Third Party Logistics

Libby Ogard
Prime Focus LLC

October 20, 2004

 Definitions

• Third Party Logistics (3PL): Outsourcing all or much of a

companies logistics operations to a specialized company

• Third Party Logistics Provider: A firm which provides multiple

logistics services for use by customers. Preferably, these services
are integrated or “bundled” together by the provider. These firms
facilitate the movement of parts and materials from suppliers to
manufacturers and finished products from manufacturers to
distributors and retailers. Among the services which they provide
are transportation, warehousing, cross-docking, inventory
management, packaging and freight forwarding.

Source: Council of Logistics Manage

ment
 Why Outsource?

• 80% of the top 400 US companies operate on a

global scale

POLAND KOREA
MILAN,
MINNEAPOLIS, MINN. U.K.
ITALY TIANJIN,
FLORENCE, CHINA
FRANCE
NEW YORK, NY ITALY QINGDAO,
TURKEY CHINA
HAYWARDUS
CAL.
- PORTUGAL DONGGUAN,
Hayward BAHRAIN LAHORE, CHINA
SPAIN SHANGHAI,
KARACHI, PAKISTAN CHINA
LOS ANGELES, MEXICO CITY, MEXICO GUANGZHOU,
PAKISTAN
CAL. SHENZHEN, CHINA
NEW DELHI, BOMBAY, CHINA
HONDURA INDIA TAIWAN
GUADALAJARA, MEXICO INDIA
S EGYPT
HONG
GUATEMALA ISRAEL BANGALORE,
DOM. KONG
INDIA PHILIPPINE
REPUBLIC JORDAN MADRAS, VIETNAM
S
EL INDIA
DUBAI SRI THAILAND
SALVADOR LANKA
BRAZIL DHAKA, BANGLADESH SAIPAN
SINGAPOR
NICARAGUA E
KENYA CHITTAGONG,
BANGLADESH
Madagascar MALAYSIA

INDONESIA FIJ I

MAURITIUS
LESOTHO
SWAZILAN
D DURBAN

LEGEND MERCHANDISING & PRODUCTION SERVICES

PRODUCTION SERVICES
Complex Inland Distribution Patterns
Profitability depends on
Speed, Reliability and Visibility
Outsourcing - Industry Trends
Outsourcing - Industry Trends

Contract Logistics Savings Potential

Description Savings Realized
Route Design & Optimization 10-15%
Closed Loop Dedicated Operations 15%
Mode Conversion 10-15%
Core Carrier Management 5-10%
Rate Negotiation & Audit 4-5%
Inbound Consolidation 20-25%
Reverse Logistics 10-15%
DC Location Realignments 10-12%
Reduced Inventory 7-10%
 FY 2003 Fortune 500 Global 3PL
Gross Revenues by Industry

Other $2.90
Insdustrial $18.8 Automotive, $26.7

Food $6.40

Healthcare
$2.80 Retailing $16.20 Technology $22.20
Consumer
Products, $2.20

Automotive Technology Consumer Products

Retailing Health Care Food

Industrial Other
 Customers of 3PL’s
Industry Global Domestic Costs
Costs
Automotive $98.2 $37.4
Technology $156.4 $77.4
Retailing $98.6 $67.2
Consumer Products $13.6 $13.3
Food and Grocery $32.2 $27.8
Healthcare $38.4 $34.0
Industrial and Elements $179.7 $84
Other $63 $25.3
Total Costs $678.3 $366.3
Costs stated in Billion's of Dollars
 Customers of 3PL’s

Percent of Fortune 500 Companies Using 3PL’s

90%
80%
70%
60%
50%
2002
40%
2003
30%
20%
10%
0%
1-100 101-200 201-300 301-400 401-500

Armstrong and Associates 2004

 Buyers of 3PL Services
Customer # of 3PL’s Used
General Motors 37
Wal-Mart Stores 33
Ford Motor, HP 27
Procter & Gamble 20
General Electric 17
Georgia Pacific, IBM 16
PepsiCo, Sears 13
Coca-Cola, Sara Lee, 12
Target, Xerox
General Mills 11
Delphi, Safeway 10
 Services Provided By 3PL’s

Lead Logistics
4% Other
Transportation
5%
Integrated Mgt
9% 21%
International
9%

Private Fleets
7%
Value Added Intermodal
20% 4%
Warehousing
21%

Source: Armstrong and Assoc 2004

 Top Providers Est. Rev. ($M)

2003 Rank Provider 3PL 2003 Revenue

1 Excel $8,300
2 Kuehne & Nagel $6,900
3 Schenker $6,400
4 DHL $5,700
5 P&O Nedlloyd $4,800
6 TGP/TNT $4,700
7 Panalpina $4,600
8 UPS Supply Chain $4,100
9 Nippon Express $4,000
10 C.H. Robinson $3,600
11 Menlo Worldwide $3,100
12 NYK Logistics $3,000
 10 Commandments of Outsourcing

1. Develop a strategy for outsourcing

2. Establish a rigorous provider selection process
3. Clearly define expectations
4. Develop a good contract
5. Establish sound policies and procedures
6. Identify and avoid potential points of friction
7. Communicate effectively with your partner
8. Measure performance and communicate results
9. Motivate and reward provider
10. Be a good Partner