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.”