Monday, November 29, 2004

RFID : Science Fiction Vision To Reality

Express Computers publishes an article by Dr.Sanjay Sarma CTO of oatsystems. Dr Sarma writes, what would have been the stuff of science fiction, RFID or radio frequency identification technology is swiftly turning this vision into reality. Excerpts:

Imagine if your microwave oven could read the instructions on a packet of frozen food and cook it accordingly. Imagine sitting in your office and being able to track who is buying your product from the store, and even gauging the rate at which your product is selling. Once this would have been the stuff of science fiction, but RFID or radio frequency identification technology is swiftly turning this vision into reality. Although RFID technology has been around for at least three decades, it has come of age only in the last few years. New applications developed in American tech research labs, and supported by industry, have given RFID a new lease of life, spearheading a technology revolution that is changing the way global businesses monitor their supply chains and operations.

RFID technology is used to track everything from pets to airline baggage. It is also used to prevent store theft and counterfeiting. Some of the world's largest businesses and multinational corporations, including Wal-Mart, Gillette, Coca-Cola and Procter & Gamble, are developing plans to deploy solutions based on RFID to monitor their global supply chains. In fact Wal-Mart joined the Auto-ID Centre in 2001 in order to put industry's weight behind research. And last year the corporation mandated that its 100 top suppliers would have to send all products for RFID-tagging from 2005.As supply chains become global in nature'with materials being sourced in one country, manufactured in a second and sold in a third'time lags and distances often compound these inefficiencies. For instance, retail giants such as Wal-mart and Metro often have global supply chains, with the starting point in resource-rich developing countries like India. However, studies of the global retail industry have shown that up to 65 percent of inventory records in retail environments are wrong. In addition, products are out-of-stock approximately 10 percent of the time, resulting in 4-5 percent lost sales that's worth about $100 billion annually. On the other hand, too much inventory can result in billions of dollars of locked-up capital, high transportation costs, and other problems.
RFID-EPC technology can dramatically improve supply chain management efficiencies by providing real-time visibility into what's on the store shelves. Because RFID tags are unique, a product can be individually tracked as it moves from location to location. The vision of the EPC movement is to create near-perfect supply chain visibility, where businesses have the ability to track every item anywhere in the world securely and in real time. Using RFID-EPC, one will be able to count how much inventory there is on the store shelf, and other information unique to each product, such as its expiration date. RFID can therefore be utilised to build faster supply chains and improve the planning and execution process, all of which provide financial pay-offs.

Wednesday, November 24, 2004

RFID: Simple Concept Hobbled by Daunting Complexity

A well written article excerpted from NYTimes by CRM Buyerabout RFID - I would think that anyone knowing about RFID - observing at a distance RFID,- Simple Concept Hobbled By Daunting Complexity Excerpts:

Like investing or hitting a tennis ball, using radio scanners to wirelessly identify consumer products seems simple in concept, but in reality, it is dauntingly complex.The biggest challenge for retailers and their suppliers has been melding the building blocks of RFID into systems that are reliable without being cumbersome or unduly expensive. Unlike the RFID systems that automatically collect tolls from motorists or control access to buildings, those designed for commerce call for disposable, batteryless tags that are tiny and unobtrusive. And since the tags are meant to be slapped on every pallet or carton or even on every item, they must be cheap enough for businesses to buy them by the hundreds of millions.

The ultimate goal of an RFID system is to track individual products all the way from manufacture to sale. Under such a system, every item would have a tag embedded in its label or attached separately. The tag consists of a microchip and a flat ribbon of antenna; the microchip would contain a unique code identifying the manufacturer, type of product and individual serial number.As the item moved through the supply chain, scanners in doorways, on loading docks or at other handoff points would capture the movement. Radio waves from the scanners would be picked up by the tag's antenna, providing energy for the tag to broadcast its identity back to the scanner.Data would flow through the Internet or other networks to corporate computers, but if the tags had read-write capability, status updates on the item could be added to the tag as well. Once products reached the store, scanners in the stockroom could track how rapidly they are moved to shelves, and scanners on shelves could monitor when shoppers removed them. Finally, a checkout scanner could ring up everything in a shopping cart as it was wheeled toward the door.

Sunday, November 21, 2004

Tracking Fashion With RFID @ DHL

RFID Journal has published an excellent article about Global logistics service provider DHL Solutions Fashion offering the French fashion industry a way to test and facilitate shipments of individually tagged garments. Excerpts on this article on a noticeable RFID based solution:

DHL Solutions Fashion, a global logistics service provider for clothing manufacturers and retailers, is offering the French fashion industry a way to test item-level RFID tagging of garments in order to help speed the delivery of their products as well as enable shipments to be tracked through the supply chain. RFID is well suited to reducing the complexity of the taking inventory as well as speeding up inventory and delivery checking involved in distribution in the garment supply chain. "The garment industry has unique requirements because retailers are locked in a battle to get key fashion trends from the design table to the shelves as quickly as possible, RFID technology offers the logistical advantages to respond to this challenge," says Christophe Cavailles, director of DHL Solutions Fashion. The Paris distribution center serves as a hub between a number of different fashion clothing suppliers, mostly in France, as well as boutique operators, also mostly in France. Each year, 70 million garments pass through the center on their way to wholesale suppliers.

DHL's RFID-enabled room contains three ways to read garment tags. A portal equipped with two antennas reads tags on clothing shipped while hanging on a rail. For garments shipped in boxes, a tunnel reader with three antennas surround a conveyor and read tags as the boxes move along the conveyor. A mobile reading system with two antennas rides on ceiling-mounted rails and is pushed manually through the room to carry out full inventories and it takes 30 seconds for this mobile system to take an inventory of 20,000 hanging garments with facilities to search for a specific item. The trial at the distribution center in July tracked the new autumn/winter collection from Véronique Delachaux, a maternity clothing label that is part of Jacadi Group. In total, 30,000 Delachaux clothing items passed through the center en route to the Jacadi's 13 warehouses as well as to retailers. Véronique Delachaux paid for the tags, and DHL covered other costs. The credit-card-sized smart labels and hangtags were manually attached to boxes and to clothing items, respectively, at Véronique Delachaux warehouses prior to shipping to DHL. Each smart label or hangtag's embedded RFID tag was associated with the same data that was associated with a bar code also printed on that label or hangtag. The data includes the size of the garment, its color and a reference number.

It was critical that the smart labels and hangtags carry both an RFID inlay and a bar code. "Retailers are not ready yet to get rid of the bar code system," says Bruno Favre, CEO of NBG-ID.The tagged garments were then shipped to DHL Fashion distribution center to be inventoried and redirected according to the shipping instructions from Véronique Delachaux. DHL Solutions Fashion claims that using of RFID tags dramatically reduced the time needed to unload a truck and check all the goods into the distribution center. A shipment of 450 tagged garments hanging on a rail with 450 clothing items was scanned in 2 minutes, while the same task with bar codes takes 8 minutes. DHL says the RFID-enabled facilities at its distribution center are now available for other clients looking to investigate and test potential RFID systems and then use DHL's facilities for RFID-enabled shipments. To ensure 100 percent reliability of the system, the number of garments in each box is limited to 40, although that will increase up to 100 garments by spring 2005, according to Favre. Jacadi says that it is convinced of the efficiency of the system in tracking garments and is seriously considering deploying item-level RFID tagging. DHL says it is ready to implement similar schemes for other clients and industries.

Friday, November 19, 2004

UPS -Pioneering RFID works

Informationweek has published an excellent article about global logistics supplier UPS adoption of RFID technology Excerpts:

United Parcel Service of America Inc. is closely monitoring radio-frequency identification technology. UPS has several tests under way and says its package-tracking processes will leverage RFID as soon as customers want it. The company's RFID efforts are part of a four-pronged strategy to be ready to lead as the technology moves into the mainstream in next few years. "We will be prepared as the adoption rate increases," says Albert L. Wright, VP of engineering for UPS. "Being ahead of the curve in planning and preparation is part of keeping the customer satisfied. It's the kind of thing that helps you be recognized as a leader--not just as a logistics or transportation company, but as a technology company as well."
UPS plans to be:
- provider of RFID systems and services for customers,
- an internal user of RFID,
- an investor in RFID technologies,
- and an active participant in RFID standards bodies, he says.

UPS has invested in two RFID companies: Impinj Inc,a fabless supplier of RFID chips and tags, and Savi Technology, a provider of software used in creating RFID supply-chain networks. UPS has also engaged in two RFID pilot programs at its facilities near Atlanta, an effort Wright says will help both UPS and its customers gain a better understanding of the potential benefits and limitations of the technology.
- In the first pilot program, UPS placed RFID shipping tags on reusable containers the company uses to ship small or irregularly shaped items. Traditional bar-code labels used on these so-called tote boxes haven't been easy to read, and the labels often deteriorate before the end of the life of the reusable container. In tests in the second quarter of this year at its lab in Doraville, Ga., and then in a pilot implementation at its air hub in Louisville, Ky., in the third quarter, UPS found improvement in read rates using the RFID tags on the irregular packages, Wright says.
- A second pilot program was recently conducted at its facility in Roswell, Ga., in which UPS put RFID tags on vehicles to monitor their activity at controlled access points as they enter or exit the UPS facility. The company believes the use of RFID-enabled package cars and tractor-trailers can improve dispatch and security processes. Among the information the company hopes to find out is how the RFID tags perform in various types of weather and the accuracy of information obtained related to the speed of the vehicles and the distance from readers

UPS is also evaluating how RFID can be incorporated into the basic package-tracking service used at its customers' facilities throughout the country. As a company that handles more than 13 million packages each day in the United States, UPS already maintains a sophisticated and reliable tracking system for the items it ships, Wright says. But RFID may improve the operations by providing more real-time, detailed information on where a package is at any given time.UPS has centers established in the warehouses of about 60,000 customer locations. The centers use on-floor computers to generate specialized shipping tags for products moving out of the warehouses. The UPS tracking tags utilize a UPC code and a UPS tracking code called a 1Z tracking number. The tags are printed on site for placement on the packages. "We have full visibility today of every package," Wright says. "Each package has a 1Z code that becomes the license plate to all pertinent information. We know where the package is, where it came from, where it's going, and how much it weighs." The next step in the process will be the introduction of RFID tags. All that's necessary, Wright says, is to install new printers and make some minor software upgrades. To date, UPS has received no customer requests to begin shipping with RFID tags, although Wright says demand will increase next year and beyond.
"Right now it's strictly a value proposition," he says. "Bar codes are reliable and very inexpensive. It's going to be some time before the adoption rates of RFID can rival those of bar codes."UPS will offer customized RFID services so that customers' shipping centers can use RFID only to the extent they want, such as tagging a select set of products rather than using RFID companywide. "I think the adoption and the role [RFID] plays in the supply chain will be dependent on where you are in the chain," he says. "If you have very-high-value goods, the RFID proposition may come much sooner. For those shipping lower-value goods, there is probably not a good value at this time." Wright says companies considering RFID technology should move cautiously. "To say today that RFID is going to be an end-all solution to transform the logistics supply chain I think is a little premature," he says. "The value proposition for RFID has to be done by each industry, and each user, to determine if there is a return on invested capital."

Saturday, November 13, 2004

The Race to RFID -CEO's Adoption Perspective -Part II

Chief Executive magazine has published an article titled, " How CEOs are grappling with the breakthrough tracking technology ".Typically, CEOs don’t want to get into the nitty-gritty of technology like this, but the problem with something as radical as RFID, CEO’s need to understand the technology and strategise to derive differentiated competitive advantages to their business. In Part 1, we covered key benefits of RFID technology, a few successful initiatives and a few key issues in implementing RFID technolgy. In this second part, we shall look at a few strategic initiatives that are being currently implemented in a few enteprises around the world. Excerpts:

Penske Logistics is following the course of many companies so far, hedging its bets. The company handles shipments of a variety of goods from hundreds of manufacturers to thousands of retailers and other end customers. So far, nobody has required Penske to assemble an RFID network, but CEO Vince Hartnett is preparing his company for a dramatic change of tableau in the months ahead. “Customers are saying, ‘We expect you guys to really know what can and can’t be done and help us evaluate and be at the bleeding edge of this thing, so that when we’re driven to deploy RFID, you won’t be found wanting,’” says Hartnett. Some important customers, including automakers and the appliance maker Whirlpool, he explains, “would very much like us to come to them with ideas about where we could get trials done and not have them have to knock on our door.”
So Hartnett has created a five-person RFID task force that is evaluating tags, readers and other equipment and searching for a suitable spot within Penske to run a pilot. He wants to test RFID in a cross-dock center where the structural elements would put readers to the test and within a “closed-loop process” in which the company could retain and reuse the tags. He has concerns about whether RFID readings can be accurate, and how RFID will fit with existing bar-code systems and other tools that are meant to improve the order-to-delivery cycle. “We have to develop demonstrable confidence in the field,” Hartnett says. “Then we can bring people in and show them, in a real production environment, that we can attach tags and make them work, that we can leverage this technology for them.”He still wonders what the payoff will be for Penske besides satisfying customer demands and acceding to the realities of the marketplace—a burden that some have taken to calling the “Wal-Mart tax” on RFID. “What is the ROI for this?” Hartnett asks. “What kind of information is this going to provide? Can I use it for other tasks besides simply knowing where something is sitting on a shelf? Where are the productivity advantages? That’s what CEOs are supposed to be thinking about 24 hours a day. This will be a tool, but I don’t think it’ll be a disruptive tool.”

Following Wal-Mart’s Lead, Bill Zollars made his decision about RFID four years ago, when Yellow Roadway participated along with Wal-Mart, Gillette and other prime movers in an early RFID consortium at the Massachusetts Institute of Technology. “There was a lot of excitement about the potential of this technology, and it was consistent with all the other wireless technologies that were becoming pervasive in our business and personal lives,” says Zollars, who is chairman and CEO of Yellow Roadway, one of the nation’s largest shippers in the US.“Besides, early on we realized that we were much better off if we were on top of what Wal-Mart was doing and prepared to support them.” Zollars believes his company will gain from the more accurate readings of shipment contents and status that RFID will yield compared with bar codes. He’s also pleasantly surprised to be learning that RFID could bring a palpable “security impact” for Yellow and its partners in this terrorism-conscious era. “We could have sensors that would determine whether there was an explosive or biological or radiological kind of threat within a shipment,” he says. “What will happen when Wal-Mart finally throws the switch is that some companies will be unwilling or unable to make the investment, and we’ll have a competitive differentiator.”

Goal: Faster Turnover
Pacific Cycle’s CEO Hornung believes he already has a leg up on major competitors—including Trek, just a half-hour east of Madison—with RFID. He says that bikes are “a natural” for early implementation of RFID because there’s only one product to a container, making tracking simple. At the same time, bicycles come in a variety of colors, styles and option levels, imparting the tag with details that are crucial to proper inventory management. The company, with sales of several hundred million dollars a year, also was an industry pioneer in using bar codes. “RFID was a very natural decision for us because we could see the opportunity to increase our number of turns,” says Hornung, whose goal is to increase inventory turnover from six times a year to seven. “Inventory management, particularly when dealing with large customers, is absolutely critical.” In the case of RFID, Pacific Cycle has installed tag readers on a couple of its dock openings and in September, began shipping some bikes to Wal-Mart that bore RFID tags. By December, the company will broaden its usage of RFID to include all products shipped to Wal-Mart’s Texas operations, where the retailer is implementing RFID first. Assuming the success rates Hornung is projecting, he expects to pay for Pacific’s $3 million investment in RFID fairly quickly. After that, he says, he’s been asked to spearhead RFID implementations for other divisions of Dorel Industries, which now owns Pacific Cycle.
Indeed, with an investment this significant, smaller companies can’t afford to adopt something that will be made obsolete in a year by the later, greater version. Which is what makes RFID a particularly steep challenge for small and midsized company CEOs, who don’t quite know how to get their arms around the scope or the cost of implementation, but know they’ll have to comply at some point with the companies they supply.

The Race to RFID -CEO's Adoption Perspective -Part I

Chief Executive magazine has published an article titled, " How CEOs are grappling with the breakthrough tracking technology ".Typically, CEOs don’t want to get into the nitty-gritty of technology like this, but the problem with something as radical as RFID, CEO’s need to understand the technology and strategise to derive differentiated competitive advantages to their business. Excerpts:

By embracing radio-frequency identification technology wholeheartedly, Wal-Mart Stores and the U.S. DOD have given CEOs across the globe reason enough to follow suit. Pacific Cycle, started working with RFID three years ago, has invested nearly $3 million in its implementation and has already begun using RFID in some shipments of its bicycles. “We’re the only bike company that is even beginning to look at this technology,” says Hornung, CEO of the Madison, Wis.-based concern he founded 30 years ago. “We’re light years ahead of everyone else.” Improving on traditional bar-code technology, RFID uses radio signals to read and transmit data from electronic tags placed on pallets of goods or even on individual pieces of merchandise, giving companies an unprecedented tool for turbocharging a variety of inventory-management, supply-chain and security functions.

Spending on the technology is expected to triple over the next three years, to $3 billion, projects the Wireless Data Research Group. “It’s the next bar code, and because of that, you can’t ignore it,” says Lyle Ginsburg, managing partner of technological innovation for Accenture, the consulting firm. “Many companies don’t really have a choice whether to deploy. It’s more how and when.” Indeed, some of the economy’s biggest purchasers are forcing much of the action. Wal-Mart is requiring its 100 largest suppliers to be RFID-capable by Jan. 1 for shipments to the retailing giant’s Texas region. The Department of Defense, as well as other major retailers including Target and Metro, the large European mass merchandiser, have set imminent supplier deadlines of their own. Seeing this, IBM recently announced plans to invest $250 million over the next five years and hire 1,000 people to develop and promote RFID applications. Recognizing that small and midsize businesses will have an even tougher time with this technology, Microsoft has been testing an RFID software solution for that market and plans to incorporate it into upcoming releases of its enterprise resource planning solutions.

Compliance incentives aside, many early adopters are acting for strategic reasons as well, confident they can gain big competitive advantages by integrating RFID into their supply chains as quickly as possible.
- Johnson & Johnson and a handful of other drug companies are in the midst of a $3 million test of RFID for tracking products and protecting against counterfeiting and package tampering.
- Delta Air Lines is investing up to $25 million to use RFID to track all domestic luggage over the next two years.
- And Harley-Davidson—one of about 30 Wisconsin manufacturers working out their approaches as part of a statewide RFID consortium—is considering RFID to better match motorcycle engines with bodies in the assembly process.
- After two years, Hewlett-Packard already is so far along in using RFID to track shipments of printers and servers that it is helping some retail customers, even at the CEO level, with their own implementations

Individual RFID tags still cost at least 25 cents apiece, indicating a significant and continuing added expense that doesn’t attend to bar codes. Stubborn technical issues remain that make it difficult for RFID to operate around some wooden pallets or to read tags on containers made of metal or filled with liquid. Consultants who can help companies plug into the RFID world are in short supply. Another signal that the technology is in its infancy stage is the fact that RFID systems will produce way more data than companies possibly can sift and winnow for truly valuable insights—they generate as much as 100 times more information than traditional bar-code technology. Technical standards still aren’t in place to ensure that an RFID system that works for one customer will work for all the others. The entire field remains in its early stages, meaning the longer CEOs can wait to make outlays on the technology, the more the quality of RFID systems will improve and costs will come down.
(Part II shall follow.)

Sunday, November 07, 2004

RFID: Thinking Outside the Closed Loop

Strategy + Business says based on survey results that,despite excitement over RFID technology and its future promise, most companies currently lack a business case to adopt it anytime soon. Excerpts:

Major retailers, such as Wal-Mart, Target, and Best Buy in the United States and Metro Group in Germany, have established full-fledged programs in which some or all of their suppliers will be required to put chip-driven tags on product pallets or cases, so shipments can be better tracked from warehouse to store shelf. These tracking applications, and similar ones developed by the U.S. Department of Defense, the U.S. Food and Drug Administration, Boeing, and Airbus, to name a few of the organizations using this technology, hint at the beginnings of a critical mass for RFID. Falling chip prices — from 40 cents a few years ago to as little as 20 cents per chip today — are also spurring such high-tech firms as Intel and SAP to announce significant investments to further develop the technology.
Our survey conducted with the M-Lab at Switzerland’s St. Gallen University suggests that there is significant ambivalence among companies about RFID technology. They are excited about its future possibilities, but disappointed in the lack of a business case to adopt it anytime soon: Sixty-seven percent of the companies we surveyed said that RFID technology is strategically important for the development of their business, but fewer than 20 percent said they were earmarking more than €500,000 ($617,000) for RFID initiatives.
The problem is that RFID currently produces an obvious return on investment only in so-called closed-loop applications, such as asset management, or in an assembly line that operates solely within a single plant and doesn’t require open transmission of data or supplies among internal or external business partners. In closed-loop RFID applications, which the automotive industry has been using for several years, both the product being manufactured and the component materials are tagged with chips so computerized readers can automatically identify the item being built, which options the customer ordered, and which parts should be installed. One automotive manufacturer we interviewed said that before the company deployed RFID, the error rate in assembly (e.g., the number of missing parts or wrong parts) was around 50 percent. Now, with RFID, plant process efficiency has improved significantly. Further, ongoing system costs after the initial investment are relatively low because RFID chips can be reused.
Contrast this with an open-loop application being used in the supply chain initiatives led by Wal-Mart and Metro, which involve the stores and their suppliers. In those instances, the high initial investment in chips placed on pallets and crates, RFID readers, and software to integrate the data with corporate networks has discouraged suppliers from doing much more than slapping RFID tags on shipments. So has the lack of easy-to-develop procurement and factory applications to make use of this information.
The retailers (which don’t shoulder the cost of purchasing tags) can make immediate use of the RFID data of course, using it to ensure that store shelves and warehouses are constantly stocked and to make more accurate forecasts based on real-time sales data. Because retailers, not suppliers, stand to reap instant benefits from the new systems, they are dictating the rollout of RFID. RFID represents a supply chain infrastructure investment with a benefit that increases exponentially as the reach of the system broadens. If RFID allowed suppliers to “eavesdrop” on the sales and movements of their products minute by minute or to learn the exact location of raw materials in transit from Asia, the technology could, in many cases, pay for itself. But this would also require applications capable of handling a remarkable amount of network and data interaction between partner companies around the world.
Currently, there are many competing standards for RFID hardware, software, and data management. This makes it difficult to set up a network in which the systems of multiple organizations would be compatible. According to our survey, only 8 percent of companies have begun centrally coordinated efforts to embed RFID into overall strategic planning within the firm and with supply chain partners; 48 percent of the companies to which we spoke said they’re still doing individual closed-loop projects. Moreover, because barcoding has helped warehousing and transportation companies continuously improve shipment tracking, 99 percent of shipments are already delivered problem free, limiting RFID’s added value.
To give customers what they want when they want it — customized, quickly, inexpensively, and efficiently — companies must know the status of supplies, inventory, manufacturing, and shipments almost to the moment. RFID could become the spy on the supply chain that every company wishes it had.

Tuesday, November 02, 2004

Logistics Outsourcing Is An Important Driver Of Topline Growth & Corporate Strategy, According To New Global Study

RFID weblog says,Third-party logistics providers have to get on board with RFID to meet their customers' demands. Excerpts:
Third-Party Logistics Providers Moving Forward & Are Beginning to Show Signs of Maturity, But Radio Frequency Identification Beckons as a Challenge & Opportunity. Third-party logistics (3PL) providers have expanded their service offerings well beyond transportation management to manage complex global supply chains, but they must adopt innovative and leading solutions like radio frequency identification (RFID) to continually deliver better results while accommodating ongoing customer demands. These are some of the key findings from the 9 th annual report on third-party logistics trends and issues.
Even in successful relationships, customer demands for 3PL performance and sophistication are on the rise, making improvements and investment in those areas imperative. The overwhelming number one IT-based 3PL service needed in the future by all regions is RFID (North America 53%, Western Europe 61%, Asia Pacific 59% and Latin America 48%). With many RFID supplier mandates scheduled to be launched in 2005 including Wal-Mart and the US Department of Defense, users clearly see a big challenge and opportunity for 3PL providers to assist them with the implementation of this capability. “This year’s study suggests 3PL customers throughout the world seek competency in areas such as operating efficiency and effectiveness, cost management, service delivery, IT and globalization ,” said C. John Langley Jr., professor of supply chain management and 3PL study leader at Georgia Tech. “However, the findings once again show that 3PLs cannot rest on their laurels and need to implement capable IT, institute effective management and relationship processes, integrate services and technologies globally and deliver comprehensive solutions that create value for 3PL users and their supply chains.”
The 2004 study had a number of interesting key indicators and metrics, including:
3PL Overall Trends:
• Western European respondents continue to spend a larger portion of their logistics dollar or euro (61%) on 3PL services than do those in North America (44%) and Asia-Pacific (49%), but Latin American respondents spend more of their logistics budget (65%) on 3PL services.
• Security issues are most prominent among 3PL users in North America and Latin America (69% and 78% respectively).
Logistics Activities Outsourced :
• Globally, the five most frequently outsourced activities to 3PL providers are outbound transportation (80%), warehousing (70%), inbound transportation (67%), customs clearance (56%) and customs brokerage (53%).
• The use of freight bill auditing/payment services is far more prevalent in North America (53%) than in Western Europe (19%), Asia Pacific (8%) and Latin America (11%), while cross-docking/shipment consolidation is more prevalent in North America and Western Europe than Asia Pacific or Latin America.
3PL Service Offerings & Technology :
• In terms of primary sources of IT solutions, the highest percentage of respondents in each region indicated they turn to internal resources for technology (North America 43%, Western Europe 41%, Asia Pacific 19% Latin America 34%), but the regions with the highest percentage (19%) of users turning to 3PL providers as their primary source of IT were North America and Latin America.
• Transportation management technology from a 3PL provider is the most used by Western European respondents (80%) and the least used by North American respondents (53%)
• About half the users in Latin America and Asia Pacific use Web-enabled communications from a 3PL provider , compared with 61% and 65% of the users in North America and Western Europe respectively.
• A third of the Latin American respondents indicated that they use their 3PL provider’s customer order management systems. None of the other regions are over 20% in this category.
Management Relationship Issues :
• In terms of 3PL deal structures, North America clearly preferred cost-sharing arrangements (48%), Western Europe participates heavily in cost-sharing but stands above all other regions with risk/reward sharing programs (46%), and Latin America has significantly more joint ventures (29%).
• Only 54% of all respondents feel like 3PL providers would be able to keep up with the challenges of global supply chain integration, down from 86% in last year’s survey.
Customer Value Framework :
• When comparing quantifiable measures of 3PL success, logistics cost reductions across all regions averaged more than 10%, while the fixed logistics asset reduction reported by North America was 16% with the percentage reductions in the other regions were somewhat higher, led by Latin America at 41%.
• Overall inventory reductions ranged from 7% in North America to 16% in Latin America, while cash-to-cash cycles dropped as a result of 3PL use, with the number of days reduction ranging from 2.4 days in North America to approximately 10 days in Asia Pacific.
Views of Non-Users :
• In all regions, the four biggest reasons why non-users did not use 3PL services were: logistics is a core competency; logistics is too important to outsource; costs would not be reduced; and control would diminish.
“The three to five year outlook for 3PLs centers around their continued evolution toward a broad supply chain solution provider versus a transportation and warehouse provider, ” said Mark Colombo, Vice President of Strategic Marketing and Corporate Strategy and 3PL study leader for FedEx Corporate Services . “The study showed that 3PL providers should benefit from increased outsourcing of transaction-based user activities.”
“This study documents the increased interest and sustainability of truly collaborative relationships between 3PL providers and their customers,” said Greg Cudahy, global supply chain leader for Capgemini. “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, including the next generation of RFID pilot programs.” “ While 3PL’s clearly provide good service to their clients today, they have considerable challenges ahead when it comes to IT,” said Erik van Dort, global distribution sector and 3PL leader for Capgemini. “This is caused by a large backlog of legacy systems, while they are faced with significant technology solution demands for areas like Transport Management and RFID. In addition, the global players need to free up considerable resources to standardize and modernize their IT systems and processes in their expanding global footprint.”

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