3PL Study

T H I R D - P A R T Y
L O G I S T I C S
Results and Findings of the 2003 Eighth Annual Study
Third-Party Logistics Study Results and Findings of the 2003 Eighth Annual Study1
Participants: C. John Langley Jr., Ph.D., Georgia Institute of Technology Gary R. Allen, Cap Gemini Ernst & Young U.S. LLC Mark J. Colombo, FedEx Corporate Services
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 Capabilities .............................................12 Management and Relationship Issues ..............................................17 Customer Value Framework...............................................................24 Strategic Assessment.........................................................................28 Appendix: Cap Gemini Ernst & Young Accelerated Solutions Environment (ASE) ........................................31 About the Participants........................................................................33 Contact Information............................................................................36
3PL: Results and Findings of the 2003 Eighth Annual Study
Introduction
This report presents the findings from the Eighth 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 regional areas and industries examined. Also, each study has attempted to address key issues that emerge from time to time relevant to the logistics and 3PL industries.
Study Objectives and Methodology

During the spring and summer of 2003, C. John Langley Jr., Ph.D., of the Georgia Institute of Technology, with Cap Gemini Ernst & Young U.S. LLC (CGE&Y) and FedEx Supply Chain Services Inc., conducted an extensive study about using 3PL services in North America, Western Europe, and Asia-Pacific.2 This year, a limited study of logistics executives in South Africa began obtaining critical information on the use of 3PL services in that part of the world.3 This is now the eighth annual research study to examine critical trends and issues among key markets and key customers in the 3PL industry.
Study Objectives
Measure the development and growth of the 3PL industry across major industry segments and across several diverse global regions. 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 capabilities, how to structure and manage effective 3PL relationships, and how to properly measure 3PL performance and assess the benefits and value from 3PL relationships. Provide a strategic assessment of the future of the 3PL industry. An important goal of each years 3PL study is to improve upon the previous years studies. The following are ways in which the 2003 3PL study was modified to enhance the scope of earlier studies: Extended the 3PL study to meaningfully include North America, Western Europe, Asia-Pacific, and South Africa.4 Although the results from South Africa are preliminary, the analysis that follows includes a number of interesting comparisons of the results from executives in North America, Western Europe, and Asia-Pacific. Revised content and terminology to be current and to respond to recent advances in the logistics, supply chain, and 3PL industries.
1 2003, C. John Langley Jr., Ph.D. and Cap Gemini Ernst & Young U.S. LLC. 2 The China portion of the study was facilitated by a joint team of researchers representing the Georgia Institute of Technology (United States), The Logistics Institute Asia Pacific (Singapore), and China Communications and Transportation Association. More details are later in this section. A more comprehensive report is available on the Logistics Institute at Georgia Tech website at www.tli.gatech.edu. 3 The South African portion of the study was facilitated by the Centre for Logistics and Decision Support of the CSIR (Council for Scientific and Industrial Research). The Centre recognizes the assistance of Peter Baker, Divisional Director Marketing of Uti Worldwide, Inc., and Barlow Manilal, Logistics Manager of the Automotive Industry Development Center (Pty) Ltd. 4 North American companies are mostly concentrated in the United States, although a number of firms operating in Canada and Mexico were included in the study. Western Europe includes Belgium, Denmark, France, Germany, Italy, Netherlands, and the United Kingdom. Asia-Pacific refers predominantly to China, though survey responses did come from several other Asia-Pacific countries.
Exhibit 1 Survey Response Rates

Companies Contacted North America Western Europe AsiaPacific South Africa Totals 1,344 466 291 63 2,164 Usable Responses 221 53 118 8 400 Response Rate 16% 11 41 13 18
Continued using the Internet to conduct the study. The 2003 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 use of the CGE&Y Accelerated Solutions Environment (ASE) resource (Atlanta, Georgia, USA) to get feedback and perspectives about this years study results from industry executives who use logistics and 3PL services. Approximately thirty logistics executives participated in an all-day ASE session held in July 2003.5 Information about the ASE is in the appendix of this report, along with details about the 3PL ASE session. Learnings from the ASE session are included in the commentary throughout this report. Plans at publication time were to hold a similar session for European logistics executives at CGE&Ys ASE resource in Paris, France. The study methodology included addressing e-mails to logistics and supply chain executives across North America, Western Europe, Asia-Pacific, and South Africa, 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 2003 3PL survey. Once the survey was completed, a final click on end survey entered the responses into the overall study database.6
Industries Studied
The industries represented in our research included: Aerospace Automotive Chemical Computers and Peripherals Consumer Products Electronics Government Industrial Manufacturing Life Sciences Medical Retail Telecommunications
These industries were selected because they view logistics as strategically important and because they are purposefully moving toward integrated supply chain management.
5 Among the organizations represented in the 2003 ASE session in Atlanta were: AES Corporation, ArVista AG, Cap Gemini Ernst & Young, Cingular Wireless, Divers Direct, DuPont, FedEx, Georgia Institute of Technology, Georgia-Pacific, The Home Depot, Husqvarna, Intel Corporation, Limited Brands, Lockheed Martin, Milliken & Company, Newell Rubbermaid, Northrop Grumman Integrated Systems Corporation, RadioShack, Royal Netherlands Air Force, The Scotts Company, Solectron, Sulzer, and the United States Army. 6 To facilitate completion, surveys were translated into Chinese, French, and Japanese for logistics executives in those respective countries. Also, with the exception of China, executives in other geographies completed surveys that were available and accessed through the Internet. Surveys from logistics executives in China were manually completed, with results entered into the database after all the surveys were completed. 7 The firms cited as examples in the North American, Western European, and South African versions of the survey included Deutsche Post, Exel, FexEx, Menlo Logistics, Ryder, Schneider Logistics, Tibbett & Britten, and UPS. The Chinese version cited COSCO, FedEx, PG Logistics, ST-Anda, and UPS Logistics. 8 As explained later in this report, the industry executives participating in the ASE session provided valuable insights to help distinguish between the terms 3PL and 4PL, as well as more advanced services that may be available from providers of integrated logistics services.
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 may include more project program management of sub-contractor 3PL operations.8 Exhibit 1 shows by region the total number of companies to which surveys were sent, the number of usable returns received, and the response rates. Although a majority of the overall responses were received from companies in North America, the total responses from Western Europe and Asia-Pacific were statistically acceptable to provide meaningful comparisons. The greatest response rate was from firms operating in Asia-Pacific, primarily China, as individual e-mails were sent to industry executives
by the Chinese Communications and Transportation Association with a request to print, complete, and return a completed copy of the survey. Response rates in North America and Western Europe were somewhat more modest, but are similar to response rates achieved in recent years of this study and other comparable logistics studies in those regions. Although the response from South Africa is not sufficient to meaningfully compare most results with those from the other regions, even the small number of responses provides insights into the use of 3PL services in South Africa. The following list identifies a number of key characteristics about the firms participating in the 2003 3PL study: Although a broad range of company types were targeted for inclusion in this study,9 the percent of respondents representing the manufacturing sector were 65% in North America, 85% in Western Europe, and 72% in Asia-Pacific. Respondents from Asia-Pacific were somewhat stronger in terms of raw materials suppliers (12%), while the North American and Western European sectors yielded very few firms of that type. The wholesale/distribution/retail sectors were represented by 25% of the respondents in North America, 14% in Western Europe, and 16% in Asia-Pacific. The 3PL users indicated broad regional scope of their logistics operations. As shown in Exhibit 2, respondents from each of the regions listed significant responsibilities for logistics in their respective areas. For example, 98% of the respondents in North America, 100% in Western Europe, and 90% in Asia-Pacific indicated the scope of their logistics responsibilities at least included their own immediate region. Exhibit 2 shows that, in general, the responding executives did have responsibilities for logistics operations in other major areas of the world. For example, among North American respondents, 47% indicated responsibilities that included Europe, AsiaPacific (47%), the Middle East (21%), South America (32%), and Africa (13%). North American 3PL users tend to have broader geographic responsibility than non-users of 3PL services; non-users more often have strictly local responsibility.10 Respondent firms have a relatively broad range of anticipated annual sales revenues for 2003.11 Of the North American respondents, about half of the firms have revenues between US$1 billion and US$25 billion; another 10% project revenues over US$25 billion. This is similar to Western Europe where more than half of the firms project revenues greater than US$1 billion, while less than 5% of the Asia-Pacific firms anticipate total sales greater than US$1 billion. Overall, respondent firms in Western Europe tend to be smaller than those in North America, while those from Asia-Pacific include a large number of firms with US$100 million to US$500 million in sales revenues. North American respondents expect that logistics expenditures will represent approximately 11% of their organizations total sales for 2003. Comparable figures are 6% for Western Europe and 8% for Asia-Pacific. One factor influencing these results is the relatively greater percentage of intra-European and intra-Asia-Pacific business by companies in those regions. Also, the greater involvement of respondents from North America in the consumer products and retail industries may partially explain the higher percentage by logistics expenditures to total sales.
Exhibit 2
Geographic Scope of Logistics Responsibilities
North American 3PL Users North America Europe AsiaPacific Middle East South America Africa 98% 47 47 21 32 13
a
Western European Asia-Pacific 3PL Users 3PL Users 29% 100 41 59 35 53 29% 32 90
b
19 16 17
aA small number of respondents in North America (2%) may have responsibilities that exclusively extend beyond North America. bRespondents from China may have considered Asia-Pacific to extend beyond China.
9 Respondents were asked to classify their firms in one of the following categories: raw materials supplier, manufacturer (components/ingredients, contract manufacturer), manufacturer (finished product), wholesale/distribution, and retail. 10 For comparison, the percentages of North American users versus non-users indicating responsibilities in other areas of the world were as follow: Europe (47% vs. 32%), Asia-Pacific (47% vs. 32%), Middle East (21% vs. 15%), South America (32% vs. 18%), and Africa (13% vs. 6%). 11 Respondents from areas surveyed were given the option of responding to financial questions in customary monetary units (e.g., US$, euro, and RMB). Results were then converted to US$.
The dominant pressures on the industries in which the respondents compete are: significant pressures to reduce cost, significant pressures to enhance customer service, and emphasis on improved supply chain management. Of less effect, but still significant, are: globalization, consolidation, mergers, acquisitions, etc., implementation of new information technologies, and rapidly accelerating new product introductions. As may have been expected, security issues have significantly increased among North American respondents, as well as for respondents from Western Europe and Asia-Pacific. The importance of security issues increased from the 2002 study; in that study, only about a fourth of the respondents cited it as notable, whereas almost half identified this as very important in 2003. The 3PL users also attach great importance to logistics processes and supply chain issues. For example, 95% of the North American respondents, 100% of the Western European respondents, and 68% of those from Asia-Pacific agree that logistics represents a strategic, competitive advantage for our company. Also, the percent of respondents agreeing with our customers are placing greater emphasis on logistics customer service were 90% in North America, 100% in Western Europe, and 81% in Asia-Pacific. Slightly more than half of the North American and Western European respondents agree with our customers are more interested in price than service, while less than half of those in Asia-Pacific agree with that statement. Overall, the percent of customers agreeing with using 3PLs is a key to satisfying their companys customers was 73% both in North America and in Western Europe, and 58% in Asia-Pacific.
Organization of This Report

Following a summary of key findings, the 2003 3PL study results are discussed in four sections. The first is Logistics Outsourcing Practices in Profile, where you will find a high-level discussion of overall trends among users and non-users of 3PL services. The next three sections deal with areas of strategic interest to 3PL use: 3PL Service Offerings and Capabilities, Management and Relationship Issues, and Customer Value Framework. The discussions will encompass results from this years study and will provide a perspective on the study findings over its 8-year history. The last section in the main body of the report provides a Strategic Assessment of the future of the 3PL industry, including an explanation of the types of value readers should derive from this years 3PL study.
Summary of Key Findings

This study helps provide a better understanding of the marketplace for 3PL services and the ways in which providers of such services continue to develop and grow. Considering that the total annual revenues of U.S.-based 3PL providers are approximately US$65 billion,12 the services offered by 3PL providers continue to consume a significant portion of overall logistics and supply chain budgets.13 The following points capture the major findings of this years 3PL study: SCOPE OF STUDY. Expanding this annual 3PL study from North America to include Western Europe, Asia-Pacific, and South Africa was successful. Although the South African response was limited, the studys findings confirm that the use of 3PL services is prevalent throughout the three other major regions of the world we studied. Additionally, the CGE&Y ASE session helped us better understand the perspectives of 3PL users, especially as they pertain to this years study. Although 3PL use is similar around the world, the study highlights a number of key differences. Future studies will be able to provide increasingly useful comparisons of the 3PL industry in the major regions of the world, as well as to monitor key metrics over time. MARKET TRENDS. The markets for 3PL services continue to change. Both users and providers are becoming more capable. Moreover, their expectations of each other are rising. Operating performance, cost management, and service delivery are continuing concerns to 3PL customers in each of the key regions studied. Todays marketplace is also seeing more productive and meaningful 3PL customer-supplier relationships evolving. Aside from the fact that customers generally report high levels of success with their 3PL providers, a gap exists between what customers receive and what they expect to receive. This is a matter of concern. Consequently, 3PL providers should focus on a number of key objectives, including implementing capable information technologies, instituting effective management and relationship processes, integrating services and technologies globally, and delivering comprehensive solutions that create value for 3PL users and their supply chains. Considering that customer demands for performance and sophistication are accelerating, improving these areas is imperative for 3PL providers. 3PL USER CHARACTERISTICS. The 2003 3PL study provided new key metrics about 3PL use across the regions studied. 3PL use is significant in the regions of the world included in this study. The percent of respondents using 3PL services are: 78% in North America, 79% in Western Europe, and 58% in Asia-Pacific.14 The North American percentage, for the second consecutive year, represents an increase over that of the first six years of this study. The finding that Western European 3PL use is equal to or exceeds that in North America is consistent with the long-term use of commercially available integrated logistics by organizations in that region.
12 Source: Armstrong & Associates, Inc., www.3plogistics.com. Estimated total contract logistics market revenues were US$56.4 billion for 2000, US$60.8 billion for 2001, and US$65.0 billion for 2002. Estimated industry growth rates were: 20% for 2000, 7.4% for 2001, and 6.9% for 2002. 13 Robert V. Delaney, 14th Annual State of Logistics Report (St. Louis, MO: Cass Information Systems and ProLogis, June 2003). According to this study, U.S. business logistics systems costs totaled US$910 billion in 2002. 14 Although these percentages are comparable from year to year, and even though respondents are asked to identify themselves as users or non-users of 3PL services, there may be a greater likelihood for 3PL users to respond and participate in the study. This may be particularly true in Asia-Pacific.
Respondents in Western Europe spend a larger proportion of their logistics dollar or euro (65%) on 3PL services than do those in North America (49%) and Asia-Pacific (50%). All groups project increases in these percentages over the next three to five years. According to the 2003 study, the activities most frequently outsourced to 3PL providers are: warehousing, outbound transportation, customs brokerage, and inbound transportation. In North America, other frequently outsourced activities include freight bill auditing/payment, customs brokerage, freight forwarding, and customs clearance. These figures are comparable with those of Western Europe, except the latter region uses freight bill auditing/payment services less. Overall use of these services in Asia-Pacific is somewhat less than in the two other regions. Although there were only a few responses from South Africa, the activities outsourced by respondents in that region looked quite similar to those of the other regions studied. 3PL SERVICE OFFERINGS AND CAPABILITIES. Customers have high expectations for their 3PL providers in terms of service offerings and capabilities. Principal among these are capable information technology (IT) services that are needed to conduct logistics activities and processes. While customers agree that IT capabilities are a necessity for 3PL providers, the responses suggest that less than half of the users are satisfied with 3PL IT capabilities; even fewer rely on their 3PL providers for leadership in this critical area. Additionally, this years study again documents the use of electronic markets and trading exchanges as they relate to 3PL service offerings. The study shows that customers are using and will continue to use these capabilities. Overall, this may be a direct result of increasing comfort with and increasing ability to effectively use the power of the Internet to facilitate logistics. In the future, a 3PL providers success will depend significantly on its ability to deliver integrated, end-to-end solutions that provide significant financial and operational performance improvements. MANAGEMENT AND RELATIONSHIP ISSUES. The real challenge is for 3PL providers to continually enhance their relationships with customers, while meaningfully expanding their services. This issue is not easy to address because the cost to serve clients is difficult to calculate and continual pressure on profitability restricts quick expansion of services. In essence, core product offerings are being commoditized; to play in the game, 3PL providers must focus on valueadded capabilities to differentiate themselves from the competition. The study also acknowledges that 3PL providers need to clearly define a customer satisfaction strategy, and understand that this strategy will differ by industry, client situation, and service requirements. In the interest of achieving business objectives for both 3PL users and providers, a partnership approach to relationship structures is
essential. First, 3PL users need to think of their 3PL providers more as a strategist or orchestrator of logistics activities. Second, users must be willing to participate in innovative and productive deal structures that motivate both parties to do what is desired. Additional areas of priority include the continual development of the 4PL model, and the need for 3PL providers to have truly global reach. CUSTOMER VALUE. As in previous years, 3PL customers generally feel their relationships with 3PL providers are successful. In fact, this assertion is validated by the survey results pertaining to North America, Western Europe, and Asia-Pacific. In addition, approximately half to two-thirds of North American 3PL users feel their 3PL providers are facilitating supply chain improvement and are providing international supply chain solutions. Customers in Western Europe and Asia-Pacific generally agree with these comments, but this feeling apparently was shared by fewer users than in North America. Metrics relating to the results achieved through 3PL providers were again impressive this year. One area of concern, however, is the range of problems, or areas for improvement, that 3PL users associate with their 3PL providers. Learnings from the ASE session suggest that the need for improvement was not a surprise, and that the burden of improvement was one that needed to be shared by both 3PL users and providers. STRATEGIC DIRECTIONS FOR THE FUTURE. The 2003 study results suggest that the 3PL industry is in transition as both buyers and sellers of 3PL services gain experience in their respective roles. The study also shows that the stakes and challenges are higher than those in recent years. To better understand these dynamics, and to identify likely strategic directions for the future, the session held at the CGE&Y ASE focused on key issues that were apparent from the studys results. The issues that received the most attention included: high level of disappointment with some key 3PL core competencies, the evolution of buyer-seller relationships toward more dependence on integration of processes and broaderbased solutions, the increasing value of information, the emerging role of supply chain integration, and the need for 3PL providers and customers to re-invent themselves to be better positioned for a continually changing marketplace.
Logistics Outsourcing Practices in Profile

Exhibit 3
Overall Trends
100%
80%
60%
40%
Percent of Respondents
20%
0%
3PL use is significant in the regions of the world included in this study. Exhibit 3 provides an 8-year view of the firms using 3PL services. From 1996 through 2001, the North America percentage of 3PL users remained relatively constant among North American Western Europe respondents, generally between 68% to 73%; however, Asia-Pacific this percentage increased to 78% in 2002 and remained 3PL User Percentages, 1996 - 2003a at 78% in 2003. Looking at the two years of usage data available for Western Europe, 3PL use appears 94 significant, between 79% and 90%. The decrease in 79 78 78 usage from 2002 to 2003 in Western Europe may be 73 73 71 71 71 68 more from sampling methodology than from substantive differences in usage. The single year of results for Asia58 Pacific suggests that fewer respondents (58%) outsource 3PL services than respondents in the other regions studied. Because the Asia-Pacific responses were predominantly from China, the results are obviously reflecting the current state of 3PL use in that country, in contrast to the broader Asia-Pacific area.15 Looking at the small number of responses from South Africa, all of 1996 1997 1998 1999 2000 2001 2002 2003 those who participated in the study indicated they were aAlthough these percentages are comparable from year to year, and although respondents are asked to identify themselves as users of 3PL services.16 users or non-users of 3PL services, there may be a greater likelihood for users of 3PL services to respond and participate in the
study. This may be particularly true in Asia-Pacific.
Although the number of companies using 3PL providers is generally stable from year to year, the survey confirms that 3PL use does vary by industry. For example, two industries that tend to have greater use of 3PL services are computers and peripherals, and consumer products. Among those industries that tend to use fewer 3PL services are automotive, chemical, and retail. Future studies will more closely examine 3PL use in various industries. Again in this years study, respondents were asked what percent of total logistics expenditures, defined as transportation, distribution, or value-added services, are directed to outsourcing. Exhibit 4 shows the current (2003) versus projected (20062008) percentages directed to outsourcing for North American, Western European, and Asia-Pacific 3PL users. Western European respondents currently spend a greater percentage of their logistics dollar or euro (65%) on outsourcing than do those in North America (49%) and Asia-Pacific (50%). Of significance is that respondents from all three regions expect these percentages (i.e., the use of 3PL services) to increase over the next three to five years. As shown in Exhibit 4, respondents in Western Europe project a greater relative increase in their future spending (from 65% to 81%) than do those in North America (49% to 56%) and Asia-Pacific (50% to 60%).
15 Although the 2002 study results indicated an Asia-Pacific 3PL usage rate of 92%, this figure was based on a small sample and may have been less reliable than the results from North America and Western Europe. 16 This result may be more because of the selection of firms in the South African study than the propensity to outsource. Further information should be available in next years 3PL study. 17 Data relating to Asia-Pacific logistics expenditures is based solely on results from non-China respondents, as the version of the study used in China was slightly modified from the one in more general use.
Looking specifically at responses to this question for North American 3PL customers in 2002 and 2003, it appears that customer expectations may have moderated somewhat as the projected 3- to 5-year increase in 3PL spending as a percent of logistics expenditures decreased from about 40% in 2002 to 14% in 2003. This may signal an intention by North American 3PL customers to take a cautious look at future involvement with 3PL providers. When asked for details concerning total logistics expenditures, North American 3PL users responded that, on average, 58% of their expenditures were related to transportation, 32% to distribution, and 10% to value-added services. Although Western European and Asia-Pacific respondents tend to spend a smaller percentage of their logistics budgets on transportation (45% and 44%, respectively) than North American respondents, they spend a larger proportion on distribution and value-added services.17 Conversely, 3PL customers in Asia-Pacific tend to spend a greater percentage of their logistics budget on value-added services (23%) than 3PL customers from North America (10%) or Western Europe (18%).
Exhibit 4
2003 2006 - 2008
Current vs. Projected Logistics Expenditures Directed to Outsourcing

100%
81
80%
65 60 50
60%
49
56
40%
20%
0%
Logistics Activities Outsourced

Exhibit 5 summarizes the specific logistics services outsourced by 3PL customers in 2003. Differences among the results from the three regions will be discussed in the following sections of this report. Generally, the percentages shown in Exhibit 5 for 2003 tend to be greater than comparable figures for 2002. It appears that 3PL customers are making greater use of Logistics Activity available service offerings than they did a year ago. According to the 2003 study, the activities most frequently outsourced to 3PL providers are: warehousing (73%, 91%, but only 46% in Asia-Pacific), outbound transportation (71% in North America, 95% in Western Europe, and 87% in Asia-Pacific), customs brokerage (66%, 57%, figures not available for AsiaPacific), and inbound transportation (62%, 71%, and 62%). The figures in Exhibit 5 suggest that other frequently outsourced activities in North America are customs clearance (62%), freight forwarding (57%), and freight bill auditing/payment (54%). These figures are comparable with those of Western Europe, with the exception of the lesser use of freight bill auditing/payment services (24%) by 3PL users in Western Europe. Overall usage of these services in Asia-Pacific is somewhat less than in the two other regions. (Although there were only a few responses this year from South Africa, the results from that region tend to be similar to those in the other regions.) Of note, again from Exhibit 5, Western Europe appears to use outsourcing more for activities such as outbound and inbound transportation, warehousing, shipment consolidation/distribution, and fleet management. As explained in last years report, Western European business firms may have always been more
North America
Western Europe
AsiaPacific
Exhibit 5
Outsourced Logistics Services North America Western Europe Asia-Pacific 91% 95 57 71 67 67 24 43 62 14 38 24 24 29 19 33 10 14 43 24 38 10 14 5 14 10 0 5 N/A 46% 87 N/A 62 33 41 8 33 16 10 N/A 19 19 N/A N/A 17 6 24 5 13 21 6 8 11 14 N/A N/A 5 6
Warehousing 73% Outbound Transportation 71 Customs Brokerage 66 Inbound Transportation 62 Customs Clearance 62 Freight Forwarding 57 Freight Bill Auditing/Payment 54 Cross-Docking 37 Shipment Consolidation/Distribution 37 Consulting Services 29 Return/Reverse Logistics 28 Carrier Selection 24 Order Fulfillment 23 Procurement of Logistics 23 Selected Manufacturing Activities 23 Product Marking/Labeling 20 Rate Negotiation 19 Inventory Management 19 Product Returns and Repair 16 Information Technology 16 Fleet Management 12 Order Entry/Processing 10 Product Assembly/Installation 9 Distribution Control 9 Customer Service 9 4PL Services 7 Inventory Ownership 6 Factoring (Trade Financing) 2 Supply Chain Manager/Integrator N/A
involved historically in the use of outsourced logistics services than their counterparts in North America. Interestingly, 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. In contrast, a number of activities appear to be outsourced less frequently in North America, Western Europe, and Asia-Pacific. These activities include those directly related to customers (e.g., order fulfillment, customer service, and order entry/order processing), IT, and strategic services (e.g., consulting, procurement of logistics, and 4PL services). A modest use of certain operationally focused activities, such as crossdocking and carrier selection, seems to exist. A topic that was addressed in 2003 is the extent to which 3PL services are integrated or tied together by the 3PL service providers. This is a critical issue; integrating logistics services is considered by many to be a defining requirement of a 3PL service. The 2003 finding for 3PL users in North America is that 64% suggest that their 3PL services are integrated or tied together to some extent by the providers of such services. This is consistent with the results of previous years studies, which found 60% to 70% of such services in North America met this description. Interestingly, when 3PL customers in Western Europe and Asia-Pacific were asked this same question, the positive responses represented 94% and 82%, respectively. The apparent conclusion is that 3PL services in Western Europe and Asia-Pacific tend to be more integrated than those in North America. On a more positive note, 84% of North American 3PL users say the integration of these services is desirable. (Users in the other regions also have expectations of further integration.) A strategic issue is how customers feel 3PL providers should position themselves in terms of the depth and breadth of their service. When asked whether third-party suppliers should provide a broad, comprehensive set of service offerings, most of the 3PL users in the various regions strongly agreed (93% in North America, 88% in Western Europe, and 90% in Asia-Pacific). Of Non-User Respondents: interest is that these users generally agree Rationale for Not Using 3PL Services that our company is moving to rationalize or reduce the number of third parties we 36 use. This suggests that 3PL users are 34 34 thinking about how to improve and 26 26 25 24 21 18 streamline their procurement practices in relation to the need for externally provided, 8 integrated logistics services.
e e We xp ha ert ve Se ise rv ice l no ev t b els e r wo ea ul liz d ed Cu sto m wo er co uld m inc plain rea ts se
10
Exhibit 6
North America Asia-Pacific
50% 40%
45 40 40 39
30% 20% 10% 0%
gis ti co cs is m a pe co Lo ten re gis cy tic 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 sh
Lo
Results apply to North America and Asia-Pacific responses only. Western European response was insufficient for meaningful analysis of this question.
or
Views of Non-Users
The 2003 study asked a number of questions to help better understand why some respondents were not using 3PL provider services (see Exhibit 6). Their primary reasons: logistics are too important to outsource, logistics is a core competency, costs would not be reduced, control would diminish, and they have more logistics expertise than the 3PL providers. Interestingly, sometimes the same reasons certain organizations offer to explain their decision not to outsource are considered by others as reasons to support outsourcing. For example, while some non-users suggest that a consequence of using a 3PL provider would be to lose control, others indicate that using a 3PL provider actually helps gain or improve control over certain outsourced activities. Also, the information in Exhibit 6 provides some interesting comparisons of non-users of 3PL services in North America and Asia-Pacific.18 While respondents in both of these regions seem to agree that logistics is too important to outsource, North American non-users seem to have a greater concern for issues relating to cost and control, while those in Asia-Pacific seem to focus on matters relating to expertise, service levels, and likely complaints. Regarding issues relating to expertise and results, it would not make sense for a firm to outsource an activity when doing so may likely produce an inferior result. In cases such as this, the choice of not using a 3PL is understandable. What is important to consider in the decision to outsource, however, is whether internalizing certain logistics activities strategically fits the firms core competencies, and whether the internal alternative will produce an acceptable financial return. Regardless of these explanations, good logistics management suggests that non-users should investigate the 3PL alternative.
18 There were insufficient responses to this question by non-users in Western Europe for meaningful analysis of results.
11
3PL Service Offerings and Capabilities

Overall, survey respondents are satisfied with their 3PL providers (90% checked extremely successful or somewhat successful). However, the responses were mixed when asked about the individual capabilities of the 3PL providers. The 3PL users expect the 3PL providers to have core competency in traditional 3PL capabilities, such as transportation, warehousing, and shipment track/trace. The 3PL users also expect 3PL providers to enhance offerings by bundling these service offerings and by expanding their capabilities further up the supply chain. ASE participants said that managing the expectations around capabilities needs improvement (see Exhibit 7). They identified five areas for improvement: Must Have core offerings Nice to Have value-added services and offerings Industry focus Geographic coverage Established business infrastructure
Exhibit 7
The topic of technology continually came up when discussing 3PL providers infrastructure. ASE participants expect their 3PL providers to have the right technologyand that technology should easily integrate into the 3PL users business/IT operations.
Information Technology-Based Services

Exhibit 8
North America Western Europe Asia-Pacific
As in previous years, the 2003 3PL survey identifies what IT-based services are currently available through 3PL providers, what services the respondents use, as well as what services those respondents will require in the future. The survey also attempts to quantify the respondents satisfaction with these technologies and tries to identify
Currently Used IT-Based Services
80% 70% 60% 50% 40%

75 70 66 60 66
71 60 55 47 33 32 21 52
68
71
30% 20% 10% 0%
21 21 15
19 18 8
17 11 7
20 15 15 9
16 7
W are Ce hou nt se/ er D M istr Sh an ib ag ut ipm em ion en en tT t Ev ra Ex c en ki po t n rt/ M g/T Im an ra ag ci po em ng rt/ en / Fr e t Cu igh sto t F o m rw sC a lea rdin ran g/ ce Co W m eb m -E un na ica bl tio ed ns Tra M nsp an ort ag at em ion en t Cu s M tom an O ag r Tra em de ns en r po t El rta ec tio tro n/ nic Lo M gist ark ics ets El Pro ec d tro uc nic t V M erti ark ca Su ets l pp lie rM an ag Sy eme ste nt m s Pla Su nn pp ing ly Sy Cha ste in m s
12
the leading 3PL-specific IT. Not surprisingly, this years findings support the contention that IT-based services continue to be among the key expectations of 3PL users. The top five 3PL-centric information technologies that North American respondents in 2003 are using are (see Exhibit 8): warehouse/distribution center management (70%), shipment tracking/tracing/event management (66%), export/import/freight forwarding/customs clearance (66%), web-enabled communications (60%), and transportation management (52%). Although the same IT-based services are in the top five in both 2003 and 2002, export/import/freight forwarding/customs clearance moved from fifth place in 2002 (61%) to a tie for second place this year (66%). Several ASE participants suggested that the increase in export/import/freight forwarding/customs clearance services could be driven by the need to globalize quickly to service new markets (outbound) or to source globally (inbound). For Western European respondents, the top five information technologies in 2003 are warehouse/distribution center management (75%), export/import/freight forwarding/customs clearance (71%), transportation management (68%), shipment tracking/tracing/event management (60%), and web-enabled communications (55%). These are the same top five technologies as last year. The top responses from Asia-Pacific are transportation management (71%) and export/import/freight forwarding/customs clearance (47%). About a third of the respondents also indicated that warehouse/distribution center management and shipment tracking/tracing/event management are available.
The Future
Exhibit 9 compares the future requirements of IT-based 3PL services in North America, Western Europe, and Asia-Pacific. Respondents from North America and Western
Future Requirements of IT-Based Services
60% 50% 40%
Exhibit 9
44 35 37
44 36 37 28 23 18 35
41 35 31 22 27 22 21 18 16 26 27 16 25 27 21 13 15 11 10 20
30% 20% 10% 0%
ag Sy eme ste nt m s El Pro ec du tro ct nic Ve M rtic ark al ets Pla Su nn pp ing ly Tra Sy Cha ste in ns po m s r El tat ec io tro n/ nic Log M isti ark cs ets Co W m ebm En un a ica ble tio d ns Cu M stom an O ag r em de en r t Tra ns Sh M po an rt ipm ag ati en em on tT en Ev rac t en kin t M g/ an Tra ag cin W em g/ are en h t Ce ous nt e/D er i M stri Fo an bu rw ag ti ard Ex em on ing po en t /C rt/I us m to po m rt/ s C Fr lea eig ran ht ce
13
Su
pp li
er
an
Exhibit 10
2003 2002
Primary North American Sources of Technology-Based Services in 2002 and 2003 60%
46 46
40%
35
33
Europe identified the same top five IT-based services as future requirements. In the first and second spots, supplier management systems (44%) ranks as the number one future requirement for North America, while product vertical markets (44%) is the top future need for Western Europe. The North American responses suggest the need for 3PL providers to continue to be an enabler of the expanding requirement for collaboration in the marketplace. The other three IT-based services in the top five are: supply chain planning systems, transportation/logistics electronic markets, and web-enabled communications. On the other hand, Asia-Pacific participants may be looking to expand the use of Internet capabilities in the future through transportation/logistics electronic markets (31%) and web-enabled communications (27%). These participants seem to be searching for basic, broad management systems as well; also in the Asia-Pacific top five are supply chain planning systems (28%), transportation management (27%), and warehouse/distribution center management (27%).
20%
16
18
0%
3PL Provider
Technology Provider
Internal
Exhibit 11
Sources of Technology
The 3PL study also looks at the extent to which respondents expect their 3PL suppliers to provide the respondents IT solution. In North America, respondents stayed consistent with their responses from 2002 (see Exhibit 10): Once again, 3PL users continue to turn to internal resources first (46%), technology providers second (35%), and 3PL providers last (16%). This is not surprising because only 24% of the respondents rely on their 3PL supplier for IT leadership and only 38% are satisfied with their 3PL providers IT capabilities. On an up note (see Exhibit 11), the use of 3PL providers as sources of technology continues to move upward in Western Europe (23% in 2002; 29% in 2003), while the use of technology providers continues to decrease (from 18% to 6% in those same years, though this could be understated because of a smaller survey response rate). Out of all the regions, Asia-Pacific respondents reported the highest percentage (32%) of 3PL providers as their primary source of technology.
Primary Sources of Information Technology, 2003

60%
46 59 56
40%
29 16
32
35
20%
15 6
0%
3PL Provider
Technology Provider
Internal
Exhibit 12
Current Use Projected Future Use
North American Use of Industry Vertical Procurement Markets

80%
40
Use of Internet and Independent Electronic Markets

As the use of the Internet continues to expand globally, this study continues to track the use of two specific trading exchanges. The first exchange is industry vertical procurement. Exhibit 12 shows an upward 3-year trend of both current and projected future use for vertical procurement markets. Respondents have increased their usage of these markets by from 11% in 2001 to 26% in 2003. Moreover, the importance of this market continues to increase as respondents projected future use rose from 17% to 40% during the same time.
60%
40%
17 17 21 11 26
20%
0%
2001 2002 2003
14
The second exchange, transportation/logistics electronic markets, also continues to grow; use of these electronic markets jumped significantly from last year (16% in 2002 to 28% in 2003; see Exhibit 13). This upward trend has continued since the study started tracking this subject back in 2000. When asked to project the future use of transportation/logistics electronic markets, approximately 63% of the respondents indicated that they would require this technology sometime in the future. This is a dramatic increase from a year ago when only 33% of respondents felt the same. Overall, it appears that the respondents comfort level with the growing stability and benefits of the Internet continues to fuel its usage in these 3PL-based exchanges. Alternatively, Western European respondents use (on average) electronic markets less than their North American counterparts. Current usage of vertical procurement markets is 12% (versus 26% in North America), while transportation logistics markets usage is 6% (versus 28%). However, projected future use of each of these exchanges is similar to North America (vertical procurement at 39% and transportation/logistics at 58%).
100%
Exhibit 13
Current Use Projected Future Use
North American Use of Transportation/ Logistics Electronic Markets

63
80%
60%
37 33
40%
28 13 16
20%
0%
2001
2002
2003
Perceptions of 3PL Technology Capabilities

As in 2002, the majority of respondents in North America (97%) and Western Europe (94%), as well as those surveyed this year in Asia-Pacific (74%), agree that IT capabilities are a necessity for 3PL providers. However, as seen in Exhibit 14, only a third to a half of the respondents from any of the regions rely on 3PL providers for IT leadership.
100%
97 94
Exhibit 14
Perception of 3PL IT Capabilities

95 81
On a positive note, around 95% of respondents in North America and 81% in Western Europe indicate that having the right software would give a 3PL provider a competitive advantage in the marketplace. This suggests an opportunity for 3PL providers: to become IT leaders for their clients in the future.
80%
74
75
60%
56 51 38
52
40%
28
27
20%
0%
15
IT
ilit i for es ar 3P e n L s ece up ssa Re pli r y ly ers on 3P Ls IT up lea plie de r f rsh or su ip pp S lie atis rs fie IT d w ca it pa h 3 bil P itie L Ha s v so in ftw g t are he is rig cri ht tic al
ca pa b
ASE Output Capability Improvement Opportunities

As the ASE group made up of 3PL users, CGE&Y, and FedEx reviewed the survey results and discussed capability-related issues, the key points that emerged are as follows: Exhibit 15 3PL-provider capabilities are not always clearly defined. Industry-specific expertise by 3PL providers is becoming more important. Ease of IT integration/implementation is critical. Clients need to better understand what offerings are available from 3PL providers. 3PL providers need the ability to demonstrate core competency in the offerings they provide. 3PL providers need to provide comprehensive, consistent, global capabilities with a single point of contact. Matching 3PL capabilities with client needs is crucial. Easy-to-implement, proven solutions (not created on-the fly) are crucial for growth in the 3PL industry. 3PL providers need to service customers while adapting to changing business needs. 3PL users need to understand the scope of what is being outsourced and what they will continue to be responsible for. 3PL users want to find supply chain expertise externally when needed. 3PL users need to understand their own capabilities, what are truly core competencies, and how those satisfy company strategic objectives. 3PL users must eliminate redundancies in-house if they really want to gain the benefits of outsourcing. There is not a clear understanding of the return on investment (ROI) from 3PL outsourcing. ASE participants then focused on identifying 3PL improvement opportunities across people, process, and technology disciplines (see Exhibit 15). Not only do 3PL users expect their 3PL providers to be experts in the services they provide, the users want providers to demonstrate that expertise and demonstrate it within the users specific industry. As the economy continues to be weak and capital investment dollars continue to be scarce, customers are also expecting 3PL providers to expand capabilities to meet those 3PL needs not traditionally outsourced.
Improvement Opportunities (Capabilities)
3PL User People

Paradigm shift Define what and not how Allow standardization Cross-functional team to identify requirements
3PL Provider
Consulting skills Critical to analyze client needs Full-time dedicated staff Integrated sales team (sales, operations, IT) that can answer all capability-related questions Distinguish between sales and delivery Provide RFI/RFP that works for 3PL provider and client Provide a sales toolkit to client that details capabilities Proposal should provide ROI/cost justification Develop metrics to measure success Map processes Roadmap Plan for change Standardize and simplify interfaces Flexible/open/modern architecture Decision-support tools
Process
Re-invent selection (bid) process List of in-depth questions Ask for proof of experience Talk to client directly How long is contract/renegotiation Detail expectations Identify must have versus nice to have capabilities Develop upfront list of what stays internal versus what will be outsourced to 3PL Standardize and simplify interfaces Knowledge of reports and tracking requirements
Technology
16
Management and Relationship Issues

Based on experience with previous survey results, we formulated an initial set of hypotheses related to management and relationship issues: 1. Although users are generally satisfied with their 3PL providers, the providers are being pressured to enhance their customer relationships and continually expand 3PL services. 2. Core service offerings are becoming a commodity, with value-added services and relationship management skills becoming points of differentiation. 3. Users expect 3PL providers to offer advanced services, but the users still view their providers as tactical resource providers rather than as strategic resource managers. 4. Sustainable relationships require equitable deal structures, mutual investments, continual improvements, and creative partnering. 5. Advanced service requirements, demand for broad supply-chain expertise, and a desire for shared risk-reward arrangements continue to drive the relationships toward a 4PL solution. This years survey results and our ASE session with 3PL users confirmed our initial hypotheses. 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. This year, which is consistent with previous years, 89% of those surveyed view their relationship as successful (55% somewhat successful and 34% extremely successful). This years results showed a slight increase of six percentage points for extremely successful. This is a positive trend and indicates that 3PL providers are improving their relationships with existing clients. The real challenge now is for 3PL providers to continually enhance their relationships while expanding their service offerings. This challenge is not easy to address because the cost to serve clients is difficult to calculate and continual pressure on profitability restricts the quick expansion of services. Providers need to determine their approach to customer satisfaction, their primary focus of domination, and their differentiation. To assist with this challenge, we asked users to rate the importance of provider attributes across five categories: Price. Attributes: Fees paid for 3PL services. Product. Attributes: Performance and capability of core or basic service offerings by a 3PL (e.g., transportation and warehousing services). Service. Attributes: Performance and capability of advanced service offerings by a 3PL (e.g., supply chain planning, supplier management, strategic consulting, change management, and order management). Access. Attributes: Ease of doing business with a 3PL. Experience. Attributes: Overall satisfaction and feeling about a 3PL.
17
The users rate service as the most important attribute, followed by product, access, price, and experience. One important difference was in Western Europe; respondents there rate price as the second-highest attribute. This highlights our initial hypothesis that core product offerings are being commoditized; to play in the game, 3PL providers have to focus on value-added capabilities to differentiate themselves. In our ASE session, Jim Zamjahn, former Director of Global Logistics at General Motors, articulated the view that service is the cost of admission and then it becomes price; all others are givens. Exhibit 16 Exhibit 16 provides the results from one ASE breakout session where we discussed the topic of customer satisfaction relative to 3PL attributes. The attendees agreed that 3PL providers cannot be all things to all people; they need to clearly define their customer satisfaction strategy. The attendees also agreed that this strategy differs by industry, client situation, and service requirements. We conclude that opportunities exist for providers to improve their capabilities around advanced services. This, in turn, should have a direct correlation to overall customer satisfaction. Key to a collaborative relationship between 3PL providers and 3PL users is whether customer expectations are properly aligned with the appropriate 3PL business model and relationship structure. Users expect the continued expansion of their 3PL providers capabilities and advanced services. However, as depicted in Exhibit 17, this years study showed that 79% of the users view their 3PL as a resource provider and 39% view them as a resource manager. These results are consistent with last years survey responses, but are almost double the results from two years ago. Exhibit 17
North America Western Europe Total
90% 80%
82 71
79
70% 60% 50% 40%

Just over half of the survey respondents view their 3PL providers as logistics strategists, a slight increase from last year because of North American responses. (Specifically, 23% view their providers as distri3PL Provider Roles bution strategists and 31% as transportation strategists.) Last year Western European users had a higher percentage as logistics strategists, compared with North America, which seems to have leveled off this year.
39 24 39 38 37
43
32 33 31 24 19 23 13 19 15 9 14 11
30% 20% 10% 0%
The most significant change from last year is that 15% of the respondents view their providers as supply chain strategists (compared with 3% last year) and 11% view them as orchestrators (compared with 6% last year).
Tra ns p Str orta ate tion gis t
str Str ibu ate tion gis t Su pp l Str y Ch ate ain gis t Or ch es tra to r
18
Re Pr sou ov rc ide e r
Re M sou an rc ag e er
Pr ob So lem lve r
Di
Two conclusions can be drawn from these results. First, 3PL providers are not expanding their capabilities quickly enough to satisfy customer expectations. Second, 3PL users have not aligned expectations with the appropriate relationship structures. The second conclusion was discussed in our ASE by categorizing the 3PL provider-user relationship structure into a vendor or partner approach. The ASE participants agreed that if users expect advanced services and a long-term relationship with their 3PL providers, then a partner approach is the only sustainable relationship philosophy. Exhibit 18 highlights some of these relationship approach differences. Exhibit 18 As 3PL providers continue to expand their capabilities to match client expectations, users should be prepared to pay a premium for advanced services. These advanced relationship models must incorporate risk-and-reward pricing mechanisms to offset the higher cost of satisfying service-level expectations.
Relationship Processes
In a number of areas, this years study provides insight into the relationships between 3PL providers and their customers. When asked whether using 3PLs is a key to satisfying our companys customers, 73% of the respondents responded yes or somewhat. This is a slight decrease over the last two years (down from 80%). Also, 78% responded similarly to the question of whether they feel they have a collaborative relationship with their 3PL providers. This response equals last years response. There is an exception: The Western European response was lower (69%). These two findings suggest customers are concerned about developingand benefiting from improved relationships with their 3PL providers. In time, we believe successful 3PL relationships will establish appropriate roles and responsibilities for both the 3PL providers and their customers. While sometimes the use of a 3PL provider is interpreted simply as turning over all logistics activities to the outsourced provider, respondents to this and last years surveys suggest that a joint client-and-provider management structure represents a highly effective way to manage 3PL relationships. General Charles S. Mahan Jr., Deputy Chief of Staff, G-4, for the United States Army, amplified this during our ASE session: For important events, you need redundancy of capability as you balance the drive for efficiency with the requirement for effectiveness. Essentially, respondents are expressing their desire, as customers, to have sufficient power over operations until a track record of performance, or trust, is built. Although most customers (appropriately) retain control over strategy formulation and direction setting for their logistics, this hybrid approach to managing operations continues to be an innovative response to the challenge of successfully managing 3PL provider-client relationships.
19
3PL Deal Structures

In past studies, users indicated a willingness to share both gains and losses from alternative relationship structures. This was again validated this year with 57% of the respondents using alternative deal structures with the following types of companies: 50% with 3PL providers 14% with management consultants 13% with software providers 5% with trade exchanges 6% with other business entities
In these responses, there is a slight increase in using deal structures with 3PL providers. One noticeable difference between the regions was the use of deal structures with management consultants: Western Europe at 7% (a noticeable decrease from last year), Asia-Pacific at 33%, and North America at 14%. Exhibit 19 provides a perspective on a broader range of alternative deal structures that may be part of a 3PL relationship. The survey results show that risk/reward sharing and cost sharing clearly are the preferred approaches, which is consistent with last year. However, compared to last years survey results, noticeable differences exist in the extent of implementing deal structures and which regions are implementing: Exhibit 19
North America Western Europe Asia-Pacific Total
Cost-sharing structures increased by seventeen percentage points. Risk/reward structures increased by four percentage points. Revenue sharing and shareholder value went down seven to ten percentage points. Almost 45% of the Western European users have either risk/reward or cost sharing programs in place (last year, only 33% had risk/reward sharing; 50% had cost sharing). Only 10% of the Asia-Pacific respondents have risk/reward sharing programs in place.
Types of Deal Structures
50% 40%
46 36 38
49
46
47
30% 20% 10% 0%
28 14
9 0
6 8
11 9
10
10
9 9
Ri
Sh are
The difficulties with most value-based arrangements come down to two processes: measurement and savings distribution. Most of these arrangements are complex to manage, requiring data accuracy and appropriate personnel to administer the processes and associated baseline data. Additionally, once savings are identified, declaring the savings and distributing the dollars between supply chain partners is difficult. These difficulties were echoed in our ASE by Mike Tobin, Logistics Manager at Sulzer, Companies are inherently bad at baselining their current performance, maintaining ongoing operations, and adjusting for supply chain network changes.
sk /R Sh ewa ari rd ng
Ve Joi nt nt ur e
Re Sh venu ari e ng
Sh Co ari st ng
ho Va lder lue
20
As discussed in previous years, 3PL providers are evolving their business models to accommodate increasing customer expectations and to implement alternative deal structures. These models are based on both a broadening of enhanced service offerings across the supply chain and an expansion of geographic coverage. The evolution includes a shift from Logistics Service Providers to 3PL providers, to Lead Logistics Providers (LLP), and finally to 4PL providers. Exhibit 20 depicts the changes in key attributes as the 3PL relationship models evolve. Exhibit 20
The Change in Key Attributes as 3PL Service Offerings Migrate Relationship & Pricing Models Partnership Value Based Advanced Services 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- and information-based Shared risk and reward Advanced technology capability Adaptive, flexible, and collaborative Project management/contract management Single point of contact 3PL technology integration Enhanced capabilities Broader service offerings Focused cost reduction Niche services
Contractual Fixed and Variable Commodity Transaction
luti
ona
ry M Evo
Contractual Risk Sharing
igra
Value-Added Basic Services
Last year we added some questions to help assess this evolution in 3PL provider business models. The responses showed that 3PL customers are beginning to understand the definitions and relative benefits of advanced relationship structures. This year, when we asked if the respondents understood the differences between 3PL and 4PL providers, more than 87% responded yes or somewhat, an increase of almost ten percentage points since last year. When we asked if the 4PL terminology is confusing and ambiguous, 75% responded yes or somewhat, a decrease of almost 10% from last year. Respondents also seem to be grasping the benefits of moving from a 3PL to a 4PL; just over half of the respondents replied yes or somewhat to whether they see the potential benefits of that move, whereas last year only 38% replied that way. These responses show that users are beginning to understand the differences and related benefits of the various relationship models. Unfortunately, and at the same time, companies have not been adopting this type of relationship model very quickly, highlighting the difficulties and complications of migrating toward advanced service offerings.
tion
21
Exhibit 21
2003 Total Responses 2002 Total Responses
Survey respondents were asked to rate the suitability of four types of companies to offer these advanced business models. As Exhibit 21 shows, the companies with the highest ratings were 3PL providers and management consultants (69% and 27%, respectively). Despite the general confusion over terminology and the value of the various logistics outsourcing models, and despite the fact that these models are new (11% of those surveyed currently use a 4PL model), enough evidence exists to show that these logistics outsourcing business models will continue to prosper.
Types of Companies Best Suited to Offer LLM/SCI Services

80%
69
60%
47
40%
Involvement of Management Consultants

27 13 17 16 24
20%
0%
3PL Providers
Software Vendors
Internet- Management Based Firms Consultants
This years study tried to identify how management consultants are involved in 3PLrelated processes. Survey respondents consider management consultants valuable in helping to assess the need for third-party services and to assist with the technology implementation and integration (45% and 58%, respectively). This is consistent with last years results. Key changes from last year are the increasing interest in using management consultants to manage implementation and integration of third-party supplier involvement and help manage multiple providers of component supply chain services (a seven and ten percentage-points increase, respectively). Although the results were objectively obtained, they continue to understate the extent to which current and potential 3PL users actually do involve management consultants. Not surprisingly, client relationships are of great interest to many management consulting firms. The knowledge, technology, 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. In particular, globalization involves these considerations: market expansion, new sources of supply, advanced security processes, continuous improvement initiatives, and redesigning logistics and supply chains for greater efficiency and effectiveness. For a broader world view of 3PL services, we expanded this years survey coverage across Western Europe and within China. Approximately 86% of the 3PL study respondents worldwide feel that 3PL providers would be able to keep up with the challenges of global supply chain integration. This percentage is consistent with last year, which suggests that 3PL providers would be up to this challenge and that they have been addressing the demand for global supply-chain solutions. Closer to home, 3PL users also indicated a number of factors significantly affecting the industries in which they compete. Globalization was respondents fourth concern with 59% of them categorizing this as a high concern, coming after significant pressures to reduce cost, emphasis on improved supply chain management, and significant pressure to enhance customer service. Security concerns and new product introductions had a dramatic increase from last year, increasing from 22% to 46%, and from 45% to 57%, respectively.
22
ASE Output Management and Relationship Issues

As part of the ASE 3PL workshop, the participants collaborated on management and relationship issues, identifying several key themes related to 3PL and 4PL: Exhibit 22 3PL Key Themes Value-added services are the cost of admission. Risk assessment and mitigation plans are required, inclusive of fallback plans. 3PL providers are still viewed as resource provider. Basic services are deemed as commodities. Advanced deal structures require complex measurement processes. Continual improvements are dependent on technology capabilities, relationship model shifts, and span of control. 3PL providers need to develop standard offerings with specialization by industry. Users and 3PL providers need to conduct a core competency assessment on an iterative basis. 3PL providers need to leverage best practices across industries. Concerns exist over increasing overhead costs to support enhanced services. 4PL Key Themes Would corporate logisticians accept the fact that they are two layers away from the day-to-day operations? Would 4PL providers respond appropriately and be held accountable? Can 4PL providers evolve from 3PL providers, or would management consultants be better suited? 4PL providers need to have 3PL functional knowledge content and operating experience. The optimal 4PL provider would be a combination of 3PL provider, management consultant, and client using the appropriate technology. The participants then focused on identifying related improvements across people, process, and technology disciplines, which are detailed in Exhibit 22.
People
Improvement Opportunities (Management and Relationship Issues)
3PL User
Right individuals who understand the business Full-time dedicated staff Executive sponsorship Decision maker Common vision and defined requirements Ongoing management responsibility Change management capability Detailed process framework and templates Appropriate statement of work and clear scope of services Current-state baseline development Cost and expectations setting Decision making and relationship roadmap Robust selection criteria Project and change management process Access to key executives Partnership approach versus vendor relationship Understanding of the 3PL/4PL industry Clear performance metrics and objectives, aligned with 3PL objectives with 3PL Mature IT strategy and roadmap Information-sharing capability IT involvement and support
3PL Provider
Right individuals who understand the business Assign individuals who will be part of the ongoing operation early in the process Open and honest portrayal of services and capabilities Project management skills Change management capabilities Industry expertise and broad supply chain management capabilities Standardized templates and methodologies Value assessment tools Benchmarking Value proposition development Ongoing measurement process Flexible and iterative decision-making process with structured milestone review process Disciplined change control process Relationship management skills Financial stability Incorporate service-level agreements into contracts and aligned with client Continual advancements in technical capabilities Flexibility with pricing options Repeatable solutions
Process
Technology Willingness to outsource and integrate
23
Customer Value Framework

This section focuses on the perceived value that 3PL users get from 3PL services. North American 3PL users continue to have successful (somewhat or extremely) Exhibit 23 outsourcing experiences90% reported outsourcing success in 2003and have so over the eight years of this survey (see Exhibit 23). North American Customer Evaluation of Outsourcing Success
(% Rating Extremely Successful or Somewhat Successful)
90
90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

83
86
88 82
85
89
90
Western European respondents outsourcing success decreased slightly from 81% in 2002 to 77% in 2003. The respondents from Asia-Pacific indicated a 79% success factor. This is somewhat lower than last year (89%); however, last years Asia-Pacific sample was much smaller. How the value of 3PL services is measured is directly related to the services being provided, plus several complicating factors. As discussed in the ASE, measuring this value is complex, involving several different factors: integration, geography, and standardization versus customization, and price versus value (see Exhibit 24). ASE participants had these comments about measuring 3PL value:
1996
1997
1998
1999
2000
2001
2002
2003
Exhibit 24
Most customers value integration capabilities. Only 20% use consulting services for 3PL needs. The contradiction here is that clients want services, but do not use them. What does globalization mean to North Americans? Does it truly mean worldwide or is it limited to just NAFTA countries? We (3PL users) wanted to dive deeper into standardization versus customization. We want to look into custom value add. We think they (3PL providers) should offer a customized value set, but don't know what services that includes. Sometimes a 3PL is great on price; sometimes great on differentiation.
3PL Supply Chain Accomplishments

Respondents were asked if they felt that 3PL providers were accomplishing a number of specific supply chain challenges. On a positive note, 68% of the North American respondents indicated that 3PL providers were facilitating supply chain improvement and 58% thought that 3PL providers were providing international supply chain solutions (see Exhibit 25). Less than half of the Western European respondents felt the same about these accomplishments (supply chain improvement at 47% and international supply chain solutions at 41%).
24
Measuring Success
As in previous years, the survey asked participants to quantify the improvements in their supply chains by using 3PL providers. Exhibit 26 summarizes the various performance metrics the North American and Western European respondents reported (not enough Asia-Pacific responses were available to include statistics). Highlights to note from these responses include: The logistics cost-reduction average for North America and Western Europe has remained steady over the past several years, ranging from 7% to 10%. For the third year in a row, North American fixed logistics assets dropped by an average of 16%. Western European 3PL users received an average reduction of only 5%. The average order-cycle length shortened 1.9 days in North America and 2.7 days in Western Europe. This represents a significant change in Western Europe from the previous year (0.9 days). Overall inventory reduction for North America was 8%, while Western Europe reported a more dramatic number of 13%. North American cash-to-cash cycles shortened by about seven days. (There was an insufficient number of Western European responses to reliably calculate an average.) Exhibit 25
3PL Provider Accomplishments
90% 80% 70% 60% 50% 40%
North America Western Europe Asia-Pacific 88
87
68
64 58 53 47 38 41 35 30 48 41 42 53
30% 20% 10% 0%
Overall, 3PL users appear to be receiving quantifiable financial benefits from using 3PL providers. The benefits received are not only those activities directly controlled by the 3PL (logistics cost reduction), but could also be attributable to the internal changes made by users in contracting 3PL services. One of the questions brought up by participants in the ASE workshop was what is the amount invested by the respondent to achieve the results? The answer to this question could help calculate ROI. Future research should focus on identifying this element to provide a true measure of benefit for 3PL users. The workshop also highlighted that a key enabler behind any successful measurement process is a formalized communication planning processone that starts before implementation and carries on through execution.
ch Faci ain lita im ting pr su ov p eB em pl us Pr ine ov en y t ss- idi rel ng ate so d lut ch io all ns Pr en to o ge su vid s pp in ly g i ch nt ain ern so atio lut n Pr ion al ov s int idin eg g s rat u ion pp so ly ch lut ai Pr ion n ov idi s ng ge og r co aph ve ica rag l e
Exhibit 26
Quantifiable Measures of 3PL Success
North America Logistics cost reduction Fixed logistics asset reduction Average order-cycle length change (days) Overall inventory reduction Cash-to-cash cycle reduction (days) 9% 16% From 9.8 to 7.9 8% From 25.6 to 18.3 Western Europe 7% 5% From 4.7 to 2.0 13% N/A
25
Exhibit 27
Critical Success Factors Leading to Customer Value (ASE topic) Scope and service definition Cost and service baseline development Common scorecard and data management strategy Defined communication channels Management support structure Cultural alignment Flexible financial structure with a rigorous measurement process Migration plan towards advanced services Mutual expectation setting process Organization change management requirements Defined standard operating procedures Clear exit strategy
ASE Output Value Observations

ASE participants, both individually and in groups, were asked to give their perspective on the value of 3PL services. The key ones were: 3PL providers need to continually drive value to maintain the relationship. 3PL providers need to justify the cost of the insertion of another party into the customers supply chain. Cost/profit margin must be evaluated against service levels. Positive proof statements are essential (such as business goals, sponsorship, and data sharing). Financial win-win for both parties is essential (such as in 3PL user satisfaction and the 3PL providers margins). Performance measurements must be clear, consistent, easy to track and audit, and used by both parties. The same group then identified the critical success factors leading to customer value (see Exhibit 27). In reviewing this list, it is apparent that the responsibility for achieving value does not lie with one party. Value can only be achieved if both the 3PL user and provider work together to design, implement, and execute these key factors.
Areas for Improvement

After identifying measures of success, participants were asked to respond to a list of areas for improvement for 3PL usage. Exhibit 28 provides a summary of these responses. Key findings from this question include: Meeting service-level commitments was the highest concern for both North American and European respondents, while lack of strategic management skills was identified by the Asia-Pacific respondents as the biggest opportunity for improvement. Lack of continuous, ongoing improvements and achievements in offerings was highlighted by North American and Western European users as a key area for improvement.
Areas for 3PL Provider Improvement Areas for Improvement North America Western Europe Asia-Pacific Service-level commitments not realized 66% 69% 22% Time and effort spent on logistics not reduced 43 50 19 Cost reductions have not been realized 43 56 22 Cost creep and price increases once relationship has commenced 51 38 N/A Unsatisfactory transition during implementation stage 30 69 N/A Lack of strategic management skills 53 63 50 Lack of global capabilities 22 50 43 Not keeping up with advances in information technology 26 31 41 Technology capabilities available, but not being delivered to client 23 44 43 Lack of consultative/knowledge-based skills 30 38 38 Inability to form meaningful and trusting relationships 30 44 13 Lack of continuous, ongoing improvements and achievements in offerings 53 63 21 No improvement opportunities within the last year 11 25 N/A
Exhibit 28
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Western European respondents feel that the time and effort spent on logistics has not been reduced, which could explain why the same group indicated that cost reductions are not being realized as anticipated. More than half of the North American respondents reported that cost creep and price increases after a relationship with a 3PL provider has begun is an area that needs improvement. To some extent, Western European and Asia-Pacific users feel that 3PL providers lack global capabilities. Once again, some users within North America and Western Europe perceive problems with a 3PL providers lack of strategic management skills, which could partly explain the Western European concern with the unsatisfactory transition to a 3PL provider during implementation. Various participants from the ASE workshop were not surprised with these findings. ASE participants indicated that there is work to be done on both the 3PL provider and user sides to improve these areas. Some of their suggestions were: 3PL users must understand the scope of work to be outsourced before engaging with 3PL providers for warehousing, transportation management, etc. 3PL providers must be able to clearly define what services they offer and how the services are provided. 3PL users must do their homework on what a 3PL provider can provide and what can be contracted from the provider. Document expectations! Both the 3PL user and 3PL provider can make improvements by expressly defining expectations during the contracting process. However, ASE participants also indicated that both users and providers need to show flexibility as business environments change.
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Strategic Assessment
One of the major reasons for using the CGE&Y ASE was to address the significant, strategic trends that are occurring in the 3PL marketplace. In fact, this topic was the focus of a breakout session that identified and discussed changes that are occurring now and likely to occur in the future. The issues that received the most attention included: high level of disappointment with some key 3PL core competencies, the evolution of buyer-seller relationships toward more dependence on integration of processes and broader-based solutions, the increasing value of information, the emerging role of supply chain integration, and the need for 3PL providers and customers to re-invent themselves to be better positioned for a continually changing marketplace. In many respects, the trends to be discussed in relation to the 3PL industry parallel trends that are affecting other sectors of the business world. This reports conclusions come in two sections. The first summarizes the key areas of strategic change; the second lists the value readers should get from this report.
Areas of Strategic Change

The 3PL industry continues to go through an evolutionary change. Not only are 3PL providers and their capabilities changing, but the expectations that user firms have of their 3PL providers and their services are also changing. In fact, the 3PL industry is finding itself moving forward and beginning to show signs of progress toward maturity. Based on the results of the 2003 3PL study and the ASE session, the following highlight some of the major, strategic issues and trends in the 3PL industry: Disappointment with Some Key 3PL Core Competencies. Although many 3PL users rate their relationships as either extremely or somewhat successful, numerous instances exist where these users identified areas for improvement. Principal among these were concerns such as: service level commitments not realized, lack of continuous, ongoing improvements, lack of strategic management skills, and cost creep and price increases once the relationship has commenced. Also, 3PL users and providers appear to have increasing problems with the service-level agreements being negotiated before the commencement of 3PL service. This is significant because it suggests that 3PL users have genuine concerns and that they may be looking for alternatives to the current arrangements with their 3PL providers. The study results suggest that users have high levels of expectations about their 3PL providers that may precipitate a movement back to insourcing 3PL services as an alternative to commercially available services. Dependency of 3PL Relationships on Greater Process Integration and BroaderBased Solutions. Although 3PL users want to further integrate 3PL provider processes with their own organizations, they also want severability of those same
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processes. This suggests that customers place a high priority on process integration and they continue to look for broad, comprehensive service offerings from the 3PL provider industry. However, they still want to separate processes and partner responsibilities when and if needed. Increasing Value of Information. Successful supply chain integration causes the value of information (baseline and real-time user and provider information, realtime supply chain logistical information, and more) to increase in relation to the value of functional execution. Although the need for successful functional execution is great, a strategic shift has occurred: The need for capable data and process management, coupled with the availability of low-cost standard information, is now a high priority for both 3PL users and providers. Emerging Role of Supply Chain Integration. The stated need for additional supply chain integration and for organizations that may serve as integrators has validated the 4PL model. Specifically, providers that can bring multiple service capabilities relating to the use of logistics information, operational knowledge, userprovider relationships, and supply chain integration are of critical importance. Realistically, however, the use of 4PLs may be limitedand financially justifiable to supply chains that are complex, large, and rapidly changing, as well as limited to user organizations that are themselves large, complex, and global. Need for 3PL Providers and Customers to Re-Invent Themselves. Clearly, customers expect more from the 3PL sector than they say they receive. While this finding may be partially explained away by increases in expectations over time, it also may signal a need for 3PL providers and customers to re-invent themselves to be more capable business partners of one another. Recent study results point to a trend that customers selectively use services from 3PL providers, and for valueadded services that become core or expected services. While this 2003 3PL study has identified a number of 3PL priorities, 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; they will have to effectively re-invent themselves to be more responsive to changing logistics and supply chain environments. The short-term response by some 3PL customers may be a reversion to insourcing; the intermediate and longer-term response will be the tailoring of 3PL capabilities to meet the changing and increasing needs and requirements of the buyers of those 3PL services. Global Evolution of 3PL Usage. Principal among the strategic directions for the future is the need for 3PL providers that offer globally capable services; that is, providers that can integrate processes and information across vast geographical boundaries. Although many 3PL providers market their global abilities, 3PL users indicate significant improvement is needed before most of these claims are realistic. 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. The other is to suggest that the truly global business model is not only an extension of the capabilities of existing providers, but an area of core competency for the 3PL provider organization as a whole. Achieving this goal may be more realistic as a result of re-invention rather than marginal improvement.
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Value of This 2003 Third-Party Logistics Report

Although this report principally emphasizes views about the 3PL industry from a customer perspective, we have written it to be of value to a broad range of interests in the logistics and supply chain arenas. The relevance of this study applies to users, nonusers, service providers, management consultants, and educators from a number of vantage points: Understand the development and growth of the 3PL industry. Compare personal experiences and results with market expectations and results. Gain a better understanding of the depth and breadth of 3PL services. Understand the 3PL value proposition and the results experienced by users. Assess your role within the 3PL market and determine market strategy. Understand sources of customer satisfaction and dissatisfaction with 3PL providers. Utilize this information to help close performance gaps. From a management perspective, this study documents the increased interest and sustainability of truly collaborative relationships between 3PL providers and their customers. While the study certainly identifies ways in which all parties can improve these relationships, long-term success in the marketplace requires that more effective logistics and supply chain solutions be developed. Finally, firms 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. As with last years study, we finish by again saying 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.
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Appendix: Cap Gemini Ernst & Young Accelerated Solutions Environment (ASE)
Rapidly responding to complex business solutions while simultaneously achieving executive ownership and maintaining project momentum and speed is what the Cap Gemini Ernst & Young (CGE&Y) Accelerated Solutions Environment (ASE) is designed to accomplish. Clients, like the Kellogg Company in the quote at right, have responded enthusiastically to the ASE, saying that the ASE alone has cut months off the solution development process. The ASE is a powerful business transformation tool, but not a panacea. This tool is designed to work successfully for global companies ready for continuous, accelerated change on a broad scalenot as a quick fix that can be tagged onto a normal project.
" We have accomplished more in three days than I would have thought our company could have accomplished in five to six months.
Kellogg Company CEO of North America
What is the ASE?

The ASE is a springboard for delivering client solutions faster than ever before. Fundamentally, the ASE process accelerates creative problem-solving. By integrating problem-solving processes, reusable objects, simulation, and rapid prototyping techniques, and CGE&Ys technical and management experience, the ASE is an innovation in management consulting (see Exhibits 29 and 30). The ASE affects change along six dimensions: Right purpose: A clear, pre-defined, outrageous, but achievable goal, and clear objectives to scope the session. Right inputs: To facilitate decision making, a team of analysts assembles the facts and develops hypotheses before the decision making. Right people: All the key decision makers, subject matter specialists, influencers, and implementers participate fully in a multi-day event. Right environment: Designed to inspire group genius, the ASE is a technologyenabled collaborative design studio with thousands of square feet of white board for creating and capturing big, bold ideas. Right facilitation: A team of knowledge workers support the event from start to finish, providing participants with everything they need to succeed, taking distraction away, and immediately capturing the work that participants produce. Right process: Radically different methods to help facilitate participants through the CGE&Y accelerated business decision-making and solution design process. The ASE provides a portfolio of proven tools and processes, which are then tailored to specific projects. The ASE event involves 25 to 100 participants, and is designed to develop strategy and transformation plans, improvement portfolio plans, business process designs, mergers and acquisitions, technology acceleration, innovations and ideations, implementation plans and prototypes, and client commitmentsall on-site, in just one to five days.
Exhibit 29
Exhibit 30
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Exhibit 31 ASE 3PL Client Workshop Attendees AES ArVista AG Cap Gemini Ernst & Young Cingular Wireless Divers Direct DuPont FedEx Georgia Institute of Technology Georgia-Pacific The Home Depot Husqvarna Intel Corporation Limited Brands Lockheed Martin Milliken & Company Newell Rubbermaid Northrop Grumman RadioShack Royal Netherlands Air Force The Scotts Company Solectron Corporation Sulzer United States Army
The ASE, in many ways, is analogous to a football game, requiring preparation, teamwork, the unique skills of each player, a coach to guide the team, and an intensive period of time to playand win. The intensity and synergy of the processthe gamelead not only to successful problem solving, but also to creating a cohesive team. CGE&Y and the client rotate as both coach and players in this process.
3PL Client Workshop

This was the second year CGE&Y conducted a 3PL user workshop using the ASE. Over thirty clients from twenty companies participated (see Exhibit 31), representing multiple industry segments of varying sizes. CGE&Y, Dr. John Langley, and FedEx all want to thank these companies for their participation, insights, and teamwork in helping with the analysis of this eighth annual 3PL survey and report. The objectives of the workshop included (see Exhibit 32): Jointly interpret and review the 2003 survey. Develop the ideal future state of 3PL outsourcing relationships. Discuss lessons learned from past 3PL experiences. Identify and discuss key industry themes, trends, and issues affecting 3PL. Develop a roadmap for successful 3PL outsourcing relationships. Work with other customers, across industry sectors, to leverage experiences and to develop leading practices. The results from the workshop were incorporated into each section of this report, thereby bringing real-life experience into the surveys interpretation. We are planning on conducting a similar workshop in Europe this coming fall. Our intent is to continually improve the study each year, through content enhancements and geographic expansion, as well as collaborative activities, such as the ASE. Through these enhancements, we feel you, the reader, will be better able to apply the results of our annual 3PL survey to your business needs.
Exhibit 32
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About the Participants

C. John Langley Jr. Dr. C. John Langley Jr. is The Logistics Institute Professor of Supply Chain Management and Director of Supply Chain Executive Programs at the Georgia Institute of Technology. Before this new appointment, he served for 28 years at the University of Tennessee, where most recently he was the John H. Dove Distinguished Professor in Logistics and Transportation. Dr. Langley is a former President of the Council of Logistics Management and was the 1993 recipient of the Councils Distinguished Service Award. Dr. Langley has co-authored several books, including The Management of Business Logistics, a 7th edition textbook published in 2003. He is the CEO of a supply chain consulting firm and serves on the Board of Directors of Averitt Express, Inc. His recent logistics-related travels have taken him to Europe, Asia, South and Central America, and Africa. Dr. Langley also serves at Georgia Tech as Executive Director of the Supply Chain Executive Forum. Georgia Institute of Technology The Georgia Institute of Technology, located in Atlanta, is a leader in logistics and supply chain education. Through its School of Industrial and Systems Engineering (ISyE) and The Logistics Institute (TLI), Georgia Tech is committed to serving logistics educational needs through its degree programs and its comprehensive professional education program. Included are two short course seriesthe Logistics Professional Series and the Logistics Management seriesand a fully accredited Executive Masters in International Logistics (EMIL) program. Also, TLI sponsors a Global Logistics Program, a TLI Asia-Pacific program in partnership with the National University of Singapore (a partnership with the National Science Foundation and more than 20 corporations and government agencies), and a Leaders in Logistics Program. Georgia Tech and The Logistics Institute impact logistics and supply chain direction setting and strategy formulation through the Supply Chain Executive Forum, founded in 2003. Information about Georgia Techs ISyE programs may be found on the web at http://www.isye.gatech.edu, while information about The Logistics Institute and the Supply Chain Executive Forum may be found at http://www.tli.gatech.edu and http://www.tli.gatech.edu/scef, respectively.
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CGE&Y's eighth annual 3PL study highlights key insights and raises important questions relative to industry issues and trends. One of the most valuable aspects of this study is the contribution across the supply chain. 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. It also captures views across the globe by surveying multi-industry companies across North America, Western Europe, and Asia-Pacific. These learnings are invaluable in understanding how companies view the 3PL industry and gaining insights on how companies can utilize 3PL services to facilitate a shift toward an adaptive supply chain.
Paul A. Matthews, Director of CGE&Y Americas Supply Chain
Gary R. Allen Gary R. Allen is a Senior Manager with the Cap Gemini Ernst & Young U.S. LLC (CGE&Y) Automotive Sector based in Detroit, MI. He has more than fifteen years of experience in supply chain management, operations management, business development, solution design, logistics outsourcing, process improvement, and technology deployment. Mr. Allen works for CGE&Ys Supply Chain service line, specializing in Logistics & Fulfillment, and is leading efforts related to Logistics Outsourcing and Automotive Supply Chain solutions. Before joining CGE&Y, Mr. Allen spent ten years in various functions with FedEx Supply Chain Services. His primary experience is within the product segments with a focus on manufacturing industries, including automotive, industrial, telecommunications, high-tech, and consumer products. He has a degree in Supply Chain Management from Michigan State University. Cap Gemini Ernst & Young U.S. LLC The Cap Gemini Ernst & Young Group (CGE&Y) is one of the worlds largest providers of consulting, technology, and outsourcing services. The company helps businesses implement growth strategies and leverage technology. The organization employs approximately 50,000 people worldwide and reported 2002 global revenues of 7.047 billion euros. The CGE&Y Supply Chain Management Service Line is a recognized global leader in supply chain consulting, offering a range of services from supply chain strategy and architecture development, to business and technology integration, to full-service process and technology outsourcing. In addition, CGE&Y has developed new offerings to address the current market's customer-centric business challenges and to help companies build dynamic, adaptive supply chains. For further information, please visit www.cgey.com
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Mark J. Colombo Mark J. Colombo is Vice President of Strategic Marketing and Corporate Strategy for FedEx Corporate Services. His group is responsible for creating sustainable competitive differentiation through a portfolio of strategies, marketing programs, market research, and products that provide more compelling customer solutions. Mr. Colombo leads four key initiatives for FedEx: Corporate Strategy and Market Research, Industry Marketing, Supply Chain Marketing, and Strategic Program Management. His FedEx responsibilities before his current role include: launching the FedEx eCommerce business for North America, redirecting the strategic model and solution focus for the Supply Chain Services Company, and leading a number of strategic initiatives for multiple FedEx operating companies. Before FedEx, Mr. Colombo was a principal with AnswerThink, where he was the National Practice Director for supply chain management. He was also Senior Manager of the Supply Chain Practice at CSC Consulting and Manager of National Logistics at KPMG. Mr. Colombo began his career in the chemical industry and he holds a BS and two MS degrees in economics and finance. FedEx Supply Chain Services Inc. FedEx Supply Chain Services Inc. (FSCS), a unit of FedEx Corp., meets the synchronized supply-chain management needs for companies of all sizes domestically and globally. FSCS focuses on three primary services: transportation management, which uses the world-class reliability of FedEx Corp. companies to provide customers with optimized, multi-modal transportation management; fleet services, which include dedicated contract carriage; and fulfillment, giving customers end-to-end, scalable, turn-key warehousing and flow-through solutions for greater flexibility in distribution operations. FSCS solutions give customers the critical visibility that is essential to their supply chain needsvisibility rooted in a 30-year history of innovative technology developed by FedEx Corp.the premier global provider of transportation, eCommerce and supply-chain management services. The company offers integrated business solutions leveraging the capabilities of FedEx operating companies, including FedEx Express, the worlds largest express transportation company; FedEx Ground, North Americas second-largest provider of small-package ground delivery service; FedEx Freight, the largest U.S. provider of regional less-than-truckload freight services; FedEx Custom Critical, North Americas largest provider of expedited time-critical shipments; and FedEx Trade Networks, North Americas largest customs broker and a provider of international freight-forwarding and trade-facilitation services.
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Contact Information
For additional copies of this publication or for more information about the study, please contact: North America: Gary R. Allen Cap Gemini Ernst & Young 500 Woodward Avenue Detroit, MI 48226 Phone: (313) 628-8025 Fax: (734) 667-2194 Cell: (678) 571-6250 Gary.Allen@cgey.com C. John Langley Jr., Ph.D. TLI Professor of Supply Chain Management Georgia Institute of Technology 765 Ferst Drive, N.W. Atlanta, GA 30332-0205 Phone: (404) 894-6523 Fax: (413) 556-3570 John.Langley@isye.gatech.edu Thomas A. Dale Director, Marketing FedEx Supply Chain Services, Inc. 5455 Darrow Road Hudson, OH 44236 Phone: (330) 342-3000 Fax: (330) 650-5737 Thomas.Dale@fedex.com Western Europe: Erik van Dort Cap Gemini Ernst & Young Papendorpseweg 100 3528 BJ Utrecht (or P.O. Box 2575, 3500 GN Utrecht) The Netherlands Phone: (31) 30.689.7119 Fax: (31) 30.689.9527 Cell: (31) 651.42.97.32 Erik.van.Dort@cgey.nl Asia-Pacific: Donato Caporale Cap Gemini Ernst & Young Olderfleet Building Level 3 477 Collins Street Melbourne VIC 3000 Australia Phone: (61) 3.9613.3976 Fax: (61) 3.9613.3333 Cell: (61) 4.1838.3138 Donato.Caporale@cgey.com
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T H I R D - P A R T Y

Results and Findings of the 2003 Eighth Annual Study

3PL: Results and Findings of the 2003 Eighth Annual Study

Study Objectives and Methodology

Exhibit 1 Survey Response Rates

3PL: Results and Findings of the 2003 Eighth Annual Study

Organization of This Report

3PL: Results and Findings of the 2003 Eighth Annual Study

Summary of Key Findings

3PL: Results and Findings of the 2003 Eighth Annual Study

Logistics Outsourcing Practices in Profile

3PL: Results and Findings of the 2003 Eighth Annual Study

Current vs. Projected Logistics Expenditures Directed to Outsourcing

Logistics Activities Outsourced

30% 20% 10% 0%

3PL: Results and Findings of the 2003 Eighth Annual Study

3PL Service Offerings and Capabilities

Information Technology-Based Services

80% 70% 60% 50% 40%

30% 20% 10% 0%

3PL: Results and Findings of the 2003 Eighth Annual Study

30% 20% 10% 0%

Primary Sources of Information Technology, 2003

North American Use of Industry Vertical Procurement Markets

Use of Internet and Independent Electronic Markets

2001 2002 2003

3PL: Results and Findings of the 2003 Eighth Annual Study

North American Use of Transportation/ Logistics Electronic Markets

Perceptions of 3PL Technology Capabilities

Perception of 3PL IT Capabilities

ASE Output Capability Improvement Opportunities

Improvement Opportunities (Capabilities)

3PL User People

3PL: Results and Findings of the 2003 Eighth Annual Study

Management and Relationship Issues

70% 60% 50% 40%

30% 20% 10% 0%

Tra ns p Str orta ate tion gis t

3PL: Results and Findings of the 2003 Eighth Annual Study

3PL Deal Structures

30% 20% 10% 0%

3PL: Results and Findings of the 2003 Eighth Annual Study

Contractual Fixed and Variable Commodity Transaction

Contractual Risk Sharing

Types of Companies Best Suited to Offer LLM/SCI Services

Involvement of Management Consultants

Internet- Management Based Firms Consultants

3PL: Results and Findings of the 2003 Eighth Annual Study

ASE Output Management and Relationship Issues

Technology Willingness to outsource and integrate

Customer Value Framework

90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

3PL Supply Chain Accomplishments

3PL: Results and Findings of the 2003 Eighth Annual Study

North America Western Europe Asia-Pacific 88

30% 20% 10% 0%

ASE Output Value Observations

Areas for Improvement

3PL: Results and Findings of the 2003 Eighth Annual Study

Areas of Strategic Change

3PL: Results and Findings of the 2003 Eighth Annual Study

Value of This 2003 Third-Party Logistics Report

3PL: Results and Findings of the 2003 Eighth Annual Study