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Dennis Wereldsma, Global Distribution Sector Leader, Capgemini; Dennis de Waard, Corporate Supply Chain Manager, Supply Chain Strategy, Panalpina; Dominic Regan, Senior Director, Oracle speak on 'The Hidden Opportunities of Economic Crisis - Findings from the 14th Annual Third-Party Logistics Study' at the 7th European 3PL Summit in Brussels, November 25th 2009. To download all of the slides from the conference for free visit www.3PLsummit.com/eu_2009ppts
Citation preview
Results and Findings of the 14th Annual Study
The State of Logistics Outsourcing
2009 Third-Party Logistics
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
Contents
� About the Study
� Current State of the 3PL Market
� Economic Volatility
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
� Supply Chain Orchestration
� IT Capability Gap
� Strategic Assessment
2
Expanded Focus in 2009 to Include 3PL Users and Providers
About the Study
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
3
� E-Mail Survey of Executives from 3PL user and provider firms
• User survey targeted VP, Director, Manager of Logistics or Supply Chain Management
• Provider survey targeted CEO’s and Executives
This year’s 3PL study incorporated three majorresearch thrusts
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
� Focus Interviews with Executives and Industry Observers
• Interviews pertained directly to “special” topics included in 2009 study
� Capgemini Accelerated Solutions Environment® (ASE) Facilitated Workshop Session
• Chicago, USA and Utrecht, Netherlands
• Workshop in Singapore
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Survey respondents represented range of geographiesand industries
Shipper respondents
Industry %
1. High-Tech / Electronics 14
2. Consumer Products 12
3. Food and Beverage 10
4. Life Sciences and Pharma / Healthcare 10
5. Automotive and Transport Equipment 10
6. Industrial Manufacturing 8
North America(248)32%
Latin America
Europe(250)33%
Asia-Pacific(155)20%
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
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+ 279 Survey respondents from 3PL provider firms.
6. Industrial Manufacturing 8
7. Retail 6
8. Chemical 6
Additional Industries (13) 13
Other 11
Latin America(103)13%
Other(16)2%
3PLs and Shippers – Different Perspectives to Ongoing Issues
Current State of the 3PL Market
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
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Shippers currently outsource a wide variety oflogistics services
Outsourced Logistics Services% Users
All Regions
Domestic Transportation 86
International Transportation 84
Customs Brokerage 71
Outsourced Logistics Services% Users
All Regions
Freight Bill Auditing and Payment 33
Transportation Planningand Management
32
Information Technology (IT) Services 30
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
Warehousing 68
Forwarding 65
Cross-Docking 39
Product Labeling, Packaging, Assembly, Kitting
38
Reverse Logistics(defective, repair, return)
38
Fleet Management 22
Supply Chain Consultancy Services Provided by 3PLs
21
Customer Service 13
Order Entry, Processingand Fulfillment
13
LLP / 4PL Services 12
7
Shippers and 3PLs have similar evaluations of success of their relationships
64%
25%
51%45%
30%
45%
60%
75%
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
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Note: 3PL users and 3PLs were asked to rate success on a five-point scale, with “somewhat successful” and “extremely successful” representing the two mostpositive categories
1%1%
9%
1%3%0%
15%
Extremelysuccessful
Somewhatsuccessful
Neither successful nor unsuccessful
Somewhatunsuccessful
Extremelyunsuccessful
3PL Users 3PL Providers
Top “Seven” continuing problemsPercentages
reported by shippers
Lack of continuous, ongoing improvements and achievements in offerings 46%
Service level commitments not realized 46%
Information technology capabilities not sufficient 43%
Shippers report a number of continuing problems with 3PL services
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
Cost reductions not realized 36%
Lack of project management skills 35%
Unsatisfactory transition during implementation stage 31%
Lack of global capabilities 30%
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There continue to be significant opportunities for outsourcing of IT-based services
Transp Mgt (Execution)
WH-DC Mgt
Global Trade Mgt
Yard Management
Transportation Sourcing
Transp Mgt (Planning)
EDI
Web Portals
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
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0 20 40 60 80 100
Bar Coding
SC Network Opt
SC Event Mgt
RFID
Customer Order Mgt
SC Planning
Web Portals
Visibility
Currently use 3PL Internally managed
Shippers Thinking Both Short- and Long-Term
Economic Volatility
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
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Unpredictable demand is the most difficult challenge to managing a supply chain in an economic downturn
45%
46%
46%
47%
71%
Fuel price volatility
Unpredictable demand
Supplier financial risk
Currency exchange rate volatility
Excessive inventory in supply chain
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
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4%
11%
19%
23%
30%
45%
0% 20% 40% 60% 80%
Difficulty securing capital tofund improvement initiatives
Commodity price volatility(other than fuel prices)
Supplier financial risk
Loss of key supply chainskills due to corporate downsizing
Labor rate volatility
Other
In response, companies use different strategies, where for some they need the help of a 3PL
Strategies used by Shippers Top 3 strategies used by 3PLs
1. Reduce Operating Costs (89%)
2. Expand to New Markets or Offer New Products 59%
3. Renegotiate Supplier Contracts 58%66%
77%
82%
Restructure supply
Renegotiatesupplier contracts
Improve forecasting &inventory management
Reduce operating costs
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
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… other coping strategies
� Increasing Control
� Risk / Gain sharing
� Improve Integration with 3PLs
� Horizontal Integration
29%
42%
56%
60%
61%
100%0%
Increase use of contractmanufacturing and BPO
Rationalize productcatalog (SKUs)
Expand to new markets oroffer new products
Reduce order-to-cashcycle time
Restructure supplychain network
50%
It’s significant that 30% of the shippers think they need more 3PL services to help them weather the storm
What is the net effect of current economic uncertainties on your company’s need for 3PL services?
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
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Shippers are re-evaluating their 3PL relationships and making changes where required
Strategies used to mitigate risks with 3PLs
Developing internal capabilities tocomplement / replace 3PL provider(s)
24%
Switching 3PL provider(s) 26%
Renegotiating payment terms /contracts with 3PL provider(s)
54%
… But 3PL users in largercompanies are looking to
rationalize the number of 3PLs
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
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8%
Investing in 3PL provider(s) 16%
My company does not have aproactive risk mitigation strategydirected toward 3PL provider(s)
20%
Other risk mitigating strategies
rationalize the number of 3PLs and intensify their 3PL partnership
The economic crisis as an inflection point to rethink supply chain /3PL relationships?
The Case for Rethinking Shipper / 3PL Relationships
Supply Chain Orchestration
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
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Inventory as a percent of total logistics costs has been rising for almost 5 years
40%
60%
80%
100%
120%
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
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� Last 4-5 years inventory as a percent of total has been growing
� Inventory growth is unrelated to the current global economic situation
� Businesses recognize that long thin supply chains may not necessarily be the best answer
� Supply chains today are looking at alternatives to chasing the cheapest labor
20%
TotalTranportationInventory
1986 1990 1995 2000 2005 2007
Source: Council of Supply Chain Management Professionals 19th Annual State of Logistics Report (2008)
Costs associated with global supply chains have proven to be highly volatile and will continue to be unpredictable
� Oil (fuel) 40 USD per barrel, 146 USD per barrel, now approx. 70 USD per barrel
� Floating currencies … USD and China
� Rapidly changing local labor rates … China, Mexico, Thailand, Vietnam, Malaysia
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
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� Rapidly changing local labor rates … China, Mexico, Thailand, Vietnam, Malaysia
� Supply Chain capacity reductions… Ocean, North Pacific 30% this year, rail 12%, trucking 22%
� Changes coming with expansion of the Panama Canal
Is the current global economic situation a possible inflection point between 3PLs and shippers?
19%
22%
Not sure
59%YesNo
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
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� A very high percentage of respondents feel this is the time in which to re-evaluate their relationships with their 3PLs to possibly drive the relationship deeper
� A significant number of respondents are somewhat confused by the current environment as to what it means about their business and 3PLs
YesNo
What is preventing you as a shipper from outsourcing moreto your 3PLs?
38%
56%
My 3PL does not have the business expertise
Supply chain is a core competency
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
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� Many businesses still feel they are better at supply chain design and execution than their 3PLs, and they are not asking the 3PL to be anything other than execution focused … However …
40%I want my 3PL to be execution focused
Which of the following critical capabilities would you likeyour 3PL to bring as a strategic partner
60%
64%
Deep business process and IT expertise
Total Landed Cost reporting and analysis
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
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� These answers seem to indicate that business is looking closely at possible major changes in sourcing and / or networks, and would welcome a 3PL doing these if they had the skillsand expertise
� None of these services would be typical of 3PL services offered today
46%Supply Chain Network Design
What value do you think you would realize by developing a strategic relationship with your 3PL?
58%
75%
Increase operational flexibilityand become more demand driven
Reduce total landed costs
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
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� Research seems to indicate that companies are currently evaluating their processes and capabilities, and clearly see that their businesses could benefit from some non-traditional services being offered by their 3PLs
� However, they need to be shown that the 3PLs they are dealing with have the capabilities and deep business expertise needed to move to the strategic partner level
58%Reduce capital costs, headcount and operational expenses
What is necessary to make strategic relationships work ?
59%22%
19%56%
38%
� Number 1 overall of what is required….Knowledge of the business. If 3PL does not have deep knowledge and expertise, will not become a strategic partner
� Incentives on both sides
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
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40%� Joint investment, maybe harmonized IT systems
� Guts to change, willingness to share data
� Executive sponsorship on all levels, both sides
Shippers and 3PLs: Contrasting Perspectives
IT Capability Gap
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
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CIOs face daunting challenges …
The IT performance gap, complex architecture, business alignment
0%
20%
40%
60%
80%
100%
2008200720062005200420032002 2009
� Complex applications and technology eco-system dominated by legacy ERP and operational systems that run on mainframes / mid-range systems
� Limited IT budgets predominantly focused on maintenance
� Multiple data silos with duplicate and incorrect data
� How can we ensure that the IT department can respond quickly to the needs of the business?
Challenges / Wish List
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
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2008200720062005200420032002 2009
Satisfied with 3PL IT capabilities
IT capabilities necessary element of 3PL expertise
quickly to the needs of the business?
� How can we allocate a higher percentage of resources to innovation versus maintenance projects?
� Shippers
• More than 2/3 of shippers indicated that alignment between business and IT was NOT STRONG and could be BETTER
� 3PLs
• Almost 2/3 of 3PLs indicated that alignment between business and IT was NOT STRONG and could be BETTER
Alignment with the Business
IT demand and supply: What IT services are shippers outsourcing and what IT services are 3PLs offering today …
� 94% of shippers run and operate customer order management internally, only 5% outsource currently and only 5% would like to outsource in the future
� 91% of shippers run and operate supply chain planning applications internally, only 4% outsource currently and only 4% would like to outsource in the future
� 22% outsource EDI transaction processing for orders, ASNs, shipment status updates, and invoicing, 19% would like to do so in the future
Shipper Perspective
3PL Perspective
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
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� 75% of 3PLs offer Transportation Mgt. as an offering to shippers today, 14% offer a TMS on a subscription basis today, 4% expect to offer a TMS on a subscription basis in the future
� 81% of 3PLs offer Warehouse Mgt. as an offering to shippers today, 12% offer WMS on a subscription basis today, and 3% expect to offer WMS on a subscription basis in the future
• 71% offer EDI services, visibility to orders, shipments, and inventory
3PL Perspective
� Shippers outsource “execution focused” applications
� TMS and WMS have become standard 3PL IT offerings
� 3PLs are adopting the software-as-a service model!
Shippers face a number of challenges with3PL IT capabilities …
� Multiple operating platforms at 3PLs leading to
• Varied service experience and processes
• Insufficient order / shipment / inventory visibility
36%
50%
Inability to provide sufficientorder / shipment / inventory visibility
Lack of integration amonginternal 3PL systems
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
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visibility
� Lack of project management expertise leads to schedule delays, budget overruns,
� Complex integrations result in long lead times to onboard customers
� Incorrect billing driven by disconnected quote-to-cash processes25%
26%
27%
Too much time requiredto onboard customer
Inability to correctly invoicefor services provided
Lack of sufficient project management(PM) processes or trained PM personnel
Integration challenges stymie 3PL – Shipper collaboration
46.5%
48.1%
54.5%
56.5%
57.4%
53.5%
51.9%
45.5%
43.5%
42.6%
Invoicing
Transportation execution (Booking, tendering, document preparation and transportation)
Shipment status updates
Inventory visibility
Purchase order management
Manual and unique integrations, long lead times, differing priorities
Shippers
32.8% 24.6%
32.4% 24.1%
33.1% 21.4%
30.0% 18.1%
27.9% 18.6%
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
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23.7%
30.0%
32.9%
76.3%
70.0%
67.1%
53.5%
Capacity forecasts and availability
Demand forecasts
Production schedules, transportation schedules
Invoicing
Electronic Data Interchange (EDI) Manual Integration: Fax / phone / email
Unique Integration with each 3PL Standardized integration with every 3PL
18.4%
13.8%
21.3% 11.6%
11.6%
9.9%
� EDI is primarily execution focused – Orders, Inventory, Shipment Status updates are the top EDI transactions
� EDI penetration is < 60% and is much lower for planning and scheduling data
Integration challenges limit 3PL – Shipper collaboration
Manual and unique integrations, long lead times, differing priorities
59.7%
65.8%
66.3%
67.2%
70.3%
40.3%
34.2%
33.7%
32.8%
29.7%
Transportation execution (Booking, tendering, document preparation and transportation)
Shipment status updates
Purchase order management
Invoicing
Inventory visibility47.9% 22.4%
43.6% 23.6%
44.2% 22.1%
38.4% 27.4%
36.2% 23.5%
3PLs
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
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43.5%
45.0%
53.9%
56.5%
55.0%
46.1%
40.3%
Capacity forecasts
Demand forecasts
Production schedules, transportation schedules
Manual Integration: Fax / phone / emailElectronic Data Interchange (EDI)
36.7% 17.2%
8.8%36.2%
7.8%35.7%
Unique Integration with each Shipper Standardized integration with every Shipper
� 3PLs focus on supporting Shippers – Inventory visibility, invoice processing, purchase orders are the primary EDI transactions
� EDI penetration is higher than shippers but integrations are predominantly Unique
Bridging the IT Gap: Shipper and 3PL perspectives
70%
71%
75%
Alerts for orders and shipmentsthat deviate from plan
Real-time order and shipment visibility
Timely KPIs and performance data
Shippers would like to see 3PLs provide timely KPI and performance data, order and shipment visibility, accurate billing, real-time inventory status
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
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53%
54%
63%
Real-time inventory status – what’scoming inbound, what’s goingoutbound, and what’s on-hand
Timely demand forecasts
Real-time interfaces to shipperorder management systems
3PLs need real-time integration so they have better visibility to demand, timely payments, collaborative planning, and frequent feedback
What shippers and 3PLs want – An open flexible platform to support logistics planning and execution …
Se
rvic
e 1
Se
rvic
e 2
Se
rvic
e 3
Clie
nt 1
Clie
nt 2
Clie
nt 3
Logistics Planning &Execution Platform
� Rationalize and modernize applications, data repositories, and infrastructure
� Link systems using SOA to create a business process platform that drives key processes such as quote-to-cash, procure-to-pay
� Streamline collaboration with customers, partners, suppliers, regulatory
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
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Partner Portals, Applications UI, Edge Devices
Enterprise SOA, Workflow Mgt, Event Mgt
Applications, Data Hubs, Infrastructure
partners, suppliers, regulatory authorities through collaboration hubs
� Platform characteristics
• Supports best-of-breed solutions
• Can be configured
• Leverages legacy applications
• Supports industry standards
• Expandable, scalable
A scalable, sustainable, differentiating platform … the technology exists today!
Shippers and 3PLs Adapting to Economic Volatility
Strategic Assessment
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
32
The recession signaled that the last two decades represented exceptional conditions, unlikely to return
� Previously, unprecedented factors fostered significant commercial growth
• Rapidly multiplying global manufacturing capacity
• Free trade agreements
• Ready access to credit
• Enhanced IT capability
� The economic downturn has severely impacted supply chains globally
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
33
Shippers are re-evaluating the role 3PLs can play in helping them attain more agile, adaptable and efficient supply chains.
• Diminished consumer demand
• Excess capacity
• Price pressures
• Financing constraints
� Near term, shippers are focused on cost cutting, but longer term, they are seeking to understand and adapt to the “new normal”
To continuously adapt to the “new normal”, shippers and 3PLs need to bridge some fundamental gaps
3PL Capabilities / PositionShipper Perspectives
� Often focus on 3PL execution capabilities
� Some question prospects of deeper business relationships with 3PLs
� Re-evaluating how to leverage 3PLs
� Do not want to be perceived as a “commodity service provider”
� May be able to provide industry specific business expertise
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
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� Re-evaluating how to leverage 3PLs to survive (or thrive) in the economic downturn
� Many want price concessions without additional business commitments
� Need improved IT offerings
� Need to promote advanced offerings, particularly total landed cost analysis
� Legacy, business architectures not delivering adequate KPIs, alerts and visibility
Shippers and 3PLs must proactively take steps to maximize their chances to succeed in the new economy
� 3PLs need to reinforce and productize advanced offerings, advertise these to shippers, and reinforce their value by showcasing results
� Shippers need to be open to tapping 3PLs’ internal expertise and to asking for the services they want
� 3PLs should consider new models and a new way of looking at their customer sets
� 3PLs and shippers need to adopt an open standards based logistics planning and execution platform that can be configured to support
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
35
The time is ideal for shippers to rethink how best to leverage 3PLs and for 3PLs to align their offerings with what shippers really need.
planning and execution platform that can be configured to support multiple services for multiple clients so they reduce the IT complexity, increase adaptability, and increase agility
� 3PLs and shippers need to develop new methods and frameworks for collaboration, including shared key performance indicators, joint brainstorming, longer-term commitments, and models that share both the risks and rewards of innovation
2009 Fourteenth Annual Third Party Logistics Study Team
Thank You!
Check out our website at www.3plstudy.com
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
� Download copy of 2009 and earlier reports
� Additional information about the 2009 3PL Study
36