Capgemini, one of the world’s foremost providers of consulting, technology and outsourcing services, in cooperation with Oracle, the Georgia Institute of Technology and logistics provider, Panalpina, has released its fourteenth annual in-depth study examining the current global market for logistics outsourcing.
Based on responses from both shippers and logistics service providers in North America, Europe, Asia Pacific and Latin America, the Fourteenth Annual Third-Party Logistics (3PL) study explores some of the key issues affecting the industry.
Key findings include:
- The economic downturn has created significant challenges for both shippers and third-party logistics providers (3PLs) — 82 per cent of shippers are employing cost-cutting tactics and 60 per cent are rethinking their supply chains and relationships with 3PLs as a result
- 88 per cent of shippers feel that IT-based logistics services are important, but only 42 per cent are satisfied with the capabilities of their provider — as a result of this IT capability gap, shipper respondents reported a lack of the key performance indicators, alerts and visibility required for an adaptive supply chain and 3PLs reported similar difficulties in getting the data and commitment they need from shippers
- There are significant differences between how 3PLs evaluate their role in the supply chain and how they are viewed by shippers — only 59 per cent of shippers feel their use of 3PLs has a positive effect on customer service compared to 88 per cent of 3PL respondents Shipper respondents devote an average of between 47 per cent (in North America) and 66 per cent (in Europe) of their total logistics expenditures to outsourcing and this is expected to increase in the next five years.
“Shipper-3PL relationships are being impacted significantly by the prevailing uncertainty and economic volatility in global markets,” says Dr C John Langley Jr, Professor of Supply Chain Management, Georgia Institute of Technology.
“It is very important for 3PLs to mitigate or reduce any financial risk or service level impact that this may cause.”
Economic uncertainty and the use of 3PLs Economic volatility has challenged shippers and 3PLs alike to contend with factors such as unpredictable demand, instability in fuel costs and currency valuation, and excess inventory.
In response, not only are shippers attempting to cut costs, they are also seeking to improve forecasting and inventory management (77 per cent).
Cost reduction and improved reliability in services are the main factors likely to increase shipper respondents’ use of 3PLs.
This includes converting fixed to variable costs (59 per cent), expanding to new markets or offering new products (56 per cent), and restructuring the supply chain network to improve financial performance (48 per cent).
“Companies worldwide are still dealing with the effects of the economic downturn,” says Jim Morton, Senior Manager within Capgemini Consulting’s Supply Chain practice.
“But shippers should embrace the opportunity to rethink their supply chains and the role that 3PLs can play in helping to attain business goals.”
Supply chain orchestration
The study shows that while shippers continue to outsource logistics services that are more operational and repetitive, they outsource less frequently those that are more strategic, customer facing and IT intensive.
However, economic volatility presents an opportunity for shippers to assess their supply chains and make changes designed to increase agility and responsiveness, reduce costs and reconsider their relationships with 3PLs to drive them deeper.
Overall, 75 per cent of shipper respondents agree that more strategic 3PL relationships would help them reduce costs.
In order to achieve a more strategic shipper-3PL relationship, shippers want to see 3PLs investing in enhancing their regional and vertical expertise to better understand their particular business.
Shipper respondents will also need to be more forthcoming with their data and be willing to team with 3PLs to re-engineer business processes.
“As a provider of outsourced logistics services, we know that openness, transparency and good communication, flexibility and the ability to achieve cost and service objectives are key to the success of our customer relationships,” says Kai Peters, Head of Supply Chain Development, Panalpina.
“But in order to be an effective partner for our customers, it is also increasingly important for us to understand the entire business, not just logistics.”
The IT capability gap
IT is viewed as central to the overall performance of 3PL-customer relationships. However, lack of IT integration within 3PLs leads the list of shipper respondent issues (55 percent) with 3PL IT capabilities.
Shippers and 3PLs seek IT that is responsive, delivers valued information such as order, shipment and inventory visibility, builds on existing investments and allows for innovation.
However, widespread use of manual practices and variations in standards make it difficult for shippers and 3PLs to exchange data reliably and connect workflows.
Real-time interfaces to shipper order management systems (63 percent) and timely demand forecasts (54 percent) are the most desired IT capabilities 3PLs need from shippers.
“When shippers outsource logistics functions to a 3PL, IT is an essential part of the relationship,” says Jon Chorley, Vice President, SCM Product Strategy, Oracle.
“3PLs and shippers need to leverage integrated IT platforms that deliver visibility across the entire logistics network in order to keep productivity and customer service levels high.”
Other problems cited by shippers with 3PL services include a lack of continuous, ongoing improvements and achievements in service offerings and unrealized service level commitments (both 46 percent).
3PLs’ role in logistics success Interestingly, while there is significant agreement between shippers and 3PLs on critical issues, 3PLs generally have a more positive view of relationship success than shippers and have lower awareness about potential problems.
This suggests that 3PLs still have some way to go before they fully meet the expectations of their customers. For example, 82 per cent of 3PLs believe they provide new and innovative ways to improve logistics effectiveness, compared with only 50 percent of shipper respondents who feel they receive services of this nature.
Similarly, only 54 per cent of shippers reported improvements in service levels compared with 71 per cent of 3PLs.
About the 2009 Third Party Logistics Study
Over 1,000 logistics executives from both 3PL users and providers in North America, Europe, Asia Pacific and Latin America participated in the web-based survey.
A small number of executives in other areas such as South America and the Middle East also responded although there was no in-depth analysis of these geographies. This was the first year that 3PLs, in addition to shippers, were invited to share their views.
The findings were then supplemented with the results from in-depth ‘focus interviews’. Interviews were conducted with industry observers and experts, primarily relating to the special topics identified in this year’s report.
The Capgemini Accelerated Solutions Environment® (ASE) was also leveraged as a brainstorming setting where participants could collaborate on shared issues.