Tuesday, September 22, 2009
The fourteenth Annual Third Party Logistics (3PL) Study examining the current global market for logistics outsourcing was recently released. The study surveyed shippers and logistics service providers in North America, Europe, Asia Pacific and Latin America. Key findings included:
“Shipper-3PL relationships are being impacted significantly by the prevailing uncertainty and economic volatility in global markets,” said 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, 77% are also seeking to improve forecasting and inventory management.
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%), expanding to new markets or offering new products (56%), and restructuring the supply chain network to improve financial performance (48%).
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% 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.
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%) and timely demand forecasts (54%) are the most desired IT capabilities 3PLs need from shippers.
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%).
3PLs’ role in logistics success
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% of 3PLs believe they provide new and innovative ways to improve logistics effectiveness, compared with only 50% of shipper respondents who feel they receive services of this nature. Similarly, only 54% of shippers reported improvements in service levels compared with 71% of 3PLs.
The fourteenth Annual Third-Party Logistics Study was conducted by Capgemini, Georgia Institute of Technology, Oracle and Panalpina. 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’.