The Logistics Institute at Georgia Tech Releases Annual Report on Third-Party Logistics Providers

Logistics outsourcing is still a growth business globally, but the industry appears to be in transition, according to a new study released today by The Logistics Institute at Georgia Tech, Cap Gemini Ernst & Young US LLC and FedEx Supply Chain Services.

Results of the 8th annual report on third-party logistics (3PL) trends and issues were released at the Council of Logistics Management's annual conference in Chicago. According to the study, more than three-quarters of North American and Western European respondents (78 percent and 79 percent respectively) indicate they use 3PL services. More than half of the respondents of Asia-Pacific (58 percent) also practice logistics outsourcing.

In addition, operating performance, cost management and service delivery are the three biggest ongoing concerns to 3PL customers in each of the key regions studied. The study involved 400 logistics and supply chain executives from the U.S., Canada, Mexico, United Kingdom, France, Belgium, Netherlands, Germany, Italy, China, Japan and South Africa.

"This year's study suggests that the 3PL industry is in transition as both buyers and sellers of 3PL services gain experience in their respective roles," said C. John Langley Jr., professor of supply chain management and 3PL study leader at Georgia Tech. "Market trends, 3PL user characteristics, 3PL service offerings and capabilities, management and relationship issues, customer value and strategic directions for the future were all examined in depth to provide a better understanding for the marketplace for 3PL services around the world."

The 2003 study had a number of interesting key indicators and metrics, including:

-- Western European respondents spend a larger portion of their logistics dollar or euro (65 percent) on 3PL services than do those in North America (49 percent) and Asia-Pacific (50 percent)

-- Globally, the four most frequently outsourced activities to 3PL providers are warehousing, outbound transportation, customs brokerage and inbound transportation

-- In North America and Asia-Pacific, the four biggest reasons why non-users did not use 3PL services were logistics is a core competency (44 percent), logistics is too important to outsource (40 percent), costs would not be reduced (32 percent) and control would diminish (32 percent)

-- In terms of the top 3 IT-based services currently provided by 3PLs for each region, North American respondents said warehouse management (70 percent), event management (66 percent) and freight forwarding (66 percent); Western European respondents answered warehouse management (75 percent), freight forwarding (71 percent) and transportation management (68 percent), while Asia-Pacific respondents replied that transportation management (71 percent), freight forwarding (47 percent) and warehouse management (33 percent) were offered by 3PLs

-- In terms of primary sources of IT solutions, 32 percent of Asia-Pacific respondents use 3PLs (compared to 29 percent of Western Europeans and only 16 percent of North Americans), 35 percent of North American participants use technology provider (compared to only 15 percent in Asia-Pacific and 6 percent in Western Europe) and 59 percent of Western European respondents use internal sources (compared to 56 percent in Asia-Pacific and 46 percent in North America)

-- In North America, the use of the Internet and independent electronic markets is up significantly from previous studies. The 2003 study shows that 26 percent currently use industry vertical procurement markets and 40 percent plan to use them in the future. This is a drastic shift from the 2001 findings of 11 percent and 17 percent respectively. In addition, 28 percent currently use transportation/logistics electronic markets and 63 percent plan to use them in the future, compared to the 2001 findings of 13 percent and 37 percent respectively

-- While more than 70 percent of all respondents view their 3PL as a "resource provider," only 24 percent of Western European respondents view them as a "resource manager," compared to 43 percent in North America

-- When comparing quantifiable measures of 3PL success between North America and Western European respondents respectively, logistics cost reduction (9 percent vs. 7 percent); fixed logistics asset reduction (16 percent vs. 5 percent); average order-cycle length change (from 9.8 to 7.9 days vs. from 4.7 to 2.0 days) overall inventory reduction (8 percent vs. 13 percent) and cash-to-cash cycle reduction from 25.6 to 18.3 days for North American respondents only.

Additionally, Cap Gemini Ernst & Young launched a facilitated learning and research group through its Accelerated Solutions Environment (ASE) center in Atlanta, Georgia in July, which consisted of 30 key executives from various industries and geographies for the first time to analyze and clarify the research findings from this year's study. The key message derived from that session was that proper definition of the scope of work with enough flexibility built into the contracting process with 3PLs is the key to maintaining a long-term healthy relationship.

"Companies in all industries must see the 3PL option as one that can provide value creation for the user firm, its customers and suppliers and the supply chain in general," said Mark Colombo, Vice President of Strategic Marketing and Corporate Strategy and 3PL study leader for FedEx Corporate Services. "The study showed that 3PL providers will increasingly be at the focal points of strategy formulation, operational excellence and information technology to make the maximum contribution in value creation for their customers."

Respondents by region included 221 from North America, 53 from Western Europe, 118 from Asia-Pacific and eight from South Africa. More than two-thirds of respondents globally came from the manufacturing sector, with the following vertical industries represented: aerospace; government; automotive; industrial management; chemical; life sciences; computers and peripherals; medical consumer products; retail; electronics; and telecommunications.

"At a time when customer expectations are increasing at exponential rates, product lifecycles shortening and new enabling technologies driving change, this study produces relevant data on how the 3PL industry is addressing these challenges," said Paul Matthews, Americas supply chain leader for Cap Gemini Ernst & Young. "These learnings are invaluable in understand how companies view the 3PL industry and gaining insights on how companies can utilize 3PL services to facilitate a shift towards an adaptive supply chain."