THIRDPARTY LOGISTICS

Results and Findings of the 2004 Ninth Annual Study

Third-Party Logistics Study Results and Findings of the 2004 Ninth Annual Study
Participants: C. John Langley Jr., Ph.D., Georgia Institute of Technology Gary R. Allen, Capgemini U.S. LLC Thomas A. Dale, FedEx Supply Chain Services, Inc

Table of Contents
Introduction...........................................................................................1 Study Objectives and Methodology .....................................................1 Summary of Key Findings ....................................................................5 Logistics Outsourcing Practices in Profile ..........................................8 3PL Service Offerings and Technology..............................................13 Management and Relationship Issues ..............................................19 Customer Value Framework...............................................................26 Strategic Assessment.........................................................................30 Appendix: 3PL User Focus Group Sessions.......................................34 About the Participants........................................................................35 Contact Information............................................................................37

Supporting Organization

3PL: Results and Findings of the 2004 Ninth Annual Study

Introduction
This report presents the findings from the Ninth Annual Third-Party Logistics Study. This study identifies and tracks key trends and views of the third-party logistics (3PL) industry from the perspectives of customers who purchase and use 3PL services. Over the years, this study has grown in terms of the regions and industries examined. Also, each annual study addresses key issues that have emerged from time to time relevant to the logistics and 3PL industries.

Study Objectives and Methodology
During the spring and summer of 2004, C. John Langley Jr., Ph.D., of the Georgia Institute of Technology, with Capgemini and FedEx, conducted an extensive study about using 3PL services in North America, Western Europe, Latin America1, and Asia-Pacific.2 This is now the ninth annual research study to examine critical trends and issues among key markets and key customers in the 3PL industry.
North America

Study Objectives
❑ Measure the development and growth of the 3PL industry across major industry segments and across several diverse regions of the world. ❑ Identify customer needs and how well 3PL providers are responding to those needs. ❑ Understand how customers select and manage 3PL providers. ❑ Examine why customers outsource or elect not to outsource to 3PL providers. ❑ Summarize the current use of 3PL services. ❑ Investigate leading topics, including 3PL service offerings and technology, how to structure and manage effective 3PL relationships, and how customers view success and value from 3PL relationships. ❑ Provide a strategic assessment of the future of the 3PL industry. An important goal of each year’s 3PL study is to improve upon the previous years’ studies. The following are ways in which the 2004 3PL study was modified to enhance the scope of earlier studies: ❑ Continued to expand the 3PL study to meaningfully include Asia-Pacific, Latin America, North America, and Western Europe (see Exhibit 1).3 ❑ Revised content and terminology to be current and to respond to recent advances in the logistics, supply chain, and 3PL/4PL industries. ❑ Continued using the Internet to conduct the study. The 2004 3PL study used a webbased commercial firm to administer and manage all survey activities in a global setting, including survey e-mailing, tabulation, and preparing reports for analysis. ❑ Expanded the approach to getting feedback and perspectives about this year’s study results and about using 3PL services in general from leading logistics executives. This year, the study team conducted four telephonic user focus group sessions.4 Further information about these focus groups is included in the appendix of this report.

Western Europe Asia-Pacific Latin America

Exhibit 1

© 2004, C. John Langley Jr., Ph.D., Capgemini U.S. LLC, and FedEx Corp. 1 The authors of the study would like to thank the Latin America Logistics Center (LALC) as a Supporting Organization and particularly Maria F. Rey, Executive Director, for their helpful involvement with the Latin American portion of the 2004 Third-Party Logistics Study. In addition to providing contact information for Latin American logistics executives, Ms. Rey and the LALC graciously translated the entire 3PL survey into both Spanish and Portuguese. Also, the study team would like to thank Christopher J. Mehl of Capgemini for his diligent and helpful work as a member of the project team. 2 It was anticipated that South Africa would be included in this year’s study, but survey contacts were not available at the time the study was conducted. We hope the next annual study will include this important region. 3 North American companies are mostly concentrated in the United States, although a number of firms operating in Canada and Mexico were included. Western Europe includes Belgium, Denmark, France, Germany, Italy, Netherlands, Spain, Sweden, Switzerland, and the United Kingdom. Asian-Pacific responses were from Australia, China, Hong Kong, Japan, Malaysia, Philippines, Singapore, Taiwan, and Thailand. Latin American responses were from Brazil, Colombia, Costa Rica, Guatemala, Mexico, Nicaragua, Panama, Peru, and Venezuela. 4 Among the organizations represented in the 2004 Third-Party Logistics focus group sessions were All-American, Dade Behring, Eaton Corporation, Foamex, Intel, Medela, Northrop Grumman, Philips Consumer Electronics Corporation, ProCorp, Sharp Electronics, and Sysmex.

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Exhibit 2 Survey Response Rates
Regions North America Western Europe AsiaPacific Latin America Totals Companies Contacted 2,384 3,698 393 2,930 9,405 Usable Responses 222 263 43 128 656 Response Rate 9% 7 11 4 7

The study methodology included addressing e-mails to logistics and supply chain executives across North America, Western Europe, Latin America, and Asia-Pacific, asking for their participation in the study. (In this study, an “executive” holds the title of manager, director, or vice president of logistics or supply chain management.) In the email, executives were asked to “click on” a web address that would access the 2004 3PL survey. Once the survey was completed, a final click on “end survey” entered the responses into the study’s database.5

Industries Studied
The industries predominantly represented by the survey respondents included: 6 ❑ ❑ ❑ ❑ ❑ ❑ Automotive Consumer Products Food and Beverage High-Tech and Electronics Life Sciences (Pharmaceutical) and Medical Retail and Apparel

These industries were selected because they view logistics as strategically important and because they are viewed as purposefully moving toward integrated supply chain management. Survey recipients were asked to think of a “3PL or third-party logistics provider” as one that provides multiple logistics services for its clients and customers. Following several examples of firms that would be typical of such a definition,7 recipients were asked to think of a “4PL or fourth-party provider” of logistics services as one that primarily manages subcontractors that perform 3PL operations.8 Exhibit 2 shows by region the total number of companies surveys were sent to, the number of usable returns received, and the response rates. Even though multiple waves of e-mails were sent to those on the regional contact lists, the response rates in 2004 were somewhat less than those from preceding years of the study. This year’s study was the first to include Latin America; we hope the response rate for this region will increase in future years.9 The following list identifies a number of key characteristics about the firms participating in the 2004 3PL study: ❑ Although a broad range of company types were included in this study,10 the percent of respondents representing the manufacturing sector were 64% in North America, 74% in Western Europe, 70% in Asia-Pacific, and 58% in Latin America. The wholesale/distribution/retail sectors were represented by 28% of the respondents in North America, 21% in Western Europe,15% in Asia-Pacific, and 17% in Latin America.

5 To facilitate completion, surveys were translated into French, Portuguese, and Spanish for executives in various parts of the world. 6 In addition to the industries cited, the study also included a few respondents in the aerospace, chemical, government, telecommunications, and utility industries. 7 The firms cited as examples in the survey included Deutsche Post, Exel, FedEx, Menlo Logistics, Ryder, Schneider Logistics, Tibbett & Britten, UTi Worldwide, and UPS. 8 As explained later in this report, the industry executives participating in the focus group sessions provided valuable insights to help distinguish between the terms 3PL and 4PL, as well as more advanced services that may be available from integrated logistics services providers. 9 Although there is room for improvement in the Latin American response rate, executives in that region tend to be more reluctant to participate in surveys. Notable, however, is that the Latin American portion of the study did yield a total of 128 usable responses. 10 Respondents were asked to classify their firms in one of the following categories: raw materials supplier, manufacturer (components/ingredients, contract manufacturer), manufacturer (finished product), wholesale/distribution, and retail.

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11 Exhibit 3 Regional Scope of Users’ Logistics Responsibilities Regional Scope North America Western Europe AsiaPacific Latin America Middle East Africa North America 98% 45 46 43 22 17 * Location of 3PL Users Western European Asia-Pacific Latin America 16% 12 8 96 12 4 22% 99 28 26 32 30 19% 24 100 14 10 5 ❑ Respondent firms have a relatively broad range of anticipated sales revenues for 2004. 3 . non-users more often have strictly local responsibility. Asia-Pacific (46%). Results were then converted to US$. Generally. 10% for Asia-Pacific. 13 This observation is consistent with the findings of the 15th Annual State of Logistics Report published by Robert V. the percentages of North American users versus non-users indicating responsibilities in other areas of the world were as follow: Europe (45% versus 41%). 99% in Western Europe. According to this study. U. For example. euro. Interestingly. Middle East (22% versus 24%). business logistics systems costs totaled US$936 billion in 2003 (or 8. *Percentages in each “home” region may not quite equal 100% because a small number of survey respondents may have responsibilities that exclusively extend beyond their “home” region. Asia-Pacific (46% versus 41%). For example. In general. Generally. and Africa (17% versus 17%). and 11% for Latin America. and an increase in this ratio in the other regions studied. Comparable figures are 10% for Western Europe. Last year. these figures are somewhat different from those of the 2003 study. respondents from each of the regions listed significant responsibilities for logistics in their respective areas. US$. this suggests that logistics costs as a percent of sales is declining in North America while it is increasing in the other regions.12 Of the North American respondents. Although the US$936 billion represented an increase of US$26 billion over the year before. so the composition of regional responsibilities has tended to be somewhat the same from 2003 to 2004. and 96% in Latin America indicated the scope of their logistics responsibilities included at least their own immediate region. This phenomenon is due to two factors: a decline in the North American ratio of logistics expenditures to anticipated sales.13 11 For comparison.S.S. 12 Respondents were given the option of responding to financial questions in customary monetary units (e. and Latin America (11%). These percentages are remarkably close to those reported in the 2003 study.3PL: Results and Findings of the 2004 Ninth Annual Study ❑ The 3PL users indicated a broad regional scope for their logistics operations. For example. 98% of the respondents in North America. approximately 58% of the firms have revenues between US$1 billion and US$25 billion. another 12% project revenues over US$25 billion. Gross Domestic Product). as do 3PL users in Asia-Pacific (33%). and RMB). North American respondents indicated responsibilities that included Western Europe (45%). Latin America (43%). 98% of the North American respondents have regional responsibility for only North America logistics. 100% in Asia-Pacific. ❑ North American 3PL users expect that logistics expenditures will represent approximately 7% of their organizations’ anticipated total sales for 2004. Delaney (Oak Brook.g. or 44% in terms of 1 billion euros or more). North American 3PL users tend to have somewhat broader regional responsibility than non-users of 3PL services.5% of nominal U. As shown in Exhibit 3. the responding executives also had broad responsibilities for logistics operations in other major areas of the world. IL: Council of Logistics Management. Middle East (22%). the North American ratio of logistics expenditures to an organization’s anticipated sales exceeded the comparable ratios in the other regions. logistics costs as a percent of GDP declined for the third year in a row. and Africa (17%). 3PL user firms in Western Europe tend to be somewhat smaller (57% expect 2004 sales revenues to exceed US$1 billion. suggesting that some of them have responsibilities that do not include North America.. 2004). Latin America (43% versus 38%).

mergers. are: “globalization. the North American percentage represents a decrease from the 73% who were in agreement in 2003. For example. mergers. and 92% in Latin America.” and Consolidations.” “consolidations.” Looking across the regions. 59% in Asia-Pacific.” Overall.” Globalization 78 91 84 91 “Management and Rapidly accelerating new product introductions 77 88 68 89 Implementation of new information technologies 76 76 75 80 Relationship Issues. 85% of the North American respondents. 4 . 75 83 93 79 “Customer Value Framework. Approximately a third of the respondents across the regions studied felt that “our customers are more interested in price than service.” Of somewhat lesser affect. The last section provides a “Strategic Assessment” of the future of the 3PL industry. the percent of respondents agreeing with “our customers are placing greater emphasis on logistics customer service” was 85% in North America. These percentages have increased from 2003 to 2004..” New markets 75 78 69 88 The discussions will Security issues 69 55 46 78 encompass results from this Intensifying government and regulatory policies 64 75 57 85 year’s study and will provide a Pan-European changes 43 82 8 18 perspective on the study’s Health/Disease concerns 28 45 29 27 findings over its nine-year history. acquisitions.” “rapidly accelerating new product introductions. and 48% in Latin America. Of these figures. 82% in Western Europe and Asia-Pacific. 87% from Western Europe. and 100% from Latin America agree that “logistics represents a strategic. the 2004 3PL study results are discussed in four sections.” “implementation of new information technologies. The first is “Logistics Outsourcing Practices in Profile. security issues are most prominent among 3PL user firms in North America and Latin America (69% and 78%.” and “new markets. etc. The percentages show how many 3PL users indicated that various factors are “having a significant impact on the industry in which your organization competes. including an explanation of the value readers should derive from this year’s 3PL study. acquisitions. 59% in Western Europe. Organization of This Report Following a summary of key findings. the percent of customers agreeing with “using 3PLs is a key to satisfying their company’s customers” was 50% in North America.” Also. competitive advantage for our company. the dominant factors are: “significant pressures to reduce cost.” and “significant pressures to enhance customer service. ❑ Respondents also attach great importance to logistics and supply chain issues. respectively). 82% from Asia-Pacific.❑ Exhibit 4 shows some of the general business pressures facing professionals with logistics responsibilities. but still significant. etc.” “emphasis on improved supply chain management.” where you will find a Exhibit 4 high-level discussion of overall Factors Affecting 3PL User Firms trends among users and nonFactor North Western AsiaLatin users of 3PL services. The next America Europe Pacific America three sections deal with areas Significant pressures to reduce cost 95% 99% 95% 96% of strategic interest to 3PL Emphasis on improved supply chain management 90 98 100 94 use: “3PL Service Offerings Significant pressures to enhance customer service 83 98 83 90 and Technology.” As may have been expected.

16 Again in 2004. All groups project increases in these percentages over the next three to five years. • 3PL use is significant in the regions studied. GDP in that year.-based 3PL providers in 2003 are approximately US$76. 84% in Asia-Pacific. The 2004 3PL study provided new key metrics about 3PL use across the regions studied. Estimated total contract logistics market revenues were US$56. as well as to monitor key metrics over time. June. Similarities and differences exist in users’ perceptions about the 3PL marketplace. Inc. 2004).15 The following points capture the major findings of this year’s 3PL study: ❑ SCOPE OF STUDY. the study highlights a number of key differences. clearly the markets for 3PL services continue to change. • Western European respondents spend a larger proportion of their logistics dollar or euro (61%) on 3PL services than do those in North America (44%). Although 3PL use is similar around the world. 3PL customers throughout the world seek competency in areas such as operating efficiency and effectiveness. And yet. and 67% in Latin America.3PL: Results and Findings of the 2004 Ninth Annual Study Summary of Key Findings This study helps provide a better understanding of the marketplace for 3PL services and the ways providers of such services continue to develop and grow.9 billion. 15th Annual State of Logistics Report (Oak Brook. The study’s findings confirm that the use of 3PL services is prevalent throughout these major regions. today’s marketplace is seeing more productive and meaningful 3PL-customer relationships evolving. Western Europe. Also. Consequently. The reported US$936 billion of logistics costs in 2003 was 8. Asian-Pacific users indicate an average of 63% of their logistics budget goes for outsourced logistics services.8 billion for 2001. The percentages of respondents using 3PL services are: 79% in North America. Continuing studies will be able to provide increasingly useful comparisons of the 3PL industry in the major regions of the world. and delivering comprehensive solutions that create value for 3PL users and their supply chains.S. customers are still able to identify areas for 3PL providers to improve.4 billion for 2000. 15 Robert V.com. ❑ MARKET TRENDS.. ❑ 3PL USER CHARACTERISTICS.5% of the U. 76% in Western Europe. 5 . including implementing capable IT. IL: Council of Logistics Management. Considering that customer demands for performance and sophistication are accelerating. improving in areas such as these is imperative for 3PL providers. Also. Delaney. information technology (IT). The year 2004 was significant for this year’s study as the regions surveyed expanded from North America. service delivery. 3PL providers should focus on a number of key objectives. cost management. and the expectations both buyers and sellers of 3PL services have for each other continue to rise. and globalization. although these percentages are comparable from year to year. as does 49% for those in Latin America. 16 As shown in Exhibit 5. www. and US$65. and even though respondents are asked to identify themselves as users or non-users of 3PL services. US$60.S. 14 Source: Armstrong & Associates.14 the services offered by 3PL providers continue to consume a significant portion of overall logistics and supply chain budgets. For each of the regions. integrating services and technologies globally. the finding that Western European 3PL use is about that of North America is consistent with the long-term use of commercially available integrated logistics by organizations in that region.0 billion for 2002.3plogistics. there may be a greater likelihood for 3PL users to respond and participate in the study. instituting effective management and relationship processes. Considering that the total annual revenues of U. and Asia-Pacific to include Latin America.

feel that 3PL providers sometimes struggle to keep up with customer demands for new capabilities. When looking toward what future IT-based capabilities users are going to expect from their 3PL provider. warehousing.. customs clearance. a majority of respondents continue to rely on their internal capabilities as the primary source of IT (rather than their 3PL provider). While these services are considered “core” or expected. comprehensive set of service offerings. outbound transportation. but a greater use of outbound transportation services). and in some cases a greater or lesser level of outsourcing (e. customs brokerage. a primary challenge for 3PL providers is to continually enhance their relationships with customers.• According to the 2004 study. cross-docking/shipment consolidation. responses from 3PL users in Asia-Pacific and Latin America suggest approximately the same level of outsourcing as in North America and Western Europe for many of these activities. inbound transportation. An overwhelming majority of survey respondents from all regions (88%) indicated that 3PL providers should supply a broad. The study also indicated that over the past several years the top service offerings most commonly used by customers has not changed (outbound transportation. greater use of outsourced warehousing. all the regions saw the need for 3PL providers to enhance their process of continual improvements and achievements in their service offerings. the study shows that IT capabilities are a necessity for 3PL providers. however. Assisting customers with the rollout of this complex technology represents a good opportunity for 3PL providers to improve their status with users in terms of IT. the activities most frequently outsourced in North America to 3PL providers are: warehousing.g. and freight forwarding. and customs brokerage). and 4PL services among the respondents from Asia-Pacific than from the other regions. respondents indicated that they selected a 3PL provider based more on the valueadded services they provided. and a lesser use in Latin America of warehousing. the overwhelming response was RFID (radio frequency identification and asset tracking). except the latter region tends to use customs brokerage and customs clearance to a somewhat lesser extent and freight bill auditing/payment services to a much lesser extent than in North America. Once again. Core or basic services continue to become 6 . This year’s study continued to highlight the importance of continual improvement and ongoing investment in managing client relationships. These activities are comparable with those of Western Europe. ❑ MANAGEMENT AND RELATIONSHIP ISSUES. while meaningfully expanding their services. Some focus group participants. transportation. This year’s survey supports this. inbound transportation. freight bill auditing/payment. ❑ 3PL SERVICE OFFERINGS AND TECHNOLOGY. customs clearance. Users of 3PL services continue to have high expectations from their 3PL providers in terms of service offerings and IT capabilities. and freight forwarding services in Asia-Pacific. fleet management. Interestingly. however. This year's results also suggest a greater frequency of outsourcing inventory management. Consistent with previous years.

While 3PL users expect their 3PL providers to offer these advanced services. Latin America. the areas in which improvement was most needed were in providing global supply chain solutions. the 3PL industry is finding itself moving forward and beginning to show signs of progress toward maturity. and reduction in cash-to-cash cycles. 3PL users generally feel that their relationships with 3PL providers are successful (North America. 7 . Third. the respondents also indicated a number of areas in which improvement from their 3PL providers was needed. fixed logistics asset reduction. reduction in length of order cycle. Alternatively. the increasing value of information. and providing means for regional expansion. 3PL users need to think of their 3PL providers more as a “strategist” or “integrator” of logistics activities. Overall. continual improvements. overall inventory reduction. our user focus group sessions focused on key issues that were apparent from the study’s results. To better understand these dynamics and to identify likely strategic directions for the future. the study respondents indicated impressive results in areas such as logistics cost reduction. However.” This must change. Second. and mutual investments. developing or hiring the needed skill set is a daunting task and continual pressure on profitability restricts quick expansion of services. Asia-Pacific. 89%. Not only are 3PL providers and their capabilities changing. This issue is not easy to address because the cost to serve clients is difficult to calculate. This year’s study confirmed that sustainable relationships require equitable and creative deal structures. 72%). providing needed IT (although further improvement is desired). they also continue to view their providers as “tactical logistics providers. they felt that 3PL providers were particularly strong in terms of facilitating supply chain improvement. the emerging role of supply chain integration. Users were also asked about the extent to which they agreed with several statements relating to “accomplishments” of 3PL providers. ❑ STRATEGIC DIRECTIONS FOR THE FUTURE. As reported consistently across the regions studied. 78%. Western Europe. but the expectations that user firms have of their 3PL providers and their services are also changing. Last. and advanced supply chain services. a clear majority of those surveyed indicated that their logistics service levels have improved as a result of using 3PL services. supply chain integration solutions. users must be willing to participate in innovative and productive deal structures that motivate both parties to do what is desired. while value-added services and relationship management skills are becoming points of differentiation. 85%. At the same time. First. 3PL providers must develop their resources or acquire the appropriate skill sets to offer advanced services and improve client relationships. In fact. ❑ CUSTOMER VALUE FRAMEWORK. when asked about quantifiable measures of success with 3PL providers.3PL: Results and Findings of the 2004 Ninth Annual Study commoditized. the need for relationship re-invention and continual improvement. and the need for 3PL providers to expand their global capabilities and reach. Additional priorities include the continual development of the 4PL model and the need for 3PL providers to have truly global reach. The issues that received the most attention included highlevel disappointment with the 3PL provider’s ability to develop and offer valueadded services.

. the percentage of 3PL users remained relatively constant among North American respondents. this increase is more likely because of the sampling methodology (e. and Latin American 3PL users. this percentage increased to 78% in 2002 and 2003. The 3PL users in Western Europe and Asia-Pacific17 tend to spend greater portions of their logistics budgets on outsourcing than do their counterparts in North 17 The differences for Asia-Pacific in the 2003 and 2004 studies are most likely because of a change in the regional composition of respondents. This may be particularly true in Asia-Pacific. Exhibit 5 provides a nine-year view of the firms using 3PL services. the survey confirms that 3PL use varies by industry. Exhibit 6 shows the current (2004) versus projected (2007-2009) percentages directed to outsourcing by North American. and consumer products industries tend to have greater use of 3PL services. 1996 . distribution.. are directed to outsourcing. The single year of data for Latin America suggests that outsourcing logistics services (e. 3PL User Percentages. far heavier representation from China in 2003 1996 1997 1998 1999 2000 2001 2002 2003 2004 than in 2004) than *Although these percentages are comparable from year to year. from substantive differences in usage. Among those industries that tend to use fewer 3PL services are automotive. usage 84 appears to be closer to 79 79 78 78 76 73 73 80%.2004* 100% 80% 60% 40% Percent of Respondents 20% 0% While we have only three years of 3PL usage information for 94 Western Europe. Future studies will continue to strive for a better understanding of 3PL use in various industries. From 1996 through 2001. 8 . 3PL users may be more likely to respond to this study. Western European. Although the number of companies using 3PL providers is generally stable from year to year.g. particularly in the 71 71 71 68 67 last two years. Respondents were asked what percent of total logistics expenditures.g. or value-added services.Logistics Outsourcing Practices in Profile Overall Trends Exhibit 5 North America Western Europe Asia-Pacific Latin America 3PL use is significant in the regions of the world included in this study. the computers and peripherals. as evidenced by fewer Chinese respondents in 2004 than in 2003. between 68% and 73%. however. defined as transportation. and to 79% in 2004. While 58 the Asian-Pacific percentage jumped significantly from 2003 to 2004. Asian-Pacific. For example. and retail. and respondents are asked to identify themselves as users or non-users of 3PL services. 3PL usage of 67% in 2004) may be somewhat less prevalent than in the other regions. chemical.

5%). there appears to be consistency among the percentage growth 80% expectations of North America (+11. Also. respectively) than North Customs Clearance 57 48 68 68 American 3PL users. and Latin America tend to Warehousing 72% 70% 88% 51% spend a smaller percentage of their Outbound Transportation 66 89 100 89 logistics budgets on transportation (52%. Outsourced Logistics Services and 13% to value-added services. Western Europe (+11.2%). where the growth expectation is much higher (+20. they spend a larger Cross-Docking/Shipment Consolidation 55 49 40 22 proportion on distribution and valueInbound Transportation 54 82 84 68 added services. as well as 100% a lessening of the growth expectations of 3PL services as a total of the logistics budgets.6%). Customs Brokerage 60 34 88 57 51%. Consulting Services 21 12 28 22 Information Technology 19 24 16 27 Logistics Activities Outsourced Product Assembly/Installation/Manufacturing 16 16 12 5 Procurement of Logistics 16 33 24 35 Exhibit 7 summarizes the specific logistics Inventory Management 16 27 40 22 services outsourced by 3PL customers in Rate Negotiation 14 12 0 16 2004.3PL: Results and Findings of the 2004 Ninth Annual Study America and Latin America. and now 11% in 2004. Overall. This may be partly because of the composition of the respondents in each of these years. Exhibit 6 2004 2007 . Fleet Management 9 18 40 16 Order Entry/Processing/Customer Service 8 7 16 14 Inventory Ownership 6 9 4 8 Factoring (Trade Financing) 2 7 0 8 0% 9 . on average. Projected Logistics Expenditures Directed to Outsourcing 76 68 61 49 44 63 54 49 40% Percent of Respondents 20% North Western AsiaLatin America Europe Pacific America When asked for details concerning total logistics expenditures. Compared to the 2003 survey. 60% It is interesting to analyze over a three-year period the percentage expected growth in outsourcing as a percentage of total logistics costs in North America. and Latin America (+10. Or it could mean that the growth rate for the extent that individual customers use 3PL services has stabilized. the 3PL users in 2004 projected smaller increases in the percentage of how much their logistics budgets will be spent on outsourcing than the 3PL users in 2003.2009 Current vs. 32% to distribution. except in Asia-Pacific. and 52%. America Europe Pacific America Asia-Pacific. Logistics Activity North Western AsiaLatin Although 3PL users in Western Europe. North American and Western European respondents in the 2004 study appear to be spending a smaller percentage of their logistics budgets on outsourcing. The increase projected was 40% in 2002.3%). 3PL Freight Bill Auditing/Payment 53 19 8 11 Freight Forwarding 47 40 84 35 customers in Latin America tend to Order Fulfillment and Distribution 35 22 52 14 spend the greatest percentage of their Return/Reverse Logistics 27 32 32 24 logistics budget on value-added services Product Marking/Labeling/Packaging 25 29 20 11 (20%) than 3PL customers in the other Product Returns and Repair 22 30 36 11 regions studied. 14% in 2003. Conversely. North American 3PL users responded that. 55% of their expenditures were related Exhibit 7 to transportation. This may signal an intention by North American 3PL customers to take a cautious look at future involvement with 3PL providers. Differences among the results from Carrier Selection 13 25 8 19 the four regions will be discussed in the 4PL Services 10 19 24 16 various sections of this report.

as reported in previous years. heightened use of inventory management services by 3PL users in AsiaPacific. customs clearance. order entry/order processing/customer service). which tended to be between 60% and 70%. and freight bill auditing/payment. inventory ownership. When asked as to what future expectations 3PL users have with regard to this issue. and fleet management than do users in North America. that involve the use of IT. Among the generalizations that may be made from these data are that crossdocking/shipment consolidation is more prevalent in North America and Western Europe than in Asia-Pacific and Latin America. 83% in Western Europe. Overall. Western Europe. 100%. crossdocking/shipment consolidation. and 72% in Latin America. These percentages are actually slightly higher than the finding in preceding studies. 89%. As suggested in last year’s report. and that are strategic in nature (e. We also notice greater outsourcing of logistics procurement among 3PL users in Western Europe and Latin America. 89%). the finding that Western European 3PL customers exhibit significantly less use of freight bill auditing/payment services suggests again this year that the use of financially related logistics services is less well developed in Western Europe than in North America. rate negotiation. customs brokerage. Asia-Pacific (8%). inbound transportation. Asia-Pacific. Moreover. the activities most frequently outsourced to 3PL providers are: warehousing (North America. 72%. there continues to be evidence that the activities most frequently outsourced are those that are operational in nature. the use of freight bill auditing/payment services is far more prevalent in North America (53%) than in Western Europe (19%). outbound transportation (North America. Latin America. carrier selection. 76% in Asia-Pacific. When asked about the extent to which their 3PL services were integrated or tied together. Western European business firms may have always been more involved historically in the use of outsourced logistics services than their counterparts in North America. and a significantly higher use of freight forwarding services in Asia-Pacific. order fulfillment and distribution.g. and Latin America (11%). the percentages of respondents indicating “some” or “significant” were 72% in North America. while there is less of a propensity to outsource activities that are directly customer-related (e.. 88%. This is a critical issue in that the integration of logistics services is considered by many to be a defining requirement of a 3PL service. Western Europe. Integration of 3PL Services A topic that has been addressed in previous years of this study is the extent to which 3PL services are “integrated” or “tied together” by the 3PL service providers.According to the 2004 study.g. 4PL services. 70%. and 4PL services). 51%). Also. 3PL 10 .. Latin America. Another interesting observation from Exhibit 7 is that 3PL users in Western Europe tend to use outsourcing more for activities such as outbound and inbound transportation. 66%. Asia-Pacific.

about 20% of respondents across the regions feel they have more expertise (than the 3PL providers ) as a reason not to outsource logistics services. 92%).3PL: Results and Findings of the 2004 Ninth Annual Study users in three of the regions indicated they would like to see the levels of integration in the vicinity of 95%. Views of Non-Users The 2004 study asked a number of questions to help better understand why some respondents were not using 3PL provider services (see Exhibit 8). and that customer complaints would increase. For example. Western Europe. Latin America. Interestingly. that control would diminish. 11 Cu sto m wo er co uld m inc plain rea ts se m or e e We xp ha ert ve ise . 91%. comprehensive set of service offerings. Western Europe. integrated logistics services. 91%. 88% of the respondents had a future desire for their 3PL suppliers to provide integrated services. Of interest also is that these users generally agree “our company is moving to rationalize or reduce the number of third parties we use. A strategic issue is how customers feel 3PL providers should position themselves in terms of the depth and breadth of their service. Interestingly. However. Last. One interpretation of these results is that logistics executives in North America may have higher expectations of potential 3PL suppliers than do their peers in Western Europe and Latin America. that service levels would not be realized. these perceptions appear to be more prevalent among respondents from North America than from the other regions. 84%. Non-User Respondents: Rationale for Not Using 3PL Services* 50% 40% Percent of Respondents Exhibit 8 North America Western Europe Latin America 42 39 32 30 21 20 13 14 18 21 8 23 25 30% 20% 10% 0% 21 25 18 24 23 18 15 5 gis ti co cs is m a Lo pe co gis ten re tic cy st oo to im ou po tso rta ur nt ce Co sts w be ou red ld n uc ot ed Co nt ro diml wo ini uld Se sh rv ice no lev t b els e r wo ea ul liz d ed Lo *Results apply to all but Asia-Pacific responses. These “non-users” feel that costs would not be reduced. while some non-users suggest that a consequence of using a 3PL provider would be to lose control. sometimes the same reasons certain organizations offer to explain their decision not to outsource are considered by others as reasons to support outsourcing. it is not uncommon for users to indicate that engaging a 3PL provider actually helps gain or improve control over certain outsourced activities. When asked whether “third-party suppliers should provide a broad. and Latin America that do not use 3PL services say that logistics is a core competency and that logistics is too important to outsource.” This suggests that 3PL users are thinking about how to improve and streamline their procurement practices in relation to the need for externally provided. The exception was North America.” most of the 3PL users in the various regions strongly agreed (North America. Asia-Pacific response was insufficient for meaningful analysis. Asia-Pacific. about 20% to 25% of the respondents from North America.

good logistics management suggests that non-users should investigate the 3PL alternative. is whether internalizing certain logistics activities strategically fits the firm’s core competencies and whether the internal alternative will produce an acceptable financial return. As a direct result. What is important to consider in the decision to outsource. In such cases. the choice of not using a 3PL is understandable. or the exercise may reinforce the commitment to conducting logistics activities in a more traditional manner. 12 . albeit with strategies for potential improvement. it would not make sense for a firm to outsource an activity when doing so may likely produce an inferior result. however.Regarding issues relating to expertise and results. the inquiring organization may decide that using a 3PL has significant advantages over the current mode of operation. Regardless of these explanations.

However. the participants were asked if they considered these offerings to be core services that all 3PL providers should offer. the majority of users from all regions indicated service (“value-added services received from a 3PL provider”) as the most important attribute. the top five most frequently outsourced offerings across all of the regions remained the same as in 2003. inbound transportation (67%). As indicated in the focus groups.3PL: Results and Findings of the 2004 Ninth Annual Study 3PL Service Offerings and Technology The majority of worldwide survey respondents were satisfied with their 3PL providers (85% checked “extremely successful” or “somewhat successful”). or value-added. Thus. One area of interest is the criteria that a respondent uses when selecting a 3PL provider. some users feel their needs are dynamic. As a follow-up to the third view. During the focus group meetings. users are expecting more from their providers. opinions varied as to whether a 3PL provider had or should offer all of these services. they realized that the ability to be an expert in all 3PL services was not reasonable. and customs brokerage (53%). However. Only the order changed slightly with customs brokerage dropping from third to fifth. several respondents said there is an expectation that 3PL providers can execute on a set of “core capabilities” and that selection criteria move to more unique. but often feel the providers’ services are static. When asked to rank five key selection attributes. several participants said they were looking for what they called a “one stop shop” from their 3PL provider. The top five are (percentages in parenthesis are for all four regions surveyed): outbound transportation (80%). The participants liked that several of the larger 3PL providers in the marketplace had decided to acquire the expertise rather than build it from the ground up. As in 2003. ❑ A 3PL provider should specialize in one to two core services in-house and be able to buy or subcontract other providers to bring additional capabilities to a customer when required. warehousing (70%). ❑ A 3PL provider should be able to provide multiple core services. While various participants 13 . In addition. Many participants agreed that these could be classified as “core” service offerings. Three contrasting points of view evolved from the focus groups: ❑ A 3PL provider should provide only a single core service and perform it well. Outsourced Offerings Overall. respondents’ satisfaction varied when asked about specific 3PL offerings and technology capabilities. customs clearance (56%). During the focus group sessions. The list of value-added services was debated among the participants. services. users are raising expectations around the service offerings provided and the technology used to deliver the offerings.

the percentage of users in both North America and Western Europe decreased in all categories. North American users appear to be the most satisfied with the global capabilities of their 3PL providers. you may have been talking about optimization and transportation management as value-added and three to five years ago you may have been talking about visibility being a value-add. Finally. In addition. For example. Two of the most notable areas were “lack of strategic management skills. other participants included several of these services and capabilities as “core” to a 3PL provider’s offering: ❑ ❑ ❑ ❑ Customer service/order entry Reporting Metrics Industry expertise ❑ ❑ ❑ ❑ Regional coverage Consulting Postponement Information management This conclusion was echoed by one focus group participant who remarked that “what we were probably seeing as value-added services from five to seven or even three to five years ago may be core services now. Western Europe. from about Latin America a third to over half of the respondents mentioned that the Areas Identified for 3PL Service Offering Improvement 3PL providers lacked strategic management skills. and Latin America (92%) responded with a resounding “yes. only 15% identified this as an area for North America Western Europe improvement. and “lack of consultative/knowledge-based skills. Asia-Pacific (91%). 50%. Latin 41 39 39 38 America. as seen in Exhibit 9.” which decreased from 14 . comprehensive set of service offerings. almost 40% of Latin American respondents were Asia-Pacific concerned with the lack of the 3PL provider’s global capabilities. the majority of respondents from North America (84%). Western Europe (91%). the percentage of Asian-Pacific users identifying the need for improvements in 3PL service offerings increased in the majority of the areas identified in Exhibit 9. We are getting to the point now where those are considered more ‘core’ services. ongoing improvements and 57 achievements in their service offerings (North America. 35 33 31 29 24 20 19 20 18 15 Exhibit 9 80% 70% 60% 50% 40% Percent of Respondents 30% 20% 10% 0% La c an k o d fo ac ng hie oi ve ng m im en p ts ro in vem off e eri nts ng s m Lac an k ag of em st en rate t s gi kil c ls wi N th ot ad ke va ep nc in es g u in p kn Lac IT ow k o led f c ge on -b su as lta ed ti sk ve/ ills glo ba lc L ap a ab ck ilit of ies When contrasted with last year’s results. seven years ago. 46%). when asked to identify areas for service offering improvements.listed the following as value-added services. However.” Service Offering Expectations and Perceptions When asked if 3PL providers should supply a broad. 51 50 48 46 51%. on a good note. the responses varied somewhat by region. Asia-Pacific. nearly a majority of users in all the 71 regions saw the need for 3PL providers to enhance their process of continuous. On the other hand. 71%.” which decreased from 53% to 39% in North America and from 63% to 41% in Western Europe.” However.

thus decreasing the number of systems I have to deal with. The majority of focus group participants indicated that information technology (IT) is a key capability for a 3PL in the delivery of a service offering. Several focus group participants mentioned that 3PL providers build IT capabilities that are not flexible to meet customer needs.3PL: Results and Findings of the 2004 Ninth Annual Study about one-third of the users to 20% or less in both regions. Most users in North America (91%). as seen in Exhibit 10. Focus group participants’ perceptions of 3PL technology capabilities were similar to the survey results. however. In addition. Western Europe. Latin American and Asian-Pacific 3PL users seem to be the least satisfied with the IT capabilities of their 3PL providers. in 2004. Asia-Pacific (100%). they are not willing to change or tweak the software to react to what our needs really are. and Latin America (80%) agree that IT capabilities are a necessary element of overall 3PL provider expertise. Meanwhile. satisfaction in this category has decreased significantly in North America (75% to 45%) and decreased slightly in Western Europe (56% to 45%). Perceptions of 3PL Technology Capabilities Technology continues to be a hot topic when discussing 3PL providers’ capabilities. when asked if 3PL providers had kept up with advances in technology over the past year. On a positive note. when compared with 2003 results.” ❑ “3PL providers need to expand the capability of their technology to handle some of the functionality in other parts of my business. However. North America and Western Europe appear to be most satisfied with their 3PL provider’s IT capabilities. This may be an indication that 3PL users have begun to use—and will expand the use of—these 3PL provider “value-added” capabilities. almost 80% of the respondents indicated that “having the right software” is a major competitive advantage for a 3PL. satisfaction with the 3PL provider’s IT capabilities is mixed by region. over three-quarters of the respondents from North America.” Exhibit 10 North America Western Europe Asia-Pacific Latin America 3PL Technology Expectations and Perceptions 100% 100 91 92 80 78 78 68 88 80% 60% 45 45 40 40% Percent of Respondents 38 24 37 21 10 20% 0% IT 15 iti for es ar 3P e n L s ece up ssa pli r y Ha ers so vin ftw g t are he is “rig cri ht tic ” su al pp S lie atis r’s fie IT d w ca it pa h 3 Re bil P ly itie L on s 3P L IT sup lea plie de r f rsh or ip ca pa bil .” ❑ “3PL providers invest millions of dollars into software solutions. This low satisfaction rating in Asia-Pacific may also be the reason why only 10% of Asian-Pacific respondents indicated that they rely on 3PL providers for leadership in IT. Key excerpts from the focus groups include: ❑ “We expect our 3PL provider to be able to provide the right technology solution for our needs. Although. Western Europe (92%). 3PL users must configure their IT systems to integrate with the 3PL providers rather than vice versa. Specifically. and Latin America answered positively.

people want automation. the highest percentage of respondents in each region indicated that they turn to internal resources for technology (North America. and at low cost. Latin America. 34%). 41%. rapidly.” Sources of Information Technology. In addition. In particular. 43%. 61%. however. the study tried to determine to what extent respondents expect their 3PL providers to offer IT-based services. 2004 80% 61 Sources of Technology Respondents were asked to identify the sources of their IT. As in previous years.” ❑ “The 3PL providers that are going to win at the end game are those that have the ability to connect seamlessly. 60% 43 41 43 34 35 25 19 12 9 2 3 19 9 3 2 1 0 22 19 40% Percent of Respondents 20% 0% Internal 3PL Provider Technology Consultant Provider All Sources Information Technology-Based Services The 2004 3PL survey identifies what IT-based services respondents were using. AsiaPacific.The regions with the highest percentage (around 19%) of users turning to 3PL providers as their primary source for IT were North America and Latin America. Western Europe. as well as the services those Exhibit 12 North America Western Europe Asia-Pacific Latin America Currently Used IT-Based Services 80% 70% 60% 50% 40% Percent of Respondents 78 67 68 65 66 70 77 71 62 46 61 67 61 65 80 74 59 50 51 53 33 23 26 14 24 28 18 18 20 21 19 18 14 10 16 9 10 19 7 13 30% 20% 10% 0% Fr E Cu eigh xpo sto t F rt/ m or w Im s C a po W lea rdin rt/ are ran g/ ce Ce hou se nt / er D M istr Sh an ib ipm ag ut em ion en en t t Ev Tra en cki t M ng an /Tra ag ci em ng en / t Co W m eb m -E un na ica bl tio ed ns Tra M nsp In an ort ter ag at ne em ion t-B en as t ed Tra Lo n gis sp tic or s M tat Su ark ion/ pp ets lie rM an ag Sy eme ste nt m s Cu sto Ra M me dio an r O ag r Fr em de & equ en r As en t se cy t T Id rac en kin tif g ( icat RF ion ID ) Su pp ly Pla Ch nn ain ing 16 . over a third of the respondents from North America and Western Europe indicated that they use a combination of various sources for their IT needs (see Exhibit 11).Exhibit 11 North America Western Europe Asia-Pacific Latin America ❑ “The web thing is nice. when you’re talking about business-to-business.

shipment tracking/tracing/event management (65%). ❑ A third of the Latin American respondents indicated that they use their 3PL provider’s customer order management systems. North America Western Europe Asia-Pacific Latin America Exhibit 13 Future Requirements of IT-Based Services 80% 70% 60% 50% 40% Percent of Respondents 61 59 53 48 37 24 48 41 46 33 25 16 19 30 24 15 23 21 14 9 7 9 7 23 50 30% 20% 10% 0% 29 21 23 17 29 32 26 22 10 13 16 11 6 5 30 F & requ As en se cy t T Id rac en In kin tif ter g ( icat ne RF ion t-B ID as ) ed Lo Tran gis sp tic or s M tat ark ion/ ets Co W m ebm En un a ica ble tio d ns Su pp ly Sh ipm Pla Ch nn ain en ing tT rac Ev en kin t M g/ an Tra ag cin em g/ Su en pp t lie rM an ag Sy eme ste nt m s Cu sto M me an r O ag r em de en r t Tra n M spo Fo an rt rw ag ati ard Ex em on ing po en rt/ /C t us Im to po m rt/ s C Fr W lea eig are ran ht ho ce Ce us nt e/D er M istri an bu ag ti em on en t 17 Ra dio . respectively. transportation management (64%). and they do not want to lose control of these key functions. and web-enabled communications (60%). by region. None of the other regions are over 20% in this category. warehouse/distribution center management (66%). ❑ About half of the users in Latin America and Asia-Pacific use web-enabled communications. Exhibit 12 shows what IT-based services are currently being used. compared with 61% and 65% of the users in North America and Western Europe. supply chain planning and supplier management systems continue to receive a low percentage of usage as well. In addition to customer order management systems. internally managed system. This low usage may indicate that 3PL users consider these a core.3PL: Results and Findings of the 2004 Ninth Annual Study respondents believe they will require in the future. The same IT-based services are in the top five in both 2004 and 2003 (percentages in parenthesis are for all regions in 2004): export/import/freight forwarding/customs clearance (68%). Some notable differences among the regions include: ❑ Transportation management technology is the most used by Western European respondents (80%) and the least used by North American respondents (53%).

In addition. Asia-Pacific. and Latin America. 61%. 48%). and Latin America identified Internet-based transportation/logistics markets (transportation exchanges) as a key future requirement. Other future requirements for Asian-Pacific respondents are web-enabled communications (46%) and customer order management (32%). 59%. Latin America. Moreover. Half of the Asian-Pacific respondents indicated that they are looking to increase their use of supplier management systems. With the first phase of these RFID mandates scheduled to be launched in early 2005. Asia-Pacific. Overall. 18 . Western Europe. Western Europe. 53%. Western Europe appears to be interested in supply chain planning (29%) and supplier management systems (23%). around 40% of respondents from Western Europe. the overwhelming.The Future Exhibit 13 on the previous page compares the future requirements of IT-based 3PL services in North America. Asia-Pacific. users may be looking toward their 3PL providers to assist them with the implementation of this capability. This response may be because of the RFID mandates suppliers are getting from the United States Department of Defense and several major retailers in North America. number one IT-based service needed in the future by all regions is radio frequency identification and asset tracking (RFID) (North America. Latin American respondents are looking to expand their use of warehouse/distribution center management technologies (30%) as well as web-enabled communications (29%).

❑ Service. For the last three years. Since the inception of this survey. we have measured the level of customer satisfaction based on the degree of success with 3PL user-provider relationships. with value-added services and relationship management skills becoming points of differentiation. Users expect 3PL providers to offer advanced services. we asked users to rate the importance of provider attributes across five categories: ❑ Price. Sustainable relationships require equitable deal structures. the results have been almost the same in North America and AsiaPacific. 5.3PL: Results and Findings of the 2004 Ninth Annual Study Management and Relationship Issues Based on experience with previous survey results. ❑ Experience. Attributes: Performance and capability of core or basic service offerings by a 3PL (e. ❑ Access. Attributes: Overall satisfaction and feeling about a 3PL. This year. Pressure to “be all things to all customers. Attributes: Fees paid for 3PL services. supply chain planning.g. strategic consulting. Although users are generally satisfied with their 3PL providers. and order management). continual improvements. and a desire for shared risk-reward arrangements continue to drive the relationships toward a 4PL solution. but the users still view the role of their provider as “tactical” rather than as “strategic. transportation and warehousing services).g. and improving in Western Europe. demand for broad expertise.. and maintain profitability make it difficult for 3PL providers to address this challenge. Advanced service requirements. 19 . supplier management. 85% of those surveyed view their relationship as successful (54% “somewhat successful” and 31% “extremely successful”). Attributes: Ease of doing business with a 3PL. and approach to exceeding customer satisfaction. ❑ Product. 3. Attributes: Performance and capability of advanced service offerings by a 3PL (e. operating models. 2. For 3PL providers to properly address this challenge. mutual investments. globalization expansion pressures. consistent with previous years.. they must determine their market positioning.” 4. and creative partnering. Core service offerings are becoming a commodity.” understand the actual costs to serve clients. To assist with this challenge. the providers are being pressured to enhance their customer relationships and continually expand their 3PL services. An ongoing challenge for 3PL providers is to continually enhance their relationships while expanding their service offerings. we formulated an initial set of hypotheses related to management and relationship issues: 1. change management. These data indicate that 3PL providers are continually investing in client relationships.

• Most participants feel that their 3PL providers can not fulfill their commitments on value-added services.6 2.8 2.1 3. 3PL users have not aligned expectations with the appropriate relationship structures. but often they feel 3PL providers’ services are static. However. Their needs are dynamic. • New/desired services include: – Globalization of basic 3PL services • A single global provider for all the user’s current customers • A provider that can reach the user’s new customers in emerging markets • All modes and core services – Advanced supply chain services (e.8 2. or capabilities.2 3.2 3. rv Exhibit 15 Service Offerings (Value-added) • Core cost and transportation factors are maturing and performance is. Users expect the continued expansion of their 3PL provider’s capabilities and advanced services. An interesting change from last year is North America that “price” is now the second-highest attribute across all respondents.4 3. last year it was Western Europe third and “product” was second. the lowest ranked attribute in three out of the four regions (the exception being Latin America) was “experience” (“overall feeling about the 3PL provider”). All of these factors confirm our initial hypothesis that core product offerings are being commoditized. We conclude that opportunities exist for 3PL providers to improve their capabilities to offer advanced services.5 3. These results are consistent with the last two years. This is the long-term satisfaction and relationship issue that carries through to learning about the needs of the users’ customers. These All Regions core “product” offerings. and general business support. the industry is not as mature in that region). followed by “price.7 2.” “product.” 3PL providers have to focus on valueadded capabilities to differentiate themselves. Therefore. Interestingly. for the most part. should have a direct correlation on overall customer satisfaction.7 2.” and “experience” (see Exhibit 14).5 2.4 3.2 3. they need to clearly define their customer satisfaction strategy.9 3.9 2. satisfactory..7 2.” This could be linked to 3. Key to a successful relationship between 3PL providers and 3PL users is whether customer expectations are properly aligned with the appropriate 3PL business model and relationship structure.8 2. are now expected by users.. Another important difference with this year’s results is in Asia-Pacific. to “play in the game.0 2. This is the primary reason for servicelevel dissatisfaction and contract terminations. cost/savings management. inventory consignment) – Industry-shared solutions – Supply chain optimization • Participants believe that any new value-added service requires the 3PL provider to know the user far better than they do today. as depicted in Exhibit 16. Two conclusions can be drawn from these results. client.0 2. 3PL providers are not expanding their capabilities quick enough to satisfy customer expectations. However.” 22% as a “logistics strategist.g. respondents there rate 3. but are unsatisfied with the commitments related to continual improvement and expansion of services.5 2. We discussed overall 3PL user satisfaction in the focus group sessions.0 “product” almost as high as “service. Exhibit 15 provides a summary from the focus group sessions where we discussed the topic of customer satisfaction relative to 3PL value-added services. Second. and service requirements. The participants agreed that 3PL providers cannot be all things to all people. in turn. First.5 3. “price” now becomes a higher priority for Ranking of Key 3PL Selection Attributes users of 3PL services. The attendees also agreed that this strategy differs by industry. This can be interpreted to mean that 3PL providers Asia-Pacific Latin America have been improving on core “product” offerings to the point of consistency.6 the fact that 3PL providers are still building out their core product offerings in Asia-Pacific (i. ice (V al rec ue-a eiv dd ed ed fro ser m vic 3P es L) Pr for ice 3P (Fe L s es er pa vic id Pr od es ) u rec ct ( eiv Co ed re fro ser m vic 3P es Ac L) ce ss bu ( sin Ea es se s w of ith doi 3P ng Ex L) pe fee ri en lin c ga e( bo Ov ut er 3P all L) 20 .6 3. 3PL users’ issues that drove them to outsourcing initially have changed.5 3.Exhibit 14 Most Important 5 4 3 2 Least Important 1 Se Users rated “service” as the most important attribute. This.” and 26% view them as a “supply chain integrator” (multiple responses allowed). contract manufacturing. this year’s study showed that 75% of the respondents view their 3PL provider as a “tactical service provider.e. The results confirm our initial hypothesis: Users are satisfied with basic service levels.” “access.

In time. respondents to this and last year’s surveys suggest that a joint client-and-provider management structure represents a highly effective way to manage 3PL relationships. and that there are continued pressures on maintaining ongoing collaborative relationships with their 3PL providers. ❑ Strategic also implies that providers have broader capabilities and services.3PL: Results and Findings of the 2004 Ninth Annual Study Both of these conclusions were reached in our focus group sessions as well. While sometimes the use of a 3PL provider is interpreted simply as “turning over all logistics activities” to the outsourced provider.” Additional concerns. ❑ Being strategic starts with understanding the customer and their customers. It’s the kind of stuff that consulting firms do very well. When asked whether “using 3PLs is a key to satisfying our company’s customers. try to pull the whole solution together for you. 70% responded similarly to the question of whether they feel they have a “collaborative” relationship with their 3PL providers. Also. but you know somehow you have to make a point that you're outsourcing the functionality but not the management.” 54% of the respondents said “yes. this year’s study provides insight into the relationships between 3PL providers and their customers. ❑ 3PL providers are experts in their field. regarding the desire to shift toward a strategic role. we believe successful 3PL relationships will establish appropriate roles and responsibilities for both the 3PL providers and their customers. Sure 21 Su L Str ogis ate tic gis s t . As 3PL providers continue to expand their capabilities to match client expectations. were expressed in the focus groups sessions: ❑ Users still have to do too much coordination. These two findings suggest that customers view the relationship with their 3PL provider as non-strategic. ❑ Users are beginning to question if providers can continually decrease costs while increasing value over time. Relationship Processes In a number of areas. One participant highlighted this disconnect by saying. One participant in our focus group session reiterated this by saying. These advanced relationship models must incorporate risk-and-reward pricing mechanisms to offset the higher cost of satisfying service level expectations. “I feel like I’m trying to build a comprehensive supply chain solution instead of the 3PL bringing these ideas to me. Exhibit 16 North America Western Europe Asia-Pacific Latin America All Regions 3PL Provider Roles* 90% 80% 70% 60% 50% 40% 32 Percent of Respondents 81 75 68 68 71 30% 20% 10% 0% 26 26 27 20 26 20 14 11 22 pp In ly C teg ha rat in or al Pr Ser v ov ic ide e r tic Ta c *Multiple responses allowed. but they do not know enough about the client’s industry.” This is a significant decrease from last year (down from 73%). This response is down by 8% from last year. then aligning the appropriate capabilities or solutions. users should be prepared to pay a premium for advanced services. “In fact I had this debate again last week over a particular subject.

and 4% other business entities. ❑ Latin America had noticeable use of deals with software providers (22%). even if it's just a core group of two or three people to manage them or they will manage you. 22 Ve Joi nt nt ur e Sh Co ari st ng sk /R Sh ewar ari d ng Re Sh venu ari e ng Co are ho Va lder lue st- Plu . 5% with financial institutions. is built. but you better have somebody in your own building. ❑ Western Europe participates heavily in cost sharing (52%).Exhibit 17 North America Western Europe Asia-Pacific Latin America All Regions they manage the day-to-day functional transactional stuff. but stands above all other regions with risk/reward sharing programs (46%). some interesting differences exist across regions: ❑ North America clearly preferred cost-sharing arrangements (48%). ❑ Asia-Pacific frequently had deals with 3PL providers (40%) and with management consultants (30%). this shared approach to managing operations continues to be an innovative response to the challenge of successfully managing 3PL providerclient relationships. Exhibit 17 provides a perspective on a broader range of alternative deal structures that may be part of a 3PL relationship. s 18 Survey respondents were asked to check all that apply. This was again validated this year with 54%18 of the respondents using alternative deal structures with the following types of companies: 45% with 3PL providers. there were a few noticeable differences: ❑ Western Europe (53%) overwhelmingly had deals with 3PL providers. The survey results show that risk/reward sharing and cost sharing clearly are the preferred approaches to contractual arrangements between 3PL users and providers.” Respondents are essentially expressing their desire. or “trust” factor. 9 4 0 0 5 5 0 Types of Deal Structures 70% 60% 52 50% 40% Percent of Respondents 48 38 46 46 30% 20% 10% 0% 30 24 31 33 29 24 21 16 18 13 10 10 6 12 10 13 7 9 12 3PL “Deal Structures” In past studies. When comparing this year’s results across the various regions. 12% with software providers. However. users indicated willingness to share both gains and losses from alternative relationship structures. therefore the totals are greater than 54%. your own company. ❑ Latin America has significantly more joint ventures (29%). This is consistent with last year’s survey results. 15% with management consultants. as customers. Sh Ri Total respondents using alternative deal structures are similar to last year’s results. to have sufficient power over operations until a track record of performance. ❑ Asia-Pacific indicated it did not enter into joint ventures with 3PL providers. Although most customers (appropriately) retain control over strategy formulation and direction setting for their logistics. which is in conflict with general industry trends that state otherwise.

These difficulties were echoed in one focus group session by a participant who said. regional coverage. Exhibit 18 depicts the changes in key attributes as the 3PL relationship models evolve.and information-based • Shared risk and reward • Advanced technology capability • Adaptive. “I would say that nobody really knows how to operate in a true partnership environment where everybody works for the mutual benefit of the team. flexible. Last year we added some questions to help assess this evolution in 3PL provider business models. Exhibit 18 The Change in Key Attributes as 3PL Service Offerings Migrate Relationship & Pricing Models • Partnership • Value Based Advanced Services • Contractual • Risk Sharing • Contractual • Fixed and Variable • Commodity • Transaction Lead Logistics Lead Logistics Provider (LLP) Third-Party Logistics Provider (3PL) Logistics Service Provider (LSP) Service Offerings Logistics Outsourcing Models Fourth-Party Logistics Provider (4PL) Key Attributes • Strategic relationship • Broad supply chain expertise • Knowledge. declaring the savings and distributing the dollars between supply chain partners is difficult. Although there is still some general confusion. requiring data accuracy and appropriate personnel to administer the processes and associated baseline data.3PL: Results and Findings of the 2004 Ninth Annual Study The difficulties with most value-based arrangements come down to two processes: measurement and savings distribution. Most of these arrangements are complex to manage. to Lead Logistics Providers (LLP).” As the industry continues to mature. the responses show that 3PL customers are beginning to understand the definitions and relative benefits of the various relationship structures. once savings are identified. The models migrate from Logistics Service Providers to 3PL providers. These models vary based on the scope of service offerings. Everybody's trying to skim the last nickel out of somebody else. 3PL providers evolve their business models to accommodate increasing customer expectations and capture additional market share. it’s not going to get any better. It's not a mutually beneficial triangle relationship. The provider tries to get the contract terms really clear so that if you ask for one thing extra they can come back and get more money. and finally to 4PL providers. and degree of collaboration across the supply chain. Additionally. We try to cut cost and try to skim everybody down. and collaborative • Project management/contract management • Single point of contact • 3PL technology integration • Enhanced capabilities • Broader service offerings • Focused cost reduction • Niche services Value-Added Basic Services 23 . And until we all learn how to operate in that space.

24 22 13 16 17 9 b c aAll regions. 4PL). One interesting point of difference is that only 31% of the North American respondents see the potential benefits of this shift toward a 4PL.” 70% responded “yes” or “somewhat. -B Fir ased m s W eb ns ult an . when we asked if the respondents understood the differences between “3PL” and “4PL” providers. The “existing 3PL provider” 57 response is down from 69% the previous year.. while the other regions range from 55% to 70%. This point was made during our focus group session by a user who said. while the suitability of the other types 27 25 of companies remained constant. The problem you run into is the overhead cost—now I have to pay for them and the provider.” This is the second consecutive year with significant decreases from the previous year. In short. Today. The problem is finding a 3PL provider that’s really adept at doing this and at providing consulting-like services. consultants seem to be the ones that can really demonstrate this ability because they are not beholden to their own assets or limited service offerings. that is the best of all possible worlds because I'm not adding this other layer of overhead on top. enough evidence continues to exist to show that these logistics outsourcing business models will continue to prosper. companies are cautious about adopting these types of relationship models because of the complexities involved. We believe that the new firms have contributed to this decrease. c “New firms by former 3PL execs” was included as a category for the first time in the 2004 survey.” Exhibit 19 2002 Responses 2003 Responses 2004 Responses 90% 80% 70% 60% 50% 40% Percent of Respondents 30% 20% 10% 0% Survey respondents were asked to rate the suitability of five types of companies to offer these advanced business models.This year. ts Ne Fo w rm F er irm 3P s L E Wi xe th cs 24 ist Pr ing ov 3P ide L rs Te c Pr hno ov log ide y rs Ex Co Despite the general confusion over terminology and the value of the various logistics outsourcing models. “The problem we're having is finding a 3PL that's willing to act as a 4PL whereby they manage multiple providers.g. In an effort to try to capture some of the new companies or business models being developed (e. and despite the fact that these models are new (12% of those surveyed currently use a 4PL model). respectively). Unfortunately. over 88% responded “yes” or “somewhat. 45% of the respondents replied “yes” or “somewhat” to whether they see the potential benefits of that move. and at the same time. Respondents also seem to be grasping the benefits of moving from a 3PL to a 4PL. More respondents this year 47 41 than last year thought technology providers were best suited to offer 4PL services (22% versus 9%). users are just beginning to understand the differences and related benefits of the various relationship models.” As Exhibit 19 shows. bThe 2004 survey did not have “web-based firms” as a category. Whereas if I go direct to a 3PL provider and it has the capability of managing other 3PL providers. When we asked if the 4PL terminology is “confusing” and “ambiguous. the companies with the highest ratings were existing 3PL providers and new firms with former 3PL 69 executives (57% and 41%.” This is a slight increase from last year. we added Types of Companies Best Suited to Offer 4PL Servicesa a new type of business titled “new firms staffed with former 3PL executives.

that 3PL providers need to address user demands for global supply chain solutions.” and to assist with the “technology implementation and integration” (32%. and redesigning logistics and supply chains for greater efficiency and effectiveness. globalization involves these considerations: market expansion. they continue to understate the extent to which current and potential 3PL users actually do involve management consultants.3PL: Results and Findings of the 2004 Ninth Annual Study Involvement of Management Consultants This year’s study tried to identify how management consultants are involved in 3PLrelated processes. respectively). advanced security processes. and relationship-based skills of management consultants are differentiators that can significantly benefit 3PL users. Impacts of Globalization The globalization of traditional businesses is a major factor affecting logistics and supply chain management. 25 . and new markets follow as factors affecting the respondents’ globalization efforts. A number of factors significantly affect the industries in which 3PL users compete. we expanded this year’s survey coverage across Western Europe.” New product introductions. In fact. Although the results were objectively obtained. The knowledge. the number of respondents pinpointing these factors increased from last year. implementing IT. client relationships are of great interest to many management consulting firms. Approximately 54% of the 3PL study respondents worldwide feel that 3PL providers would be able to keep up with the challenges of global supply chain integration. Users of 3PL services continue to advance their purchasing decision skills and are more aware of the benefits and pitfalls of outsourcing. For a broader world view of 3PL services. This is consistent with last year’s results. A key change from last year is the decrease in having management consultants “help manage multiple providers of component supply chain services” (24% to 15% decrease).” developing an “implementation plan for the 3PL provider. This percentage has dramatically decreased from last year’s response of 86%.” and “significant pressure to enhance customer service. as we continue to stretch this study’s regional coverage. new sources of supply. 35%. and 60%. Survey respondents consider management consultants valuable in helping “to assess the need for third-party services. and now Latin America. technology. continuous improvement initiatives.” “emphasis on improved supply chain management. Asia-Pacific. This suggests. mergers and acquisitions. Globalization was respondents’ fourth concern with 84% of them categorizing this as a high concern. Likewise. 3PL providers continue to improve their capabilities and are slowly addressing the gaps between customer expectations and actual performance. coming after “significant pressures to reduce cost. Not surprisingly. In particular. These factors will continue to shape the industry and advance the relationship models toward more complex and more creative structures that offer higher upside benefits for both users and providers of 3PL services.

As they say in the sales profession. Transactional Features Benefits Value Long-Term. value. satisfaction. Also. information. Then. Exhibit 20 3PL Value-Satisfaction Hierarchy Short-Term. Both over the short and long term. features do not “sell themselves. Features are the specific 3PL attributes and service offerings that create benefit for customers. the existence of value leads to satisfaction and ultimately to behavior. Exhibit 20 illustrates the relationships among several important constructs: features. Strategic Satisfaction Behavior 26 . 3PL relationships that emerge as successful over the long term are those that prove to be agile. flexible. Value for the customer is created in relation to the benefits that have been received. 3PL providers should structure their long-term relationships to deal with short-term problems and priorities. benefits. and that address end-to-end solutions.Customer Value Framework This section focuses on the perceived value that 3PL users get from 3PL services. and behavior. which may be reflected in subsequent decisions to purchase additional services from a 3PL or the 3PL sector. success depends on sharing vision. and strategies between 3PL providers and users. To provide a perspective on the topic of customer value. To achieve customer success. Exhibit 20 also contrasts short-term transactions to long-term strategic operations.” but benefits do.

A few relevant thoughts about 3PL success emerged 40% from the focus groups. strategic differences may evolve between a 3PL provider and 0% its customers such that using another 3PL provider 1996 1997 1998 1999 2000 2001 2002 2003 2004 may be desirable.” operational systems or program management. implement. this summary suggests that the • Ability to reach consensus on matters of importance – Trust and commitment success of a relationship is dependent on the ability to skillfully manage several – Effective communications important dimensions. Second. value in a • Effective measurements and measurement strategies 3PL provider-user relationship can be achieved only if both parties work together – Defined standard operating procedures – Cost and service baseline development to design. price versus perceived benefit. Shortterm success may be validated by achieving desired objectives. North North America American 3PL users continue to have successful (“very” or “extremely” successful) Western Europe outsourcing experiences—89% reported outsourcing success in 2004—and generally Asia-Pacific similar results have been seen over the previous years of this study. success needs to be *Figures indicate the percentage of 3PL users by region who rate their relationship with their 3PLs as either interpreted in terms of financial results as well as “extremeley successful” or “very successful.3PL: Results and Findings of the 2004 Ninth Annual Study Exhibit 21 summarizes the responses to the question “to what extent has your Exhibit 21 outsourcing to [3PL providers] been successful. integration (operational and technology – Multi-level organizational alignment between client firm and 3PL provider integration).2004* tend to be slightly lower—from 80% to 85%—and 100% customers in Asia-Pacific have been relatively 90 90 89 89 89 88 86 consistent in their success ratings of just less than 85 85 83 82 81 79 78 80% in the current and preceding years in which 80% 76 72 this region has been part of the study. Notably. success is not inconsistent with changing from one 3PL to another. the Latin America success evaluations by 3PL users in Western Europe Customer Evaluation of Outsourcing Success. the “value” that is created by a 3PL relationship is a – Willingness to share risk and reward • Corporate compatibility function of several factors. and execute in key areas such as those listed in Exhibit 22. – Common scorecard and data measurement strategy – Flexible financial structure with a rigorous measurement process • Migration plan towards advanced services • Clear exit strategy Percent of Respondents 27 . 1996 . only 72% of Latin American 3PL users characterized their 60% 3PL relationships as successful. Based on focus group discussions. and regional coverage. Also. First. This information is based on the results of the focus groups held •Well-understood goals and objectives of relationship – Mutual expectation-setting process in 2004 and the sessions that had been held with 3PL users in the preceding – Understanding business needs of both clients and years of this study. 20% Even with successful relationships.” Based on this information. While the importance of individual factors will vary among 3PL providers individual 3PL provider-user relationships. Last. Key Critical Success Factors Leading to Customer Value Exhibit 22 lists some of the key critical success factors that lead to creating customer value. differences between short-term and long-term success must be considered. while long-term Exhibit 22 success is related more to the attainment of strategic goals and objectives. Overall. standardized – Cultural alignment versus customized service offerings. including but not limited to the following: benefits – Management capability and philosophy derived from service offerings.

28 .” and “advanced supply chain services. ❑ The average length of an order cycle dropped. Overall. ❑ Overall inventory reductions ranged from 7% in North America to 16% in Latin America.4 days in North America to approximately 10 days in Asia-Pacific.Exhibit 23 North America Western Europe Asia-Pacific Latin America 3PL Supply Chain Accomplishments Respondents were asked if they felt 3PL providers were accomplishing a number of specific supply chain objectives (see Exhibit 23). Finally. These percent reductions are greater than those reported in the preceding years of this study.5 to 19. Aside from the consistency across the various regions. including 41% in Latin America. the survey asked participants to quantify the improvements in their supply chains by using 3PL providers. IT capabilities have significant room for improvement. it is still clear that from a user’s perspective.0 to 38.2 to 19. there was about the same level of agreement with the statement that 3PL providers were “providing needed information technologies.8 7% Western Europe 11% 17% AsiaPacific 15% 25% Latin America 17% 41% From From From 7.” The data suggest 41 40 38 35 34 that fewer Asian-Pacific and Latin American 30 29 respondents agreed with these statements.7 36.6 58% 69% 71% 72% 19 Referring back to the section that discusses 3PL Service Offerings and Technology.2 to 26.” 80% 70% 60% 50% 40% Percent of Respondents 60 48 36 27 30% 20% 10% 0% ge Prov og id rap in hic g m ex ean pa s ns for Fa ion ch ci ain lita im ting pr su ov p em pl inf en y or P t m ro ati v idi on tec ng hn nee olo de gie d su s pp P ly rov ch id ain ing so glo lut b Pr ion al ov idi s int n eg g s rat u ion pp so ly ch lut ai ion n su Prov s pp id ly ing ch a ain dv se anc r v ed ice s Measuring Success and Opportunities for Improvement As in previous years. ❑ Cash-to-cash cycles dropped as a result of 3PL use.6 49.” “supply chain integration solutions. Exhibit 24 Quantifiable Measures of 3PL Success Cost/Benefit Logistics cost reduction Fixed logistics asset reduction Average order-cycle length change (days) Overall inventory reduction Cash-to-cash cycle reduction (days) Service level improvement (percent “yes”) North America 15% 16% From 12. and the percentage reductions indicated in the other regions were somewhat higher.8 23.8 38. these percentages are somewhat higher than those reported in preceding years in this study. the 26 28 22 23 20 responses highlight three areas for improvement by 16 3PL providers in all four regions: “global supply chain solutions. the 3PL users in each region studied felt that the greatest accomplishments were in the category of “facilitating supply chain improvement” (agreement ranging from 52% to 62%).7 to 15.4 20. with improvements ranging from about 25% to 50% in terms of days.”19 North 62 58 American users were much more likely to agree with 56 52 52 52 the statement that 3PL providers were “providing 43 means for geographical expansion.7 to 19. the fixed logistics asset reduction reported by North America was approximately 16%.2 to 6. The number of days reduction ranged from 2. ❑ For the fourth year in a row.1 to 4.3 11% 10% 16% From From From From 22. Highlights to note from these responses include: ❑ Logistics cost reductions averaged more than 10%. For North American and Western 3PL Provider Accomplishments European users. however. Exhibit 24 summarizes the various performance metrics.

72%). The percentages in this exhibit indicate the extent to which 3PL users have experienced recurring problems in these areas. these 3PL provider-user relationships are not without “areas for improvement. compared with the results from the other regions. Exhibit 25 Areas for 3PL Provider Improvement Areas for Improvement North Western America Europe Service level commitments not realized 62% 48% Cost “creep” and price increases once relationship has commenced 51 35 Cost reductions have not been realized 47 43 Time and effort spent on logistics not reduced 42 28 Unsatisfactory transition during implementation stage 29 21 Inability to form meaningful and trusting relationships 22 15 AsiaPacific 71% 43 52 67 24 14 Latin America 65% 31 39 27 27 23 29 . there are a couple of notable exceptions. While each of the areas listed could be a separate topic for discussion. Although significant evidence exists that 3PL customers are benefiting from their choice to outsource certain logistics services. First. North American 3PL users experience a greater incidence of cost “creep” and price increases once the relationship has commenced. which suggested that the most significant accomplishments of 3PL providers are cost control. more 3PL users in Asia-Pacific (67%) feel that the time and effort spent on logistics has not been reduced. 71%. whether they involve another 3PL or a proprietary approach to managing logistics. the problems identified may be relatively minor in comparison to the 3PL users’ experiences. 58%. a few related thoughts need consideration. cost reductions have not been realized. cost “creep” and price increases once relationship has commenced. First. While this advice should be worth considering. and time and effort spent on logistics not reduced. These areas for improvement should serve as a good “check list” for 3PL providers to assess the quality of their customer relationships. These results are consistent with the focus groups. Third. While these factors are of general concern across the regions studied. Asia-Pacific. 69%. Second. the problems cited may not necessarily be “critical”.” Exhibit 25 identifies several key areas where improvement is needed. suffice to say that some of the key areas where improvement is desired are: service level commitments not realized.3PL: Results and Findings of the 2004 Ninth Annual Study Respondents also reported service level improvements (North America. Second. many instances of problems can be resolved easily. and Latin America. these problems are somewhat minor in comparison to the benefits received as a result of using a 3PL provider. technology. and service consistency. Western Europe.

Strategic Assessment In many respects. users expect more from the 3PL sector than they say they receive. Based on the results of the 2004 3PL study and the focus group sessions. The success of future 3PL relationships will depend on the ability of both parties to take their individual and collective capabilities “to a new level”. Key Performance Issues and Industry Misconceptions The 3PL industry continues to go through an evolutionary change. Clearly. Examples stated by users include globalization. 3PL users are generally satisfied with the 3PL provider’s performance related to service levels. However. and overall client support. have changed over time. contract manufacturing. the trends to be discussed in relation to the 3PL industry parallel trends that are affecting other service-related sectors of the business world. or value generation. such as transportation or warehousing. they will have to effectively “re-invent” themselves to be more responsive to changing logistics and supply chain environments. This report’s conclusions come in four sections: summary of key performance issues. A critical success factor in satisfying this requirement is for 3PL providers to get closer to the user to properly understand their industry challenges and to anticipate their evolving needs or demands. The short-term response by some 3PL users may be a reversion to insourcing. the intermediate and longer-term response will be tailoring 3PL provider capabilities to meet the changing and increasing needs and 30 . gaps continue to exist in several areas: ❑ Disappointment with the 3PL provider’s abilities to develop value-added (advanced capabilities) services. A driving factor in this dissatisfaction is that the original needs of the users. mechanisms for continual improvement. but they fail to advance their capabilities around their users’ evolving needs. future industry trends. it also may signal a need for 3PL providers and users to “re-invent” themselves to be more capable business partners to one another. ❑ Need for relationship re-invention. users continue to identify ongoing development of capabilities as a key issue. While this finding may be partially explained away by increases in expectations over time. Users continually state that they are initially satisfied with 3PL performance. Not only are 3PL providers and their capabilities changing. 4PL services. and supply chain optimization. those that drove the user to outsource at the beginning. and the value readers should get from this report. Although many 3PL providers satisfy user requirements around basic services. In fact. Properly understanding the users and their particular industries requires additional investment as well as changes in skill set by the 3PL provider. industry misconceptions. but the expectations that user firms have of their 3PL providers and their services are also changing. the 3PL industry is finding itself moving forward and beginning to show signs of progress toward maturity. initial cost management. but it yields payback by creating longer-term relationships. inventory/asset-based services.

❑ Increasing value of information. ❑ Emerging role of supply chain integration. Although the need for successful functional execution is great. as well as limited to user organizations that are themselves large. Specifically. a strategic shift has occurred: The need for capable data and process management.” “Outsourcing the functionality means you can decrease management headcount. they know it all. providers that can bring multiple service capabilities relating to the use of logistics information. Some of the most commonly discussed misconceptions were: ❑ ❑ ❑ ❑ “It’s not going to be painful. large. The other way is to suggest that the truly global business model is not only an extension of the capabilities of existing providers. it’s easy to implement. Realistically. but an area of core competency for the 3PL provider as a whole. The challenge for the 3PL provider is to continually invest and evaluate how to build proper continual improvement mechanisms into each client relationship. realtime supply chain logistical information. The stated need for additional supply chain integration and for organizations that may serve as “integrators” has validated the 4PL model. coupled with the availability of low-cost standard information.” Several of these issues were highlighted when we asked our focus group participants to identify industry misconceptions. the use of 4PL providers may be limited—and financially justifiable—to supply chains that are complex.” ❑ “They can expand their services beyond the original core contract.” 31 . complex. Principal among the strategic directions for the future is the need for 3PL providers that offer globally capable services. however. operational knowledge.” “They can do it all. and rapidly changing. Successful supply chain integration causes the value of information (baseline and real-time user and provider information. and supply chain integration are of critical importance. One way to accomplish this objective is for existing 3PL providers to sufficiently modify their abilities so that the goal of being globally capable is within reach. Achieving this goal may be more realistic as a result of “re-invention” rather than “marginal improvement. and global. 3PL users indicate significant improvement is needed before most of these claims are realistic. and can meet performance on what they say they can do.” ❑ “The cost-savings approach/benefit can be applied to all 3PL services. providers that can integrate processes and information across vast regional boundaries. ❑ Global evolution of 3PL usage. is now a high priority for both 3PL users and providers. Although many 3PL providers market their “global” abilities. and more) to increase in relation to the value of functional execution. that is. company’s needs.” “Your business.3PL: Results and Findings of the 2004 Ninth Annual Study requirements of the buyers of those 3PL services. userprovider relationships. and customers’ needs will be treated uniquely.

and understand the client industry). As the level of the playing field in the 3PL arena continues to rise. ❑ Continued increase in 3PL provider technology abilities. ❑ Longer-term relationship management capabilities and thinking beyond a two-year contract. and hence value. keep in mind that significant challenges will always exist when measuring and quantifying the value created by a 3PL provider for its clients. acquisition. Being in a service industry. Last. rather than try time after time to create new value offerings for individual customers one at a time. However. for 3PL users. identified several industry trends over the next three to five years.g. be involved in client integration planning. Results from the 2004 3PL study. Some of these key trends are: ❑ Evolution toward a broad supply chain solution provider versus a transportation and warehouse provider. and consolidation of the 3PL industry. ❑ Continued expansion. the task of understanding the success of 3PL relationships is challenging. see the benefits.Future Industry Trends Overall. enhancing. ❑ Further clarity to the 4PL solution. combined with our focus group sessions. ❑ Increased outsourcing of transaction-based user activities to 3PL providers (e. ❑ Expansion of global markets and 3PL providers’ abilities to provide necessary services. and improving/extending the overall 3PL provider-user relationship. 32 . the conversion of benefit-tovalue in financial terms typically is not an easy task. One key learning from the focus group sessions was that the 3PL industry appears to be experiencing normal shifts as the market grows and matures—customers like what they’ve purchased. perhaps 3PL providers are trying to offer improvements (added value) on an ad hoc basis. order taking). Even if the types of benefits from using a 3PL can be accurately identified. ❑ Continued activity in updating. A more traditional approach evident at many manufacturing enterprises is to have a separate research and development (R&D) department. both 3PL providers and 3PL users should be better able to accurately identify and quantify value. there appears to be no shortage of areas where improvement is desired. and now want something bigger/better. The results of the 2004 3PL study once again have identified a number of areas in which 3PL providers are viewed as creating significant benefit.. ❑ Be customer-needs focused (provide the right solution.

management consultants. service providers. From a management perspective. While the study certainly identifies ways in which all parties can improve these relationships. firms in all industries must see the 3PL option as one that can provide value creation for the user firm. and educators from a number of vantage points: ❑ ❑ ❑ ❑ ❑ ❑ ❑ Understand the development and growth of the 3PL industry.3PL: Results and Findings of the 2004 Ninth Annual Study Value of This 2003 Third-Party Logistics Report Although this report principally emphasizes views about the 3PL industry from a user perspective. Understand sources of customer satisfaction and dissatisfaction with 3PL providers. Understand the 3PL value proposition and the results experienced by users. Utilize this information to help close performance gaps. Compare personal experiences and results with market expectations and results. we have written it to be of value to a broad range of interests in the logistics and supply chain arenas. and the supply chain in general. Assess your role within the 3PL market and determine market strategy. this study documents the increased interest and sustainability of truly collaborative relationships between 3PL providers and their customers. its customers and suppliers. The relevance of this study applies to users. As with previous years’ studies. 33 . operational excellence. Gain a better understanding of the depth and breadth of 3PL services. and information technology to make the maximum contribution in value creation for their customers. Finally. nonusers. we finish by again saying that 3PL providers will increasingly be at the focal points of strategy formulation. long-term success in the marketplace requires that more effective logistics and supply chain solutions be developed.

Intel ProCorp Dade Behring Foamex All-American Eaton Corp. The participants are: Scott Baxter Judy Bosko Danny Garst Mario Hegewald Jim Kellso Don Mills Tony Moran Aaron Pernat Rudolfo Santamaria Chuck Seminatore Mark Servidio Darren Smith Jamie VanDyke Vice President. Through these enhancements. as well as collaborative activities. such as the focus group sessions. Global Logistics Manager. will be better able to apply the results of our annual 3PL survey to your business needs. we used client workshops to bring multiple logistics executives together to jointly interpret the results of the 3PL survey and to collaboratively discuss the lessons learned within their respective industries. Global Logistics Vice President. Thirteen clients participated. Operations Vice President. trends. John Langley. across four focus group conference call sessions. These had similar objectives as the workshops. Logistics & Supply Chain Manager. but the conference calls let us reduce the amount of user time and travel investment. Logistics & Supply Chain Director. This year. through content enhancements and regional expansion. and issues affecting 3PL. and FedEx thank these companies for their participation. The results from the focus group sessions were incorporated into each section of this report. ❑ Discuss lessons learned from past 3PL experiences. and teamwork in helping with the analysis of this ninth annual 3PL survey and report. 34 . Our intent is to continually improve the study each year. Capgemini. representing multiple industry segments of varying sizes. Supply Network Consultant Director. Operations Director. thereby bringing real-life experience to the survey’s interpretation.Appendix: 3PL User Focus Group Sessions Two years ago. Sharp Electronics Northrop Grumman All-American The objectives of the focus group sessions included: ❑ Jointly interpret and review a summary of the 2004 survey results. Dr. Transportation Logistics Director Global Logistics Operations Manager. the reader. ❑ Identify and discuss key industry themes. insights. Traffic & Logistics Director Medela Sysmex Philips Consumer Electronics Eaton Corp. we conducted this collaboration through conference calls to several user focus groups. we feel you.

Mr. The Richmond Events Logistics and Supply Chain Forum named him one of the “Outstanding Logistics Professionals” in 2004. Also. Georgia Tech and The Logistics Institute impact logistics and supply chain direction setting and strategy formulation through its Supply Chain Executive Forum.edu/scef. Before joining Capgemini.D. He specializes in logistics and fulfillment and is leading efforts related to third-party logistics and supply chain outsourcing. and Verizon.gatech. Gillette. Included are two short course series—the Logistics Professional Series and the Logistics Management series—and a fully accredited Executive Master’s in International Logistics (EMIL) program. He is a co-author of The Management of Business Logistics: A Supply Chain Perspective.edu and http://www. He is the North American Distribution Sector Leader and has over fifteen years of supply chain experience and offers broad capabilities in supply chain management. founded in 2003. 35 . He serves as Director of Supply Chain Executive Programs at Georgia Tech and as Executive Director of the Supply Chain Executive Forum. and he is a noted author and frequent presenter at professional meetings and forums. Dr. as well as a number of other textbooks. He has a degree in Supply Chain Management from Michigan State University. including AT&T. a 7th edition textbook published in 2003. Honda. is a leader in logistics and supply chain education. Through its School of Industrial and Systems Engineering (ISyE) and The Logistics Institute (TLI).3PL: Results and Findings of the 2004 Ninth Annual Study About the Participants C. Georgia Tech is committed to serving logistics educational needs through its degree programs and its comprehensive professional education program. Ford.S. Sprint. is The Logistics Institute Professor of Supply Chain Management and a member of the faculty of the School of Industrial and Systems Engineering at the Georgia Institute of Technology. Allen Gary R. John Langley Jr. a TLI Asia-Pacific program in partnership with the National University of Singapore (a partnership with the National Science Foundation and more than twenty corporations and government agencies). Information about Georgia Tech’s ISyE programs may be found on the web at http://www. GM. Dr.isye. respectively.gatech. MI. degree in Logistics from Penn State University. In addition to his university duties. Allen is a Senior Manager in the Global Distribution team of Capgemini U.tli. and serves on the Boards of Directors of several major corporations. Langley is a former President of the Council of Logistics Management. Allen spent ten years in various functions with FedEx Supply Chain Services. Langley actively consults with both logistics user and provider firms. C. Dr. He has worked across multiple industry sectors and a variety of client engagements. Gary R. Langley received the Ph. 3M. and a Leaders in Logistics Program. TLI sponsors a Global Logistics Program. LLC based in Detroit. John Langley Jr. and a recipient of the Council’s Distinguished Service Award.edu. Georgia Institute of Technology The Georgia Institute of Technology. while information about The Logistics Institute and the Supply Chain Executive Forum may be found at http://www. Farmland. located in Atlanta.gatech.tli. Dr.

Capgemini has developed new offerings to address the current market's customer-centric business challenges and to help companies build dynamic. Mr. fulfillment. as well as designing transportation management. fleet services. FSCS focuses on three primary services: transportation management. faster. adaptive supply chains. TN.000 people worldwide and reported 2003 global revenues of 5. operations. Backed by over three decades of industry and service experience. 36 . His career spans more than sixteen years in the third-party logistics/supply chain space.. in 1995 and has held a variety of positions in business development.capgemini. one of the world’s foremost providers of consulting. we help businesses implement growth strategies. meets the synchronized supply-chain management needs for companies of all sizes domestically and globally.Capgemini U. which includes dedicated contract carriage. Dale holds a degree from John Carroll University. He is currently responsible for developing. and fulfillment. please visit www. leverage technology. Capgemini’s Supply Chain Management Service Line is a recognized global leader in supply chain consulting. For further information. FedEx Supply Chain Services Inc.S. Mr. Mr. based in Memphis. scalable. LLC Capgemini. to full-service process and technology outsourcing.7 billion euros. has a unique way of working with its clients. Dale spent eight years with Leaseway Logistics conducting market awareness and customer satisfaction research. and outsourcing services. expanding. and integrated solutions for a number of Fortune 500 companies. companies to provide customers with optimized. In addition. and fleet. a unit of FedEx Corp. including transportation management. Through commitment to mutual success and the achievement of tangible value. dedicated fleet. to business and technology integration.com. the Collaborative Business Experience is designed to help our clients achieve better. Before joining FedEx. Thomas A. called the Collaborative Business Experience. warehousing. which uses the world-class reliability of FedEx Corp. more sustainable results through seamless access to our network of world-leading technology partners and collaboration-focused methods and tools. multi-modal transportation management. FedEx Supply Chain Services (FSCS). turnkey warehousing and flow-through solutions for greater flexibility in distribution operations. and marketing. and managing supply chain service offerings. technology. Dale is a Director of Marketing for FedEx Supply Chain Services Inc. and thrive through the power of collaboration. Capgemini employs approximately 55. giving customers end-to-end. Dale Thomas A. offering a range of services from supply chain strategy and architecture development. Dale joined FedEx Supply Chain Services Inc.

Dort@capgemini.com . provides customers and businesses worldwide with the broadest portfolio of transportation. Ph. Dale Director of Marketing FedEx Supply Chain Services Inc.3138 Donato. John Langley Jr. Allen North American Distribution Sector Leader Capgemini U. TLI Professor of Supply Chain Management Georgia Institute of Technology 765 Ferst Drive. the highest ethical and professional standards. For more information.7119 Fax: (31) 30.W.3976 Fax: (61) 3.Caporale@capgemini..FedEx Corp. 3500 GN Utrecht) The Netherlands Phone: (31) 30.D. Contact Information For additional copies of this publication or for more information about the study.O.Langley@isye. Supply Chain Services Capgemini Australia Pty Limited Level 2 477 Collins Street Melbourne VIC 3000 Australia Phone: (61) 3.689.3333 Cell: (61) 4.689.S. and the needs of their customers and communities. Consistently ranked among the world's most admired and trusted employers. positively" focused on safety. N. 5455 Darrow Road Hudson.Dale@fedex.000 employees and contractors to remain "absolutely. GA 30332-0205 Phone: (404) 894-6523 Fax: (413) 556-3570 John.edu Thomas A.1838.97.com.gatech.42.van.fedex. please contact: North America and Latin America: Gary R. With annual revenues of $25 billion.9613.com Asia-Pacific: Donato Caporale Vice President. the company offers integrated business applications through operating companies competing collectively and managed collaboratively under the respected FedEx brand. e-commerce. LLC 500 Woodward Avenue Suite 1620 Detroit.32 Erik.9527 Cell: (31) 651. Atlanta.com C. Box 2575.com Western Europe: Erik van Dort Global Distribution Sector Leader Capgemini Papendorpseweg 100 3528 BJ Utrecht (or P. and business services. MI 48226 Phone: (313) 887-1432 Fax: (734) 667-2194 Cell: (678) 571-6250 Gary. OH 44236 Phone: (330) 342-3000 Thomas. visit www. FedEx inspires its more than 240.Allen@capgemini.9613.