Growing satisfaction with IT skills of 3PL providers

LONDON, UK: The number of users satisfied with the IT capabilities of third-party logistics providers (3PLs) is up 7 percent after four years of decline according to a new survey. The study, ‘2007 Third-Party Logistics’, is the twelfth in a series of studies on the state of logistics outsourcing and the first to show a rising level of satisfaction.

‘2007 Third-Party Logistics’ a web-based survey of 1,568 logistics executives from 61 countries shows that the gap is now shrinking between IT expectation and IT performance. Satisfaction hit an all-time low of 35 percent in 2006; this has now increased to 42 percent in 2007, while the expectation percentage remained the same at 92 percent; resulting in a shrinking of the IT expectation/performance gap. However, 3PL providers should not become complacent; IT performance and insufficient IT capability continues to be one of the top three performance issues recorded.

As in 2006, visibility tools (91 percent) and Web-enabled communications (88 percent) are the top two technologies that 3PL users would like to add to their current capabilities, yet there has been a limited increase in usage. RFID remains the technology with the highest future expectations and this year’s survey recorded a marginal increase from 12 percent (2006) to 14 percent (2007) in the use of 3PL-provided RFID technology. However, this percentage is far lower than the 56 percent of 3PL users, which expect more from this technology in coming years.

Erik Van Dort, Global Distribution Leader at Capgemini, said: "IT skills are key to the success of third-party logistics providers, yet there is a significant gap between the services required and those provided. To maintain a competitive edge, 3PL providers must take action. Many 3PL providers recognise the value of standardised IT processes and the impact on adoption rates. However, it is difficult to improve performance without a formal agreement. IT is still the least favourable option for inclusion in a contract, despite effective contracting practices being named as one of the most important factor for success with 3PLs, second only to 'personal relationships at an operational level'."

Additional trends in the outsourcing of third-party logistics identified in the study include collaboration; developments in emerging markets; and industry-specific trends. Key findings include:

Disconnect between the desire and the ability to work collaboratively

The model most often followed for collaborative practices does not usually work. To be effective, collaboration must go beyond vague expressions of partnership and aligned interests. The collaboration process should not only involve 3PLs and their customers, but the customers’ trading partners, suppliers and other key stakeholders -– a dialogue that should be facilitated by 3PLs. Beyond relationships, strong processes and use of technology are essential for continued success, most evident in business processes such as inventory management.

China remains a top expansion destination but proximity increasingly influences choice

Preferred outsourcing destinations increasingly reflect locality; for example, European respondents are much more interested in expanding in Eastern Europe. Overall, satisfaction with the performance of 3PL providers in emerging markets is lower than customer satisfaction measured across all markets.

Interestingly IT is rated as more important in emerging than in mature markets.

However, there are clear differences between the two biggest emerging markets India and China. In India, the biggest challenge is the poor infrastructure with 33 percent experiencing issues; this is followed by the inability to deliver against promises (23 percent). In China, the latter is considered the biggest problem (25 percent), followed by legislation (22 percent).

Moreover India is not following the classic Asian strategy for growth. Unlike China, a global exporter of manufactured goods, India dominates in global process outsourcing, while manufacturing is more oriented toward the domestic market. This is clearly reflected in the rankings: China is currently the third-largest export country and is set to overtake the US soon, closing in fast on the number one country (Germany); whereas India is ranked 28th. The study also shows that China is increasingly being seen as a new sales territory.

Outsourcing logistics market is growing but there has been little change in industry trends and processes

The study shows little change in the logistics activities outsourced; the most frequently outsourced services include domestic and international transportation (83 percent and 79 percent, respectively), warehousing (69 percent), customs clearance and brokerage (67 percent), and forwarding (51 percent). While customer-related and strategic roles continue to be the least frequently outsourced. Selection processes also remain largely the same; as in 2006 the two most prevalent 3PL selection factors were the price of 3PL services (87 percent) and quality of tactical, operational logistics services (87 percent).

"Though the overall picture is similar to last year, it has become clear that collaboration between customers and 3PL providers is a key driver for success," said Sven Hoemmken, Global Head of Marketing Services, DHL Global Customer Solutions. "It is critical for all parties to take a more active role in 3PL relationships, but customers evidently want 3PL providers to carry more of the risks. Ultimately, it is their responsibility to keep supply chain management simple and priced right for the customer."

A total of 1,568 logistics executives from 61 countries participated in the Web-based survey. The majority were located in four major geographies of interest: North America, Europe, Asia Pacific and Latin America. The findings were then supplemented with the results from in-depth discussions with participants in three workshops on three continents. Survey recipients were asked to think of a 3PL as a company that provides multiple logistics services for its clients and customers; 82% of recipients were classified as users of 3PL services.

About the Georgia Institute of Technology

The Georgia Institute of Technology, located in Atlanta, is a leader in logistics and supply chain and logistics education. Through its School of Industrial

and Systems Engineering (ISyE) and the Supply Chain and Logistics Institute (SCLI), Georgia Tech is committed to serving logistics educational needs

through its degree programs and its comprehensive professional education program. Georgia Tech also conducts a fully accredited Executive Masters in

International Logistics (EMIL) program, a Supply Chain Executive Forum, and a Leaders in Logistics Research Program. Global involvement is facilitated

through The Logistics Institute Asia-Pacific, a program in partnership with the National University of Singapore. For more information, please visit

www.isye.gatech.edu and www.scl.gatech.edu, as well as www.scl.gatech.edu/scef for information about the Supply Chain Executive Forum at Georgia

Tech.

About C. John Langley, Jr., PhD

Dr. C. John Langley Jr. is The Logistics Institute Professor of Supply Chain Management and a member of the faculty of the School of Industrial and

Systems Engineering at the Georgia Institute of Technology. He serves as Director of Supply Chain Executive Programs at Georgia Tech and as Executive

Director of the Supply Chain Executive Forum. Dr. Langley is a former President of the Council of Logistics Management and a recipient of the Council’s

Distinguished Service Award. The Richmond Events Logistics and Supply Chain Forum named him one of the “Outstanding Logistics Professionals” in 2004.

Dr. Langley received the Ph.D. degree in Logistics from Penn State University, and he is a noted author and frequent presenter at professional meetings

and forums. He is a co-author of Supply Chain Management: A Logistics Perspective (8th edition forthcoming in 2007), as well as a number of other

textbooks. In addition to his university duties, Dr. Langley consults with both logistics user and provider firms, and serves on the Boards of Directors of

several major corporations.

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