a successful transition to an asset-light logistics function also demonstrate industry-wide recognition for what the model ultimately has to offer. This includes the likes of BT Group, arguably the leader in the UK telecommunications market, which is now reaping the rewards of reduced asset weight via partnership with a third party logistics provider. Indeed, according to BT Group, the decision has not only assisted the business in delivering exceptional service, but also in supporting its growth plans and wider market ambitions. [3]
X2 (UK) has similarly demonstrated success amongst its own client base, including with one of the world’s largest nutrition companies, ADM Oils. Indeed, according to sources at ADM Oils, X2 (UK)’s 4PL solution not only provided a reliable and scalable service, but also led to the aforementioned reduction in costs and overheads that an asset-light logistics function can uniquely offer. This has ultimately helped to give ADM Oils a competitive advantage in the market and allow for greater focus on the core business operation.
Learn more on our 4PL Management Solutions or get in touch to discuss how you can benefit from asset-light logistics.