2010 3pl report public

8/7/2019 2010 3PL Report Public

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2010 C. John Langley, Jr., Ph.D., and Capgemini. All Rights Reserved. No part of this document may be reproduced, displayed, modified ordistributed by any process or means without prior written permission from Capgemini. Rightshore is a trademark belonging to Capgemini.

Abot the Images: Pzzling Logistics Challenges

A puzzle is a question, problem or contrivance designed for testing ingenuity. A brain-teaser is something (as a

puzzle) that demands mental effort and acuity for its solution. Supply chain executives are challenged to put their

puzzle-solving skills to the test to surmount the many issues impacting logistics and supply chain management in

2010 and into the future.


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cTT

Executive SummaryLife Sciences

About theStudy

About the

Sponsors

Credits

Fast-MovingConsumerGoods

StrategicAssessment

Current State ofthe 3PL Market

Total LandedCost

SuPPORTING ORGANIATIONS


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This 2010 15th Annual Third-Party Logistics Study, basedon researh onduted in mid-2010, examines theurrent state of the oba market for 3pl servies, and

exores in deth issues surroundin tota anded ostauation. The reort aso onsiders su hainissues, inudin the roe of 3pls in two vertia markets,life ienes and Fast-Movin consumer goods.

The 2010 3PL Studyaffirms that shiers reardoistis and su hain manaement as ke to theirsuess, and man redit 3pls with hein them toahieve ritia servie, ost, and ustomer satisfationoas. esuts are based on resonses from 1,1333pl users and non-users, as we as 3pls, whih wereadded for the first time to the surve rou in 2009.

inifiant unertaint about the oba eonomontinues to imat oistis sendin and use of 3pls.esondents devote an averae 11% of their omaniessaes revenues to oistis, and an averae of 42% of thatis direted to outsourin of oistis servies. That is 10to 15 erentae oints ower than in reent ears, andma mean that on averae, shiers were abe to saebak their exenditures for 3pl servies faster than thewere abe to sae bak their tota oistis exenditures.t the same time, 65% of shier resondents reortan inrease in use of outsoured oistis servies; theseshiers ma have inreased outsourin in omarison

to insourin, but their overa send on 3pls ma havedereased due to a number of fators. Both shiersand 3pls reort some onsoidation of 3pl usae.

heath 89% of shier resondents view their3pl reationshis as enera suessfu. leadinontributors to this suess are oenness, transarenand ood ommuniation, aiit and fexibiit, and aninterest in ainsharin and oaboration. owever, aersistent a between the ratins that shiers and 3plsassin to various asets of the 3pl-shier reationshishoud be an ee oener for 3pls. n ontrast, 2010

marks the third onseutive ear of a narrowin of the Tcaabiit ga the differene between shiers viewof the extent to whih T is a neessar eement of 3plexertise, and their satisfation with 3pls T aabiities.

hiers ontinue their tenden to outsouretransationa, oerationa, and reetitive ativities andess so those that are stratei, ustomer-fain, and

T-intensive, desite the are ortion of 3pls offerinman or a of the 16 servies overed in the surve.

TOTAL LANDD COSTn the 2009 Third-Party Logistics Study, 64% of shierresondents ited tota anded ost (Tlc) reortinand anasis as a ritia aabiit the woud ike tosee in their 3pls. This stron interest in tota andedost the sum of a osts assoiated with makinand deiverin roduts to the oint where therodue revenue suested we take a deeer ook.

The mriad benefits of aurate Tlc auationsinude more aiit and onfidene in deision-makin, better insiht into the finania erformaneof roduts and artners, and su hain visibiit.Just under haf (45%) of shier resondents reortextensive use of Tlc, athouh eretions ike differon what onstitutes extensive use. lak of neessardata or toos ead the ist of reasons not to use Tlc.

hiers most ommon use transortation, unitrie, tariffs/taxes and warehousin osts as fatorsin Tlc auation, and are most interested in addinarbon imat. readsheets and interna deveoed

toos are the most wide used Tlc auators, butas Tlc rows in imortane, some shiers and3pls are movin to more sohistiated ommeriaavaiabe Tlc auators and advaned suhain network modein and otimization toos.

Just 23% of 3pl resondents reorted extensiverovidin Tlc anasis/reorts to their ustomersand man exress interest in enain in Tlcefforts. owever, 58% of these 3pls sa shiersare hesitant to share information with them.

Transformin from basi to more sohistiated Tlcaiation requires c-eve eadershi, roess haneand sstems transformation, and must be aroahedas an evoutionar, rather than revoutionar, roess.

XcUTV

UMMyThe State of Logistics Outsourcing in 2010

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LIF SCINCSThe U $1.2 triion oba ife sienes industrrodues mediines and devies essentia torestorin or maintainin ood heath. carefu,exedient and sometimes temerature-ontroed handin an be ritia for rodut safet.Beause of this, ontro and visibiit is essentia.

life sienes su hain haenes inuderodut interit and omiane requirements, aninherent omex tradin artner eosstem, anddemandin ustomer servie and ost requirements.

himent visibiit, quait and omiane roedures,strinent inventor ontro, temerature ontroaabiities and seurit are imortant stes to ensurerodut interit, revent ounterfeit and diversionand to ensure safe assae. Fu 62% of ife sienesshiers ite ensurin rodut quait as a sinif ianthaene and rank quait roedures hih (70%)

as a servie the want 3pls to rovide, athouh just45% of 3pls urrent rovide them. bout hafof shier and 3pl resondents aree that there isa stron business ase for F in ife sienes.

Fift-four erent of ife sienes shier resondentssa the omex su hain mode reresentsa sinif iant haene, with 87% sain 3plsan add sinifiant vaue b inkin a artiesthat interat in the ife sienes su hain.

The sometimes ritia nature of ife sienes roduts

aentuates the need for fexibe and resonsive suhains. chaenin shier servie requirementsinude rea aabiit, next fiht out/ate ut-offsand redundant stok oations. bout a third of shierresondents indiate that maintainin hih eves ofinventor to ensure avaiabiit is a to oisti haene.

FAST-MOING CONSuMR GOODSlare voumes and ow marins mean fast-movinonsumer oods omanies must resond quik todeiver in-demand, on-trend roduts to inreasindemandin shoers. o after reduin osts, theiroistis to riorities inude erfet order fufiment

(87%), raid sensin and resondin to hanes inonsumer demand (83%) and shortenin new roduttime-to-market and su hain interation (81%).consumers inreasin ook for sustainabiit, drivinshiers interest in strateies suh as imrovinshiment densit and oad utiization (87%).

Fast-movin onsumer oods shiers and 3pls areeon to oistis haenes, but have some diverentviews of the roe 3pls an a in hein shiersaddress them. Both see 3pls hein with shimentdensit/oad utiization, reduin oistis osts and

uttin a su hain disrution/mitiation stratein ae, but shiers are ess ike than 3pls tosee 3pls ain a roe in shortenin new roduttime-to-market and su hain interation.

hiers are invovin 3pls in ost-redution strateiesess often that one miht exet, artiuar inimrovin foreastin and v isibiit and redesininthe su hain network. 3pls ereive themsevesain a muh arer roe in ost redution efforts erhas another sin of onoin trust issues.

Fast-movin onsumer oods omanies effortsto redue oistis osts inude warehouse andtransortation sharin. Two-thirds of those enainin these strateies have reonized ost savins,but the eve of savins have been imited (58% ofresondents reonize ess than 5% ost savins).

STRATGIC ASSSSMNTnusion of 3pls in the surve rou for the Annual3PL Studybeinnin ast ear was intended to heexore both sides of the 3pl reationshi, andindeed, resuts revea some disarate views. Mostnotabe is the 68% of shier resondents, versus

95% of 3pls, whih indiate that 3pls rovideshiers with new and innovative was to imroveoistis effetiveness. But 3pls sa its dif fiutto be more innovative uness shiers are moreoen in sharin their haenes and strateies.

s eonomi onditions imrove the timehas ome to ook bak and onsider the roe3pls aed in hein shiers weather thestorm. nreased use of outsourin and hihsatisfation eves suest that 3pls an ertaintake some redit for their ustomers resuts; now

its time to doument the essons earned.

nother issue emerin as onditions imrove isthe imat this wi have on the non-asset ownin3pl setor (the majorit of 3pls), inudinaait imitations of asset-based roviders andonsequentia imats on riin and avaiabiitof needed servies. ow wi this affet 3pls andshiers abiit to roure needed servies?

esite the haenes, 3pls aso have the oortunitto ontinue to mature and row b offerin vaue-added oortunities reveaed in this reort,

inudin atin as a earinhouse for e-edireeand temerature trakin data, unoverin resoure-sharin oortunities for shiers and rovidintota anded ost auation as a servie.

When shiers or 3pls hesitate to share ideas ofa stratei or oerationa nature with eah other,the ut u hurdes that are ver diffiut to ear.The future rowth and deveoment of the 3plsetor deends on both arties to aroah theirreationshis with an oen and oaborative siritin order to onetuaize and imement innovative

soutions to oistis and su hain robems.

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Third-art oistis roviders ontinue to rovidestratei and oerationa vaue to man shiersthrouhout the word, as reaffirmed b the findins of

the 2010 15th Annual Third-Party Logistics Study. hiersreard oistis and su hain manaement aske omonents of their overa business suess,and man of them redit their reationshis with3pls with hein them to ahieve ritia oasreated to servie, ost, and ustomer satisfation.

These resuts are based on surve resonses froma tota of 1,133 industr exeutives reresentinusers and non-users of 3pl servies (referred to asshier resondents throuhout this reort), aswe as firms that rovide 3pl servies (aed 3pl

resondents). 3pls were added to the surve rouin 2009 to he obtain information from both sidesof the buer-seer reationshi. pease see bout thetud on ae 44 for more information about surveresonses and the four streams of researh used tofu anaze the state of the 3pl market: a web-basedsurve, desk researh, fous interviews with industrexerts, and a faiitated worksho with shiershed at the eefortransort 3pl ummit in tanta.

CuRRNT GLOBAL CONOMICCLIMAT AND uS OF 3PLSver the ast two to three ears, shier-3pl

reationshis have been affeted sinif iant bthe revaiin unertaint and eonomi voatiitimatin oba markets. Figure 1 inudes datadeveoed b rmstron & ssoiates that estimatesthe manitude of oba 3pl revenues (U $507.1biion) and rovides breakdowns for the fourmajor eorahies that are inuded in the 20103PL Study. rmstron & ssoiates aso reorts that3pl revenues in the U deined from U $127Bin 2008 to U $107B in 2009, but were exetedto inrease to U $121B in 2010. Whie the astoue of ears have been haenin for the oba

eonomi iture, the near-term outook is for amodest omebak to rowth in the 3pl setor.

TH CHALLNGS CONTINune major urose of the 2010 3PL Studyis to betterunderstand how shiers and 3pl roviders are

ontinuin to adat and imrove, abeit within anenvironment that sti inudes sinifiant eonomiunertaint. dditiona, the haenes of suhain orhestration rethinkin su hain hoiesas onditions hane and of struturin andsustainin suessfu 3pl-ustomer reationshis aresti on the front burner. vera, there is inreasinarit on the extent to whih ometent oistisand su hain raties an ead to oranizationaeffiien and effetiveness. t is aso beomininreasin evident that the effetive use of outsouredoistis servies an be a ke to this suess.

s one su hain exeutive ut it, todas businessesare faed with sinifiant eonomi voatiit, andthe abiit to be haneabe and adatabe is ear arimar fator for suess. so inuded amon thesefators is the abiit to struture and imrove suhains that an adat and evove as business needs andenvironmenta fators require. The use of 3pls an bea ver usefu resoure to omanies who are strivin tokee their su hains urrent, fexibe, and adatabe.

cUT TT

T 3pl MTShippers Continue to Rely on 3PLs to Help Address Economic Volatility

of

FIGURE 1

goba 3pl evenues for 2009

Region2009 Global 3PL Revenues

(US$ billions)

North America 128.1

Europe 162.3

Asia-Pacific 136.7

Latin America 27.6

Other Regions 52.4

Total 507.1

Source: Armstrong & Associates, Inc., 2010

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SPNDING ON LOGISTICS AND 3PL SRICShier resondents to the 2010 3PL Studydevote anaverae 11% of their omanies saes revenues to totaoistis exenditures (amounts sent on oistisin 2009). The rane amon reions studied was afair tiht 9% to 13%. For uroses of this surve,tota oistis exenditures inude transortation,distribution, warehousin and vaue-added servies.

f this tota, an averae of 42% is direted to outsour-in. n reent ears this number was aroximate10-15 erentae oints hiher, deendin uon thereion studied. ne ossibe reason for this urrentfindin is that averae exenditures for outsouredoistis servies ma have dereased reent at afaster rate than did tota oistis exenditures mean-in that on averae, shiers were abe to sae baktheir exenditures for 3pl servies faster than thewere abe to sae bak their tota oistis exendi-tures. verae erentae of oistis sendin devot-

ed to outsourin b reion are: orth meria 35%;uroe 49%; sia-paifi 51%; and latin meria 41%.

Longevity of 3PL Use:Figure 2 reveas how manears shiers have used 3pl servies. hierresondents ear have sinifiant exeriene overman ears with outsourin oistis servies, withan averae of 13 ears, and 52% have used 3pls ofsome te for 11-30 ears. uroean shiers aremost ike to have used 3pls for 11-30 ears (57%),and latin merian shiers are the east ike(48%). comarabe fiures for orth meria

and sia-paifi are 50% and 54%, resetive.

Changing Use of 3PL Services: sinifiantnumber of shiers are shift in their use of 3pls:

Increasing use of 3PL services: vera, 65% ofshier resondents reort an inrease in their use ofoutsoured oistis servies, and 78% of 3pl reson-dents aree this is what the are seein from theirustomers. eiona, 57% of orth meria shi-ers have inreased use, as we as 65% of uroeanshier resondents, 81% of sia-paifi and 69% oflatin merian shiers. ne imortant oint tokee in mind is that shiers reortin an inrease inthe use of outsoured oistis soures ma haveinreased outsourin in omarison to insourin,but as reorted earier, the overa send on 3pls mahave dereased due to a number of fators. Forexame, the fees some shiers are ain for 3plservies ma have deined, and some ma be han-in the mix of 3pl servies the urhase and use.

Returning to insourcing: n averae of 24% ofshier resondents are returnin to insourinsome of their oistis ativities, and 36% of 3plresondents observe that some of their ustomersare insourin ertain oistis ativities.

Reducing or consolidating the number of 3PLs used:ear one-haf (46%) of shier resondents areonsoidatin the number of 3pls the use, and 73%of 3pls fee that ustomers in enera are reduinor onsoidatin the number of 3pls the use.

Based on these resuts, it seems that whie someshiers are onsiderin a return to insourin of someoistis ativities, the redominant diretion is to movetoward inreased use of outsoured oistis servies,onfirmin findins aso reorted in the 2009 3PL Study.

3PL-SHIPPR RLATIONSHIPS: CONTINuDPROGRSS AND IMPROMNTvera, 89% of shier resondents view their 3plreationshis as enera suessfu, omared with97% of 3pl resondents; both fiures are onsistentwith revious ears resuts for this stud. hierfindins b reion are: orth meria 92%; uroe

87%; sia-paifi 90%; and latin meria 83%.

so, 68% of shier resondents indiate that 3plsrovide them with new and innovative was to imroveoistis effetiveness, whereas 95% of 3pl roviders feethe rovide ustomers with new and innovative was toimrove oistis effetiveness. ain this ear theseond ear 3pls were inuded in the surve there is aersistent a between the ratins that shierresondents assin to various asets of the 3pl-shierreationshi and somewhat more ositive evauationsrovided b the 3pl resondents themseves. This a

shoud be an ee oener for man 3pls, and ma be dueto a ereived ak of innovation and ro-ative,ontinuous imrovement suestions b 3pls, exoredfurther in the stratei assessment hater.

FIGURE 2

hiers eort inifiant lon-

Term xeriene Usin 3pls

21-30 Years17%

1-3 Years10%

4-7 Years15%

8-10 Years23%

11-20 Years35%

Average Number of Years = 13 Years

Source: 2010 15th Annual Third-Party Logistics Study

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Success Factors: urve findins suest that a numberof eements make for the most otima 3pl-shierreationshis:

Openness, transparency and good communication:70% of shier resondents and 64% of 3pls reortthe are satisfied with this fator as ontributin tosuessfu exerienes with eah other. ne imortantobservation is that 3pls are ess satisfied with theseattributes of reationshis with shiers than shiersare. This findin wi be ose traked in futurestudies to see if 3pls and shiers are abe to ahieve ahiher eve of rofiien in meetin these objetives.

Agility and flexibility to accommodate currentand future business needs and challenges:esonses to this statement revea a ver strikindifferene between how shiers and 3pls ereiveone another. eifia, 72% of shiers areetheir 3pls are suffiient aie and f exibe to

aommodate their urrent and future businessneeds and haenes, whereas 98% of 3pls reortthe are exeted b their ustomers to be aabeon this dimension. ne interretation of theseresuts is that whie 3pls reonize the objetivesto be met, there is room for imrovement.

Interest in gainsharing between 3PLs andshippers: thouh the struture of this questionwas modif ied somewhat for the 2010 3PL Study, justover one-haf of shier resondents (56%) havebeome more interested in ainsharin, and 52%

of 3pls resondents aree that their ustomershave beome more interested in ainsharinarranements. considerin these erentaes, andiven some of the disussions with industr exertsthrouh the fous interview roess, it aears thatreent eonomi events have resuted in a reaterinterest on the art of shiers to share risk as animortant attribute of a suessfu reationshi.

ne retaier omments, eotiatin, trakin,and manain ainsharin areements isdiffiut. t ma require sinifiant investment bthe 3pl that is hard to reover, eseia if that

aabiit beomes the new what is exeted.

Interest in collaborating with other companies,even competitors, to achieve logistics cost andservice improvements: sked for the first timeabout this issue, 68% of shier resondentsand 80% of 3pls exressed interest in thesestrateies. considerin the otentia benefitsto both shiers and 3pls that an resut fromoaboration, it is reassurin to see erentaesthat suest a true interest b both arties inworkin with other omanies, even ometitors.

ne ossibe exanation for this is that theoba eonomi reession has made it ver earthat omanies of a tes need to take whatever

stes are ossibe to redue ost and enhaneservie and that the onet of oaborationof eoe, roess, and tehnooies an hesinifiant in ahievin these objetives.

Measurable Benefits: s seen in Figure 3, shier res-ondents reort measurabe benefits from 3pl servies.Metris reatin to oistis ost redution, oistisfixed asset redution, and inventor ost redution areonsistent with what was reorted in 2009.

Users reort imrovements in order e time, orderfi rate, and order aura resutin from use of 3pls,however the absoute eves of these metris are somewhat

ower than those reorted in the 2009 3PL Study. ain,the imat of the oba eonomi reession ma beresonsibe here, and it wi be imortant to ook atthese hanes one aain in next ears 2011 3PL Study.

Fina, 60% of the shier resondents reort thattheir use of 3pls has ed to ear-over-ear inrementabenefits, however, on 52% of the 3pl resondentsaree. This resut is atua a bit unusua, in that theshier averae is hiher than the 3pl averae. neossibe exanation is that 3pl roviders see reateroortunities for imrovement in ear-over-ear

inrementa benefits, thus the ower averae reortedfor this question.

FIGURE 3

hiers eort Measurabe

Benefits from Use of 3pls

Results All Regions

Logistics Cost Reduction (%) 15%

Logistics Fixed Asset Reduction (%) 25%

Inventory Cost Reduction (%) 11%

Average OrderCycle Length

Changed From 17 days

Changed To 12 days

Order Fill Rate

Changed From 73%

Changed To 81%

Order Accuracy

Changed From 83%

Changed To 89%


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Information Technology:Figure 4 rovides a nine-

ear summar of shier resondents oinions onwhether the fee information tehnooies are aneessar eement of 3pl exertise, and whetherthe are satisf ied with their 3pl roviders Taabiities, known as the T caabiit ga. Basedon the information inuded in Figure 4, in 2010there has been imrovement for the third onseutiveear in the erentae of shiers who indiatesatisfation with T aabiities from their 3pls.

This T caabiit ga has reeived onsiderabeattention in reent ears. The narrowin of this

a is onsistent with the findin that 69% of3pls fee their ustomers are satisfied with the Tservies 3pls rovide. thouh this fiure is hiherthan the 54% reorted b shier resondentsin 2010 it does indiate a ositive deveoment inthe reationshis between 3pls and shiers.

WHAT 3PL uSRS OuTSOuRC AND WHAT3PL PROIDRS OFFRFigure 5 shows the erentaes of shier resondentsoutsourin seifi oistis ativities. Foowinare some enera observations about the 2010 resutsand the ontrasts the revea from revious ears:

The most frequent outsoured ativities tend tobe those that are more transationa, oerationa,and reetitive. These inude domesti andinternationa transortation (83% and 75%aross a reions studied), warehousin (74%),ustoms brokerae (58%), and forwardin (53%).owever, usae varies aross eah of the reions.t is imortant when ookin at these resuts notto think of these ativities as ommodities,even thouh the are sometimes thouht to beommon, routine ativities and roesses. n

fat, some of these ativities are rovided b 3plsin a hih unique and differentiated mannerthat makes them anthin but ommodities.

The ess frequent reorted ativities

indiated in Figure 5 tend to be somewhatmore stratei, ustomer-fain, and T-intensive. These inude: T servies; suhain onsutan servies; order entr;roessin and fufi ment; feet manaement;ustomer servie; and llp/4pl servies.

ain in 2010, the erentaes of 3pl usersoutsourin individua oistis ativ ities (versusovera outsourin) tend to be hiher forresondents from uroe and sia paif i thanfor orth meria or latin meria. s has

been noted over the ast severa ears, the latinmerian market ontinues to rovide sinifiantatitude for inreased use of 3pl servies.

like due to imats of the oba voatiebusiness environment, the erentaes of shiersoutsourin internationa transortation deinedfrom a reorted 84% in 2009 to 75% in 2010.ver the same time frame, the use of ustomsbrokerae deined from 71% to 58% and the useof forwardin servies deined from 65% to 53%.

Transortation and warehouse oerations

send ontinue to dominate the tota oistisexenditures manaed b third arties.

n averae transortation send reresents 54%of tota oistis exenditures. B reion theseerentaes are orth meria 41%; uroe64%; sia-paifi 67%; and latin meria 54%.

Warehouse oerations send reresents anaverae 40% of tota oistis exenditures. Breion, its orth meria 39%; uroe 44%;sia-paif i 48%; and latin meria 27%.

Average expenditures for outsourced logisticsservices may have decreased recently at afaster rate than did total logistics expenditures.

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FIGURE 4

The ga continues Between hier xetations and xerienes

of 3pl T caabiities

100%

80%

60%

40%

20%

0%2002 2003 2004 2005 2006 2007 2008 2009

IT Capabilities a NecessaryElement of 3PL Expertise

Shippers Satisfied with 3PLIT Capabilities

2010

ITGap

89%85%

91% 90% 92% 92% 92% 88%94%

54%

42%37%

42%

35%40%42%

33%27%


FIGURE 5

hiers continue to utsoure a Wide Variet of loistis ervies

Outsourced Logistics Service

User Percentages

All RegionsNorth

AmericaEurope

Asia

Pacific

Latin

America

Domestic Transportation 83% 75% 94% 89% 80%

International Transportation 75 62 89 86 74

Warehousing 74 73 82 77 63

Customs Brokerage 58 57 54 68 65

Forwarding 53 47 54 70 48

Cross-Docking 38 33 47 42 34

Product Labeling, Packaging, Assembly, Kitting 36 32 41 41 34

Reverse Logistics (Defective, Repair, Return) 35 27 47 46 25

Transportation Planning and Management 31 32 32 30 26

Freight Bill Auditing and Payment 28 40 22 23 15

Information Technology (IT) Services 20 20 15 19 25

Supply Chain Consultancy Services Provided by 3PLs 18 20 11 25 17

Order Entry, Processing and Fulfillment 16 17 11 21 14

Fleet Management 15 15 17 14 20

Customer Service 13 9 10 21 15

LLP/4PL Services 13 9 13 16 19


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Figure 6 offers a summar of the tes of oistisservies rovided b 3pls artiiatin in the 2010surve and reveas that man 3pls rovide a wide raneof servies to meet the needs of their ustomers. Torovide some insiht into this thouht, Figure 7 showshow man of the resondin 3pls offer a tota numberof oistis servies from one throuh 16. This dataindiates that it is ver ommon for 3pls to offer man,or even most, of the sixteen servies inuded in thequestion and that the tia mode is for a 3pl tooffer a substantia rane of servies in order to resondeffetive to their ustomers and their oistis needs.

TH OICS OF NON-uSRSOF 3PL SRICSThe annua 3pl surve aso reahes a substantianumber of oranizations who do not urrent use 3pls.These resondents are asked wh the do not hoose tooutsoure at the resent time. s indiated in Figure 8,amon the most ommon reasons are: oistis is a ore

ometen at our firm (19%); ost redutions woudnot be reaized (15%); ontro over the outsouredfuntions woud diminish (14%); oistis is tooimortant to onsider outsourin (13%); servie eveommitments woud not be reaized (11%); and we havemore oistis exertise than 3pl roviders (10%). naddition, 8% of resondents indiate their reason fornot outsourin is that it is too diffiut to interatetheir T sstems with the 3pls sstems.

CuRRNT STAT OF TH 3PL MARKT:K TAKAWAS

e findins reardin the current tate of theMarket for the 2010 15th Annual 3PL Studyinude:

3PLs Are Critical: ain in 2010, omaniesaross industries and around the obe reardoistis and su hain manaement as keomonents of their overa business suess,and man redit their reationshis with 3plswith hein them ahieve ritia oas reatedto servie, ost, and ustomer satisfation.

Share of Logistics Spending is 11%: rossa reions inuded in the 2010 surve,shier resondents reort that tota oistisexenditures reresent an averae of 11% ofsaes revenues, and the send an averae 42%of tota oistis exenditures on outsourin.

3PL Use is Long-Term: genera, most shiershave used 3pls for a sinif iant time, an averae 13ears, and man reort sinif iant oner 3pl use.

3PL Use Increasing: majorit of shierresondents, 65%, are inreasin their useof 3pl servies, whie 24% are insourinsome 3pl servies and 46% are reduin oronsoidatin the number of 3pls the use.

3PL Relationships Seen As Successful: Mostshier resondents (89%) and most 3pl roviders(97%) view their reationshis as suessfu, thouhas indiated in ast ears stud, 3pls tended torovide more ositive ratins of reationshisuess and ower ratins of robems that maree into 3pl-ustomer reationshis. Two-thirdsof shiers sa 3pls rovided them with new andinnovative was to imrove oistis effetiveness whereas 95% of 3pl roviders fee this is the ase.

Many Factors Account for Success: The 2010 3PLStudyrovides insiht into severa fators thatreate to the suess of 3pl-shier reationshis:oenness, transaren, and ood ommuniation;aiit and f exibiit to aommodate urrentand future business needs and haenes;interest in ainsharin between 3pls andshiers; and interest in oaboratin withother omanies, even ometitors, to ahieve

oistis ost and servie imrovements.

3PLs Have Measurable Impact: Metrisinudin oistis ost, fixed asset and inventorredutions due to use of 3pls, and ordere time, order fi rate, and order auravaidate the ost and servie imrovementsresutin from suessfu use of 3pl servies.

Shipper Outsourcing Choices Consistent: Theoistis ativities most frequent outsouredontinue to inude those that are more

transationa, oerationa and reetitive,whie those ess frequent outsoured arethose that are more stratei, ustomer-fainand T-intensive. n the future ustomers maontinue to be more reetive to strateiservies that ma be avaiabe from 3pls.

Transportation Is Most Outsourced: naverae, transortation send reresents 54% ofshier resondents tota oistis exenditures;warehouse oerations reresent 40%.

IT is Key: nformation tehnoo remains a

ke omonent of 3pl-shier reationshis,and the 2010 3PL Studyresuts indiate that aarer number of shier resondents, 54%,are satisfied with 3pl T aabiities, indiatina narrowin of the traditiona T aabiita, but ontinuous investment is needed.

Some Choose Not to Outsource: mon themost revaent reasons wh some f irms hoosenot to outsoure oistis servies: oistis is aore ometen at our firm; ost redutionswoud not be reaized; ontro over the outsoured

funtions woud diminish; oistis is tooimortant to onsider outsourin; servie eveommitments woud not be reaized; and we havemore oistis exertise than 3pl roviders.

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FIGURE 7

Most 3pls ffer a ubstantia umber of ervies

Number

of 3PLs

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

10

0

20

30

40

50

60

70

80

25

1821

25

36

47

55 54

63

74

65

71 70

53

59

67

Number of Logistics Services Offered


FIGURE 6

3pls provide a Wide ane of

utsoured loistis ervies

Outsourced Logistics Service

3PL ProviderPercentages

All Regions

Domestic Transportation 86%

Warehousing 85

Transpor tat ion Planning and Management 7 6

Customer Service 71

Cross-Docking 70

International Transportation 67

Product Labeling, Packaging, Assembly, Kitting 67

Supply Chain Consultancy Services Provided

by 3PLs 65

Order Entr y, Processing and Fulfillment 6 5

Reverse Logistics (Defective, Repair, Return) 62

Information Technology (IT) Ser vices 5 8

Forwarding 56

Customs Brokerage 54

LLP/4PL Services 45

Freight Bill Auditing and Payment 40

Fleet Management 31


FIGURE 8

Wh on-Users o ot Use 3pls

ReasonPercent inAgreement

Logistics is a Core Competency at Our Firm 19%

Cost Reductions Would Not be Experienced 15

Control Over the Out sourced Function(s)Would Diminish

14

Logistics Too Important to Consider Outsourcing 13

Service Level Commitments Would Not Be Realized 11

We Have More Logistics Expert ise Than Most3PL Providers

10

Corporate Philosophy Excludes the Use ofOutsourced Logistics Providers 9

Too Difficult to Integrate Our IT Systems with the3PLs Systems

8

Global Capabil it ies of 3PLs Need Improvement 6

Issues Relating to Securit y of Shipment s 5

We Previously Outsourced Logistics, and ChoseNot to Continue

5

Inability of 3PL Providers t o Form Meaningful andTrusting Relationships

3


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14


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n ast ears 2009 Third-Party Logistics Study, asubstantia number of shier resondents (64%)ited tota anded ost (Tlc) reortin andanasis as a ritia aabiit the woud ike to

see in their 3pls. This suests a stron interestin tota anded ost both as a usefu su hainmetri and as a 3pl vaue-added servie.

We define tota anded ost as the sum of a ostsassoiated with makin and deiverin rodutsto the oint where the rodue revenue.

Tota anded ost is an attrative metri beause itenabes omanies to ature both obvious and hiddenosts assoiated with rodut movement, reveain thetrue ost of sourin and oistis deisions. ee the

box beow for an exame of the otentia imat oftota anded ost.

TTl l cTA Powerful but Challenging Metric

The Impact of Total Landed CostA Swiss industrial company is considering sourcing of a

product from three possible distributors, in China,

Vietnam or in Europe.

At first glance the buying price of the Vietnamese

distributor seems to be the cheapest. However, the cost

of transportation in this case is more expensive than outof China, and the trade agreement between Vietnam and

Switzerland incurs higher customs charges for products

imported into Switzerland (VAT of 7.6% and duties based

on the imported weight).

The European distributor s price is much higher. But

sourcing from Europe means lower transportation cost and

no customs fees, making the total landed cost better than

those of the international distributors. Product quality,

replenishment time, and inventory carrying cost were not

quantified for this example, but the European suppliers

higher quality product and shorter lead times were also

considered factors in its favor.

Country of Origin

Price Components China Vietnam EU

Net purchasing price for a

specific volume of the product

from 3 different suppliers

CHF 10,000.00 8,000.00 12,000.00

Total transportation cost to

Switzerland - Ocean freight

from China/Vietnam - Road

freight within Europe

4,000.00 6 ,000.00 1,200.00

Customs according to trade

agreement1,000.00 1,500.00 0.00

VAT (Switzerland 7.6%) based

on value of goods1,140.00 1,178.00 1,003.20

TOTAL Landed Cost CHF 16,140.00 16,678.00 14,203.20

This exame reveas the tes of unforeseen oststhat an quik inrease the tota deivered ost ofa shiment. Without onsiderin a reevant ostsbefore the urhase is made, a shier ma have

exess rodut or materias that ma be sod at a ossor that otherwise ma rove to be unrofitabe.

owever, auatin the tota anded ost ofmaterias and finished oods is not awas aneas task. iffiut in definin a of the fatorsontributin to tota ost, and then obtainin a ofthat data, an be haenin. Beause of that, tooman businesses re on artia data or inaurateestimates that an ead to inorret resuts.

converse, havin the means to quik and

aurate omute tota anded ost enabesshiers to reaize imortant benefits, inudin:

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Decision-Making More aiit and onfidene in deision-

makin, with the reaization that areevant osts are bein inuded.

Tlc auation an aso he buid a soidbusiness ase to justif to manaement deisionsthat aear to inrease transationa orfuntiona osts but atua minimize Tlc.

Cost Insight Better understandin of ost tradeoffs. For

exame, it ma sound sensibe to use ow ostoean freiht instead of air freiht, but for hihvaue/short rodut ife e roduts the

inventor arrin ost miht be exessive.

arier insiht into iabiities b estimatinarued osts in advane of reeivinsuiers and servie roviders invoies.

Tihter inventor ontro when inventor arrinosts are used as a omonent of tota anded ost.For exame, oner ead times tia equate tohiher inventor arrin ost for both in-transitinventor and c safet stok. vera, hihereves of suier risk an imat tota anded ost.

corret ost dearations to ensure aurate taxauations and exusions, inudin the abiitto adhere to ountr-seifi vaue doumentationin suort of imort dut auations.

Price and Margin Insight More aurate rie-settin and a better

understandin of whih rodut rous oritems are drivin the most marin as we asimroved insiht into the f inania erformaneof ustomers, roviders and other artners.

iher rofit marin. retaier, for exame,miht be wiin to exend reater su hainosts to et a fast fashion item into stores quikto se at a disroortionate hiher rie andsuort a strate to inrease store traff i.

nabin reverse enineerin of a suiers riequote to understand if the rie is ometitive.

n other words, b modein the suiers suhain and estimatin the suiers tota andedost reative to their rie to ou, ou an makea better, more informed sourin deision.

Communication u hain visibiit, as a resut of

interatin aurate ost data from reevantdata soures (inudin third arties),otentia avaiabe in near rea time.

mrovin ommuniation amon searate

oranizations suh as finane, oistis andmanufaturin, whih sometimes oerate as sios.

urate Tlc an deiver sinifiant ometitiveadvantae. n the absene of Tlc ou sti anmake vaid su hain deisions but not otima,sas pasa gieen, iretor M Transort atphiis genera purhasin. Therefore ou needend-to-end visibiit. Tlc an be ereived as thenext eve for su hain ost otimization.

Transitionin to Tlc is a haenin undertakin,but an inreasin imortant one as the dnami

oba eonom throws od assumtions intoquestion. For exame, 53% of 3pls resondentsnote a trend toward their ustomers manufaturinor sourin oser to home to redue tota andedost. ndeed, 21% of orth merian manufaturerssaid theve returned some rodution to orthmeria from ow-ost ountries in the seondquarter of 2010 and 38% were researhin thisstrate for the third quarter, aordin to asurve b MFgWath. This deision requires somemethod of aurate determinin suh osts.

Often 3PLs needto prove that they

are meeting certainservice levels andhave built a long andstable relationshipbefore going into TLC.

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CuRRNT uS OF TLCJust under haf (45%) of shier resondents reortextensive use of Tlc to make deisions (Figure 9). t isike, however, that eretions differ amon reson-dents as to what onstitutes extensive use. nother 41%use Tlc just somewhat for this urose, suestinthere is ent of room to enhane Tlc efforts anda Tlc auations in a more disiined fashion.

minorit, 11%, are makin minima use of Tlc andanother 3% are not usin this metri at a to makebusiness deisions. Figure 9 notes the major reasons forthese resonses, with neessar data is not avaiabeand do not have the riht toos eadin the ist.

Framented T resutin from aquisitions and fun-tiona sios imedes the oetion of oba data essen-tia for Tlc auation. btainin the riht data an behaenin even within a sine atform. thouhsome shiers are usin p sstems, data often is notstrutured ver we and in different databases that arenot inked to eah other, sas amon Vedhuijzen,prinia consutant at caemini consutin. notherimediment, Vedhuijzen adds, is a ak of dee suhain understandin amon some c-eve exeutives.

Most omanies dont have a ororate su

hain manaer who owns Tlc, sas venoemmken, cororate ead of u chain

Manaement for panaina. Tlc is most disersedamonst various funtions in the oman.

ordin to Mark oified, enior Vp, uchain, at The ome eot, the reait is that,everone wants to et there not everone an.

Vertia industries differ in their use of tota andedost auation. ordin to rin Johansson,produt trateist, goba Trade Manaement raelanded cost Manaement, rae cororation,mature industries with marin sensitivit suh asretai, distribution and roess industries, as weas industries with are imort voume suh assome hih teh omanies, ma be heavier users of

Tlc. Manufaturer interest is inreasin as thoseoranizations seek to ower osts and urade sstems.

esite the reative hih number of shierresondents reortin some eve of useof Tlc, the reision and eve of detaiof those auations differs wide.

ordin to caeminis Vedhuijzen, n eneramost omanies dont know how to do it; eseiaTlc auations on a more stratei eve arediffiut. n an oerationa/tatia eve, if we

tak about ustomer rofitabiit, the are usinso aed ativit-based ostin methodooies.

FIGURE 9

ear af of hier esondents Use Tlc cauations

Somewhat41%

None3%

Minimally11%

Extensively45%

49%

48%

31%

27%

Necessary Data is Not Available

Do Not Have the Right Tools

Do Not Have Sufficient

Time for Analysis

Not Sure How to Calculateor Apply Total Landed Cost

% Respondents by Reasons Why They Are Not or Are Minimally Using TLC


17


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nterestin, shier resondents exress a hih eveof interest in fators that are urrent itte-used,artiuar the finania imat of arbon footrint.This ma be beause reen is quik transitioninfrom an area of onern to one of reuation. Theuroean Union has been more roative in emissionsontros, as evidened b their adotion of both theoto protoo and the coenhaen ord. n the Unew reuations in caifornia require oi omanies toreort the arbon intensit of their asoine and diesefue roduts and as of 2011 these omanies muststart reduin intensit or bu a redit that ma eadto hiher osts for ustomers, indiret affetin theirtransortation osts. n addition, the U eurities andxhane commission has aroved a requirementfor ubi owned omanies to disose their arbonrisk exosure as a materia imat to their finaniaerformane. These deveoments im arbon-

based fees wi be ref eted in some of the arestoistis exense ateories suh as transortation.

TH TIP OF TH TLC ICBRGThe rea vaue in tota anded ost auation omesb ombinin ommon known osts the roverbiati of the ieber with ess obvious soures of ost. sseen in Figure 10, transortation, unit rie, tariffs/taxes and warehousin osts are the most often used inTlc auations.

n our resuts, however, some fators seem to be itedb a hiher erentae of resondents than one woudexet, suh as inventor arrin osts. everaother studies ometed over the ast three ears havereorted a muh ower use of inventor arr inosts in Tlc auations. This hih erentae mabe beause surve resondents onsider inventorarrin ost at some eve, but dont neessari athis metri in a onsistent and disiined fashion.

dentifin fators that ontribute to Tlc an bediff iut. The bi question is, how far u and downsu hain shoud ou o? sas r. chris caie,xeutive iretor, MT center for Transortationand loistis.

FIGURE 10

common and idden Fators contribute to Tlc

Transportation Cost

Supplier / Manufacturer Unit Price

Warehousing Cost

Tariffs, Duties, and Taxes

Currency Exchange Rate

Sales Revenue / Margin

Inventory Carrying Costs

Transfer Pricing / Corporate Income Tax

Currently in UseWould Like to Use

4%

9%

95%

84%

82%

11%

79%

72%

71%

64%

57%

49%

46%

13%

15%

14%

14%

27%

24%

36%

39%

60%Financial Impact of Carbon Footprint

Order to Cash Cycle Time

Risk / Quality / Service Related Costs


18


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ther fators worth of onsideration in Tlc aua-tions inude fue rie voatiit, urren exhanerates, abor ost voatiit, and oitia unertaint.For exame, chinas reent deision to foat its ur-ren wi most ertain be fet in rodut and suhain osts. uh sinifiant but diffiut-to-quantiffators are feedin the need for toos to test mutieTlc senarios and erform sensitivit anasis.

APPLING TCHNOLOGThe most ommon Tlc auators in use toda aresreadsheets and interna deveoed toos (Figure11). nother 16% of resondents use ommeriaavaiabe aiations to auate tota anded ost,whie 27% of shier resondents emo suhain network otimization and modein toos.

Tlc auators an be fashioned b everain

a variet of toos and aroahes:

Activity-Based Costingis a ostin modethat identifies ativities in an oranizationand assins the ost of eah ativit resoureto a roduts and servies aordinto the atua onsumtion b eah.

ERP Systems. comanies often draw datafrom various nterrise esoure panninmodues to suort Tlc auation.

Global Trade Management. These

aiations rovide dut/tariff dataand ossib transortation data, butusua ak other ost fators.

Transportation Management Systems(TM), whih an be used to omutethe freiht ost omonent of Tlc.

Business Intelligence on to of p and/or u chain Manaement sstems. B

enabes anasis, but sine these sstems reuon an historia view of data, the ma akthe rea- or near-rea-time dnami view usefufor short-term tatia deision makin.

s the number of fators ontributin to tota andedost auation mutiies and the imortane ofTlc inreases, some shiers are movin to moresohistiated ommeria avaiabe Tlc auationtoos. rae landed cost Manaement (lcM),for exame, us toether the data that woudotherwise be distributed aross mutie p modues,addin vaue b interatin this information.

Fina, some oranizations are takin Tlc one stefurther b deoin advaned su hain networkmodein and otimization toos. The sinifiantadvantae of these toos is their abiit to erformotimization, hein users identif both stratei andtatia hanes to a su hain network to minimizetota anded ost. The an aso erform tota andedost modein and simuations based on varioussenarios. For exame, what is the owest ost methodto soure a rodut offered b mutie vendors? oesthe answer hane if fue rie inreases b 25 erent?

FIGURE 11

readsheets lead as current Tlc cost cauators

Spreadsheets

Internally Developed TotalLanded Cost Calculator

Supply Chain Network Modeling

and Optimization Tool

Shippers3PLs

76%

68%

44%51%

27%

41%

20%

15%

16%

16%

Support From a Third-Party Organization

(Consultancy, 3PL, Other)

Commercially Available Tool to Compute

Total Landed Costs (No Optimization)


19


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The newest eneration of su hain networkmodein and otimization toos add visuaizationand dashboard aabiities to Tlc auation,enhanin understandin of how fators ontributeto ost. BMs loiet pus, for exame, (Figure12) features landed cost Visuaization, whih aowsthe user to hoose an oation and rodut withina su hain network and shows how osts buid ateah suessive node within the network, aordin toonan onovan, produt Manaer, lg uchain iations, for BM. green bars indiatethe reative amount of ost at eah node so one anquik identif the ritia eements. cikin on anindividua node reveas the detais of that node.

Todas use of sohistiated omuter modes to anazethe erformane of su hains is a requisite forontinued imrovement in a ometitive marketae.

FIGURE 12

Use of Visuaization and ashboard Toos for TlcThe Landed Cost Visualization will allow the user to choose any location and product and see the entire supply chain and the costs

added at each step of the chain. The green bars indicate the relative amount of cost at each node so one can quickly identify the critical

elements. By clicking on any individual node, you can see the details.

$

$

India Line (2)CPU (7)

Entire Span (1)

$


Entire Span (1)

Units (Items) 505K

Total Local Cost ($) 121M

Total Landed Cost ($) 121M $


Entire Span (1)

Units (Items) 505K


Total Landed Cost ($) 121M

$


Entire Span (1)

$


Entire Span (1)

Units (Items) 505K


Total Landed Cost ($) 121M $


Entire Span (1)

Units (Items) 505K


Total Landed Cost ($) 121M

302

925205

$

$ $

$

$

$

$

$

$

$

$

$

$

$

$ $ $

$ $

657

321

574

192

123

805

741

852

821

421

568

392 671

505

912

208

Taiwan Line (6)Computer (2)

Entire Span (1)

Units (Items) 505K

Total Local Cost ($) 19.7MProduction Cost 19.7M

Tooling Cost 0

Total Landed Cost ($) 186MDuty & Tariff Cost 0

Production Cost 180M

Shipping Cost 1.84M

In Transit Holding Cost 3.54M

Tooling Cost 0

Warehouse Holding Cost 0

Warehouse Variable Cost 595K $

Source: IBM

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3PLS ROL IN TLCWhie 64% of shier resondents to the 2009 Third-Party Logistics Studyited tota anded ost (Tlc)reortin and anasis as a ritia aabiit the woudike to see in their 3pls, this ears resuts show just23% of 3pl resondents reorted extensive rovidinTlc anasis/reorts to their ustomers, 47% are doinso somewhat, and 30% do so minima or not at a.

3pls exress interest in enain in Tlc auationservies to add vaue to their shier reationshis,soidif their reationshis with ustomers, differentiatetheir businesses and enhane ustomer satisfation. sthe resonsibe art for man su hain oerations,

3pls woud seem we-ositioned to ontributesinifiant to Tlc auation. This is artiuarthe ase for sma- and mid-size shiers, whih manot have interna resoures to undertake internaauation, or for those that have omex internationasu hains and/or outsoure a substantia ortionof it. n the worksho hed at eefortransort, oneshier remarked that his oman needs theoutside exertise of the 3pl to he vaidate whatwere doin as an oranization, he suementour efforts, and rovide data in a format that an beutiized, suh as interated into an p sstem.

The vast majorit of 3pl resondents areed with thesestatements: t is imortant that 3pls artiuate their vaueroosition in terms of their net effet on Tlc; and, t isimortant for 3pls to rovide toos and aabiities thatsuort an aurate view of tota anded ost.

ften 3pls need to rove that the are meetin ertainservie eves and have buit a on and stabe reationshibefore oin into Tlc, sas panainas oemmken.

n addition to the inherent benefits of Tlc, in a 3pl-shier reationshi, Tlc an be of benefit when

anazin bids, and aso to he monitor suess ofreationshi, sas MTs r. caie.

considerabe disussion is required amon 3pls andtheir ustomers to better understand fators, roes andps to be used in a shared end-to-end ost auationeffort. This eve of interation demands a hih eveof trust, usua the resut of a on-term, suessfu3pl-shier reationshi. Ben cubitt, Vp u chainat ok-Tenn coman, notes, use of Tlc reates aneed and an oortunit for more senior eoe fromustomer firms and from lps to work toether.

owever, 58% of 3pls resondents reort that shi-ers are hesitant to share information with them, anda third sa shiers are fearfu that the informationthe share with the 3pl for Tlc auation wi be

used to inrease their ries.

s indiated in Figure 11 on ae 19, ike shiers,3pls are most ike to emo sreadsheets (68%) intheir Tlc auation efforts, foowed b internadeveoed toos (51%). owever, a sinifiant number,41%, are usin su hain network modein andotimization toos and 16% emo ommeriaavaiabe toos to omute tota anded osts. Just29% of 3pl resondents areed with the statementthat their ustomers have the interna interationrequired to take advantae of Tlc anasis.

In the absence ofTLC you still canmake valid supplychain decisions

but not optimal.

21


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urrisin, desite the stron eve of shierinterest unovered ast ear, 3pl resondents hiefreason (70%) for not rovidin Tlc anasis/reortin is a ak of exressed interest fromustomers (Figure 13). More than two-thirds(69%) of 3pls find those shiers to be morefoused on the rie of their serv ies than on howtheir servies miht imat tota anded ost.

sinifiant 43% of shier resondents admitthat the roure 3pl servies based on owesttransationa ost, whie 57% sa the use a hoistiaroah that onsiders the net imat of 3pl

seetion on tota anded ost. To find the owestTlc, it is ritia to view su hain ost as thesum of man otentia interdeendent osteements. 3pls wi ontribute to ertain osts,suh as transortation and warehousin, but thema he mitiate other osts throuh imrovedeffiien, suh as offerin or introduin ross-dok, onsoidation, and other vaue-added servies.The ke oint is to weih a of these osts inassessin the vaue of a 3pl to the oranization.

TOTAL LANDD COSTTRANSFORMATION ROADMAP majorit of shiers are urrent usinsreadsheets and homerown toos to auatethe tota anded ost of their roduts and shaedeision-makin. To ain the onsiderabe benefitsof a more sohistiated aroah requires anevoution of ommitment, roess and tehnoo.

Commitment: c-eve eadershi and oranization-wide ommitment, inudin adequate f inaniaresoures, are essentia to the suess of thetransformation effort, as we as to the Tlc-

enabed uture that foows. The enterrise mustmove awa from sioed thinkin and adot ahoisti mindset. For exame, saeseoe must betrained and inented to base rie quotes on Tlcto reserve marin. e erformane indiatorsshoud hane to refet the imortane of reduintota anded ost, whih sometimes ma ause aninrease in a artiuar funtiona area, suh astransortation. f everone is ookin to redueost just in their own oa sios, the resut ma notreate a oba redution in tota anded ost.

FIGURE 13

lak of customer nterest and commitment causes 3pl nativit in Tlc

70%

35%

26%

11%

10%

My Customer is Not Asking for It

My Customer Does Not Provide

Me the Right Data

I Have Not Discussed This with

My Customer Yet

I Do Not Have the Right Tools

I Do Not Have the Expertise

Total Landed Cost - Reasons Why 3PLs Are Not or Are Minimally Providing TLC Calculation

Somewhat47%

None10%

Extensively23%

Minimally20%


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Process Change: The roess of definin andimementin an advaned Tlc soution brinseoe toether that woudnt norma be a art ofone rou. This aroah is ritia for deveointhe Tlc auator and athin fators that mihtotherwise be overooked, for exame, the osts ofdemurrae, whih for one worksho artiiant wereinurred b one deartment but overed b anothersbudet. t is imortant to take baseine measurementsin order to measure roress. utside onsutantsor faiitators an be vauabe in overominsuh roess and hane manaement issues.

Technology: stems transformation is often requiredto deiver a of the data neessar in a new definedTlc auator, inudin data eanin, snhroniza-tion and vaidation, as we as software interation toentraize a ost eements. Master data manaementan be an invauabe eement toward normaizin data.Timeiness of data an aso be an issue, to enaberea-time deisions in the wake of futuatin marketonditions. Trainin is often neessar both in use ofa Tlc auator and in how to a Tlc oututs todeision-makin.

ordin to raes Johansson, when shierstransition to usin an advaned too suh as theomans rae landed cost Manaement mode,the iee that takes a on time is to determine whatost method to use: standard ost, or an averae ostmethod (FF, lF, Weihted verae or periodverae), whih is more aroriate to Tlc. thertime-onsumers are determinin whih bukets totrak and to what eve of ranuarit, how to estimateosts, and sstems interation for data soures. Usuaomanies start off with bi oas on ranuarit, saebak a bit, and then buid maturit and start addin

more interation oints and ref inin estimates.

Whie the imortane is hih, beause of theomexities, Tlc adotion must be aroahed asan evoutionar, rather than revoutionar, roess.

TOTAL LANDD COST: K TAKAWAS

substantia 64% of shier resondentsonsider tota anded ost reortin and anasisas a ritia aabiit the woud ike to seein their 3pls, aordin to our 2009 reort.The abiit for tota anded ost auators toature both obvious and hidden exendituresand revea the true ost of sourin and oistisdeisions is ritia in a f utuatin eonom,deiverin benefits inudin more aie andonfident deision-makin, more aurate

rie-settin and better oerationa ontro.

substantia 45% of shier resondents reortextensive use of Tlc, athouh resondentsma differ in their interretations of the termextensive. owever, diffiut in definin a ofthe fators ontributin to tota ost, and thenobtainin and interatin a of that data, an behaenin. Beause of that, too man businessesre on artia data or inaurate estimates thatan ead to oor deisions. Thats evident in theheav use of sreadsheets and interna deveoed

toos for Tlc auation b shiers and 3plsaike. Tehnoo issues ma be one of the reasonsthat just 23% of 3pl resondents reort the areextensive rovidin Tlc anasis/reorts to theirustomers. Trust issues are aso interferin withrovision of more advaned Tlc ost auationservies b 3pls. To ain the onsiderabebenefits of a more sohistiated aroah to Tlcauation requires stron ommitment and astead evoution of mindset, roess and tehnoo.

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n ear 2010, a major harmaeutia manufaturershut down rodution and reaed 43 over-the-ounterhidrens mediines made b a subsidiar, after federainvestiators found severa manufaturin defiieniesat a rodution faiit. The rea affeted more than100,000 bottes of mediine and at east 12 ountries,and ed the U conress to aunh an investiation.

This rominent rea hihihts just some of thehaenes fain those artiiatin in ife sienessu hains. ih in demand mediines anddevies rodued b this U $1.2 tri ion industrhave the ower to transform heath, so when errorsand oor raties our, the an imat notjust baane sheets, but human ives. andin isoften ritia; 11% of oba heathare rodutsare inherent temerature-sensitive and an oseeffia or ause adverse effets if the are notmaintained at the r iht temerature or stored in

inventor too on. Beause of this, ontro andvisibiit is essentia throuhout ever node andmode that makes u the ife sienes su hain.

ts ver diffiut for individuas to understandhow reious the rodut is; there irreaeabein some was, sas Mik utherand, iretorof loistis merias for cl Behrin.

life sienes industr su hain haenes fainto three major bukets: rodut interit and

omiane requirements, an inherent omextradin artner eosstem, and demandinustomer servie and ost requirements.

life sienes shiers and 3pls servin the ifesienes market who artiiated in the 2010Third-Party Logisticsstud were asked to resondto seifi questions about their su hainhaenes. hier resondents main reresentharmaeutia and media devie manufaturersand heathare servies roviders. (Figure 14)3pl resondents ame from a somewhat more

diverse arra of ife sienes industr sements.

lF ccManaging Precious Cargo

FIGURE 14

life ienes urve esondents Were Main Manufaturers and

ervie providers

Life Sciences Shippers Types of Customers of 3PLs Serving Life Sciences

3%

3%

56%

25%

6%

PharmaceuticalManufacturer

Medical DevicesManufacturer

Pharmacy

WholesaleDistributor

HealthcareServices Provider

PharmaceuticalManufacturer

Medical DevicesManufacturer

Pharmacy

WholesaleDistributor

HealthcareServices Provider

PharmacyBenefits Manager

Health InsuranceCarrier

69%

64%

45%

30%

22%

3%

3%


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PRODuCT-RLATD CHALLNGSMan harmaeutia roduts are of hih monetarand treatment vaue, and that makes them temtintarets. Both ounterfeit drus and dru diversionare beieved to have doubed oba over the astfive to six ears, threatenin atients heath andmanufaturers reutations. The Word eathranization defines ounterfeit mediinesas those that are deiberate and frauduentmisabeed with reset to identit and/or soure.iversion ours when a harmaeutia rodutaroved via a manufaturer trade areement orovernment reuation for sae in one ountr or

saes hanne is intereted and sod in another.

muti-faeted aroah is required both to reventounterfeit and diversion and to ensure safe andseure assae from oint of manufature to atientadministration. This inudes rodut visibiit, quaitand omiane roedures, strinent inventorontro, temerature ontro aabiities and seurit.

Product Visibility: The need for visibiit is drivinseriaization the roess of unique identifinone unit of a rodut so it an be distinuished

from another and e-ediree, an eetronidoumentation of a roduts hain of ossessionas it asses throuh the su hain. Manountries inudin ustraia, Jaan and Turkehave introdued their own requirements to romoteseriaization. n the U, caifornia has eisateda hased aroah to e-ediree imementation

startin in 2015, and the federa overnment isworkin out the seifis of its own seriaizationrequirements. ue to their omexit andfinania imiations, seriaization and e-edireeeisation has been subjet to mutie deas.

Whie inear bar odes an be used for seriaization,some ountries inudin ta and Beium arerequirin hiher densit soutions suh as 2-smbooies, whih an enode additiona datasuh as ot number, manufaturin date, makeand exiration date. Momentum is movin towarduse of F tas, whih transmit the identit of an

objet wireess without requirin ine-of-siht.

F requires sinifiant investment and thetehnoo is ontinuin to evove, but this tehnoohas seia aiabiit to ife sienes iven theaurate and rea-time traeabiit of rodutsrequired b e-ediree. Business ases deveoedb Messon1 and Warner chiott (formerproter & gambes resrition dru business)2roved the benefits of seriaization throuh Finudin inreasin visibiit and reduin osts.n the p & g/Warner chiott test, inreased asset

visibiit ed to an imroved returns roess, rearoess, and dereased e times, whih reduedinventor and hodin osts. bout haf of shierand 3pl resondents to our stud aree that thereis a stron business ase for F in ife sienes.eardess of its otentia benefits, a third of shierresondents aree that e-ediree is a haene.

3pls an be ke enabers in rovidin the visibiitritia for ife sienes roduts, artiuar inbioois (roduts reated throuh biooi roessesfrom natura soures), vaines and ps (tivepharmaeutias nredients). s the industr moves

toward e-ediree, 3pls have an imortant roe toa not just b sannin rodut as art of the hainof ustod, but b otentia offerin a manaedbusiness servie for e-ediree data. 3pls ma asooffer servies to abe and akae to individuaountr e-ediree requirements. s seen in Figure16 on ae 28, shiment visibiit is the servieshiers woud most ike to reeive from 3pls.

1 DataSharinginthePharmaceuticalSupplyChain:ASeriesofCaseStudies,CenterforHealthcareSupplyChainResearch,June3,2009

2 IDEASINACTION:ACaseStudyAITBusinessProcessModelforProcter&Gamble:ForecastsOpportunitiesandROI,July,2008

Control and visibility isessential throughoutevery node and modethat makes up the lifesciences supply chain.

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T is aso ritia to both assure and doument quaitand omiane. f quait is 1- then T sstemsare 1-B in imortane, sas evin ikman, eniorManaer (c) for cl Behrin, with sstems thatare we desined, ver robust, and sime to use. TheT sstem has to he manae the quait asets.

conern about quait and omiane is evidentthrouhout the surve resonses of ife sienesshiers. owever, differin rankins to survequestions between ife sienes shiers and 3plroviders that serve ife sienes omanies suesta ossibe disonnet between the two on the

imortane and vaue of ensurin rodut interitthrouh the su hain. n Figure 15, for exame,62% of ife sienes shiers ite ensurin rodutquait as a sinif iant haene, seond on toomiane, whie 3pls rank this fourth, with on41% notin this haene. n Figure 16, shiersaso rank quait roedures hih (70%) as aservie the want 3pls to rovide, whie just 45%of 3pls urrent rovide them. imiar, 60% ofshiers woud ike to see 3pls offer roesses toensure omiane with state and federa reuations,whie just 44% of 3pls urrent offer these.

Quality, Compliance and Risk: life sienesomanies devote substantia resoures to deveoinand manufaturin safe roduts to benefit theheath of their utimate ustomer, the atient.governments aso want to ensure the safet of drusand other heathare roduts and ontinue toimement additiona strinent reuations to ensureubi safet. With so muh at stake, ife sienesshiers are hih onerned about the roerhandin of roduts as the make their wa fromrodution ine to atient, to ensure rodut interit,reuator omiane and risk manaement.

The Word eath ranizations good istributionpratie (gp) uideines have been adoted obato uide the roer handin of media roduts,inudin imort, temerature ontro and distributionontro raties. The gps over everthin fromseurit to monitorin devies to data sharin toreverse oistis roedures, seekin to brin the samerior first reated for manufaturin quait sstemsto rodut distribution. ordin to a su hainexeutive who ose monitors good istributionpratie aiations, there are more than 30 differentinterretations of ife sienes gps aross the word.

FIGURE 15

government euations To the list of u chain chaenes

Life Sciences Shippers 3PLs Serving Life Sciences

Ensuring Compliance withGovernment Regulations

Ensuring ProductIntegrity

Accommodating Sudden,Large Spikes in Demand

Complicated Supply

Chain Model

Ensuring Compliance withGovernment Regulations

Accommodating Sudden,Large Spikes in Demand

from Customers

Ensuring ProductIntegrity

Controlling Inventoryand Order Accuracy

Complying withE-Pedigree Requirements

High Levels of Inventoryto Ensure Availability

Complying withE-Pedigree Requirements

55%70%

45%

44%

41%

31%

62%

54%

44%

34%

33%


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FIGURE 16

What life ienes hiers Woud like life ienes 3pls to ffer

Vs. What 3pls current ffer

Life Sciences Shipper RespondentsLife Sciences 3PL Respondents

87%

88%

70%

45%

68%

66%

62%

52%

60%

44%

59%

47%

52%

47%

49%

35%

46%

39%

46%

35%

46%

60%

38%

44%

37%

19%

30%

58%

27%

30%

27%

24%

25%

12%

24%

22%

21%

24%

8%

15%

Shipment Visibility

Quality Procedures

Inventory Control

Temperature-Sensitive Capabilities

Processes Ensuring Compliance with

Federal and State Regulations

Security

Rapid Order to Delivery Cycle Time

Internal Audit Capability

Employee Training Programs

Electronic Records Retention

Reverse Logistics

After Hours Emergency Order Processing

Deviation Management

Customer Order Management

Sample Management

Controlled Substances License

E-Pedigree / Serialization Support

RFID Based Product Tracking

Redundant / Contingency Stocking Locations

Product Test and Configuration


28


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n harmaeutia oistis, The haene is ettinthe roviders to tru understand the ustomersbusiness, sas cl Behrins utherand. t reatakes a ood soid ear to understand the requirements.3pls tend to be too onfident with the saes roess asoosed to understandin the business.

onad van Zitteren, UcB pharma, iretor gobaWarehousin & loistis, reommends 3pls hire eoefrom harma omanies that have a bakround inquait and oistis. 3pls seekin suess in ife sienesneed to buid u a network with gp-ontroed [goodistribution praties] warehouses at stratei oints tobe abe to hod and store pharma roduts, sas cornvan aak, Manaer Transortation, bbott loistis B.V.

perhas the desire to maintain more ontro over roduthandin is the reason ife sienes resondents are ess

ike than the overa surve shier resondents to use3pls for warehouse servies (59% versus 74%). lifesienes shiers send just 27% of outsoured oistibudets on warehousin omared with 40% overa.

Balancing Quality and Price: n Figure 17 on ae 30,73% of shiers sa quait, omiane and riskmitiation are sinif iant more imortant than riein seetin 3pls, whie just 49% of 3pls aree thattheir ustomers rioritize these over rie.

cost is not a minor thin; sometimes ou have to

a for quait, sas one harmaeutia suhain exeutive. you have to meet a minimum forquait, seurit, and then ost an ome into a.

Inventory Control: nventor ontro in ife sienesis more than just ensurin adequate inventor evesto meet demand. proesses are aso required toquarantine oods, inudin notifiation, reordrearation, sereation and distribution roesses.

Temperature Control: More than three-fifths ofshier resondents ist temerature-ontroedaabiities as an imortant 3pl seetion riterion.

3pls must be knowedeabe about the omexintera of rodut, akain materias,transortation methods and omiane with anevovin reuator andsae whie workin to imitosts. Temerature ontro aabiities ontinueto row in imortane; the most exensive drustend to be temerature sensitive. The oss of asine l3 (about 3 meters ubed) ontainer of onete of aner-fihtin antibodies woud enerateadditiona osts of aroximate U $34 miion.

consider this otentia senario: a temerature-sensitiveharmaeutia arrives at a distribution faiit rior toreeivin overnment arovas to market the dru tothe ubi. This inventor must be isoated bothoia and hsia, and data must be oetedfrom temerature oers within the shiment andommuniated bak to the manufaturin ant. Therodut annot move from quarantine area to arimar storae oation unti the ant indiates thattemerature readins were oka, assurin rodutsafet and omiane, and overnment authoritieshave aroved the rodut for sae.

Temerature oin is imortant and oud inreaseman fod if rumors rove true and new reuationsemere requirin a temerature monitor inside everakae, reardess of akae vaidation. Feedbakrequirements for temerature deviations in transit

oud inrease man times and this ma ause the needto interat with sma ustomers, not just whoesaers.

owever, ife sienes omanies riorities differaordin to industr sub-ateor. Bioois omanieshih vaue a 3pls network of temerature-ontroedaabiities, whie these are on of medium imortaneto sma moeue (man drus are sma moeue) andvaine omanies and of ow imortane, on averae,to tive pharmaeutia nredients omanies.

3pls assets and exeriene in manain temerature-

ontroed servies for other industries has theotentia to he shiers avoid aita-intensiveinvestment. The aso aow shiers to take advantaeof better riin on ommodities ike vaidatedontainers, and take advantae of 3pl temerature-ontroed exertise. 3pls an offer additiona serviesreated to temerature trakin as requirementsbeome more ranuar and more arties are invovedin the roess. r. Thomas lenhard, ead of Quaitat anofi-aventis istribution patform Frankfurt,notes that in the future, We not on want to know theosition of the shiment on the ma but aso rodutquait reated transort ps ike onine temerature

trakin and remote ontro of quait arameters.

Security: afe assae of roduts from sourinthrouh manufature to onsumtion or wastemanaement aso requires strinent oia andhsia seurit raties and omiane withovernment seurit reuations, from resribedhandin roesses to ontainer okin roedures.

Both ife sienes shiers and the 3pls that servethem reard ensurin omiane with overnmentreuations as the to haene fain ife sienes

su hains (Figure 15).

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A COMPLx COSSTMproduts, information and ash a fow via searatebut reated aths throuh the ife sienes suhain. This su hain is haraterized b strinentrues, seiaized handin needs and mutie aers,inudin dru and devie manufaturers, whoesaedistributors, harmaies, harma benefit manaers,heathare insurers, mriad tes of heathareroviders, and atients. Fift-four erent of shierresondents sa the omex su hain modereresents a sinifiant haene (Figure 15).

ne exame of the omex ife sienes eosstemis the existene of omanies that oerate both aswhoesaers and as 3pl servie roviders. s there aonfit of interest in usin a 3pl for oistis servies,so that the are our vendor, and sein them rodut,so that the are our whoesae ustomer? f, forexame, the 3pl side needs to et riin information

to arr out order fuf iment with ustomers,otentia the whoesae side of the oman oudobtain this information and use it to their advantae.

n our surve resuts, 41% of shier resondentswoud have onerns with usin 3pl serv iesassoiated with a whoesaer that is aso a ustomer.

esite suh haenes, shiers seekin to manaethe omexities of su hains see a roe for 3pls. sinifiant number, 87%, of those surveed indiatethat 3pls an add sinifiant vaue b inkin a arties

that interat in the ife sienes su hain. (Figure17). 3pls fee stron that differentiatin throuhbreadth of aabiit is ke to ainin ustomers.

providers shoud ook at the imementation of extend-ed ps, tandard eratin proedures, in order tohave a ink between the different arties invoved, sasludovi Mndme, iretor Transort & istributionervies M for Baxter Word Trade .

CHALLNGING CuSTOMRSRIC RquIRMNTSever is havin the riht rodut at the riht aeat the riht time more imortant than when thatinventor an reserve heath or save a ife. Thatrequirement aentuates the need for a fexibe andresonsive su hain for ife sienes roduts.equirements inude:

Flexibility: life sienes rodution and suhain ativit must aommodate sikes in demand,suh as the need to quik distribute seasonafu vaine. Temerature-sensitive roduts ma

aso require time handin; often, for exame,manufaturers dont want these roduts to shiout on a Frida to avoid weekend deas, so shiinis omressed into to a four-da eriod eah week.n suh ases a 3pl ma offer more staffin andoerationa fexibiit to aommodate these sikes.Fort-four erent of shier resondents itethe need to aommodate sudden, are sikes indemand as a su hain haene (Figure 15).

New Markets: nterin new markets, suh as in thefast-rowin Bc ountries of Brazi, ussia, ndia,

and china, is a ost and omex endeavor for ifesienes omanies. 3pls an a an imortantroe in faiitatin oistis for these efforts.

FIGURE 17

life ienes hiers and 3pls Views on u chain ssues

Life Sciences Shippers 3PLs Serving Life Sciences

3PLs can add significant value bylinking all the parties that interact

in the life sciences supply chain

Quality, compliance, and risk

mitigation are significantly more

important than price in 3PL selection

There is a good business case

for the use of RFID in the life

sciences industry

I would have concerns with using3PL services associated with a

wholesaler that is also my customer

3PLs can add significant value by

linking all the parties that interact

in the life sciences supply chain

Differentiating our services

through breadth of capability is

key to gaining customers

There is a good business case

for the use of RFID in the lifesciences industry

Customers are more concerned with quality,

compliance, and risk mitigation than price

when selecting a 3PL partner

87%

73%

50%

41%

90%

87%

53%

49%


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Recall Capability: new disovered ontaminantin hearin roduts soured in china and sodb a eadin harmaeutia oman in 2008ed to sikened atients and a rea that sreadto inude media devies suh as atheters. Theabiit to enat reverse oistis, inudin reas,in an oranized fashion is ritia to ontaininthe otentia damae from suh an inident;roduts not roer reaimed and destroedma end u bein resod b an unsruuousart. ixt erent of 3pl resondents that serveife sienes rovide reverse oistis serv ies.

Inventory: Baanin the desire for hih fi rateswith the ost of arrin inventor is a haenefor an industr. When the rodut in questionan save ives, the ressures inrease; some ofthese ive-savin mediations are ver exensive.bout a third of shier resondents indiate that

maintainin hih eves of inventor to ensureavaiabiit is a to oisti haene (Figure 15).

Redundant Locations: life sienes omanieswith ife-savin roduts often maintain redundantstokin oations, either themseves or via a 3pl,to ensure avaiabiit in the event of an oerationafaiure or natura disaster at a rimar oation.

Next Flight Out/Late Cut-offs: ome ife-savinroduts need to shi on short notie, evenoutside of norma oeratin hours. ne major

harmaeutia oman reorts usin a 3pl thatis ose to a major airort in order to rovide ifesavin transort-next fiht out (F) servie. The3pl maintains vaidated, media-rade ooersthat store a sma amount of ife-savin drus. 3plsma offer more staff in and oerationa fexibiitto aommodate suh extraordinar needs.

Sustainable Supply Chain: ustainabiit onernshave survived and even rown throuh the reession.life sienes shiers are interested in 3pls abiit tohe redue their environmenta imat in everthinfrom transortation emissions to akain desin.

nvironmenta asets wi beome more and moreimortant, sas ihard groenenboom, ead ofgoba loistis (pTl), F. offmann-la ohe ltd.f a rovider an uarantee efforts in the diretionof reen oistis, this an be seen as a ear bonus.

On-time Delivery/Responsiveness: n-time deiver/iku and resonsiveness are aso imortant 3plrequirements for ife sienes omanies. neharmaeutia su hain exeutive sees issueswith resonsiveness as inherent to the business mode:3pls must baane ometin ient riorities,

whih inhibits or sows down their abiit to makehanes or serve ustomer-seifi needs due toontratua and ea onsiderations, he sas. t iseasier to imement hanes within network 3pls

where the ients are a in the same industr. t isimortant for pharma omanies that the majoritof the 3pls ients are pharma omanies as we.ize an be a fator in the eve of resonsiveness,but this an be ameiorated in art throuhstron, industr-aware aount manaement.

Employee Training: life sienes shiers are asoonerned with ensurin the riht eve of traininfor 3pl emoees to address industr- seifi needs,suh as ensurin drivers understand the sensitivitiesof their aro and adhere to resribed handinroesses. s the name su hain suests, this isa hain and it wi awas break at its weakest oint,sas obert Mer, ead, goba Warehousin &istribution, ovartis Vaines & ianostis. Mostof these weak oints are the eoe. o we needtrainin and aso better ament for some of them.

LIF SCINCS: K TAKAWAS

The mediines and devies rodued b theife sienes industr suort ife and heath.produt sensitivit, seurit onerns and networkomexit make movin this reious aro fromoint of manufature to oint of onsumtionontinua more haenin, with errors andoor raties exatin a hih rie. life sienesomanies su hain haenes ie in threemajor areas: rodut interit and handin, aninherent omex tradin artner eosstem, and

a demandin set of ustomer servie requirements.These haenes ommand a muti-faetedaroah that inudes rodut visibiit, quait andomiane roedures, strinent inventor ontro,temerature ontro aabiities and seurit.euation is a ke onsideration, with emerinseriaization and e-ediree requirements addin tothe ist. bout haf of shier and 3pl resondentsto our stud aree that there is a stron businessase for F in ife sienes to address these needs.

produts, information and ash a f ow throuh the

ife sienes su hain, whih is haraterizedb strinent rues, seiaized handin needsand mutie aers, some ain seeminonfitin roes. sinifiant 87% of shierresondents indiate that 3pls an add sinifiantvaue b inkin a arties that interat in theife sienes su hain. The ritia natureof man ife sienes roduts aentuates theneed for a fexibe and resonsive su hain,inudin the abiit to aommodate emerenneeds and quik and effiient enat reas.Quait, omiane and risk mitiation areessentia in ife sienes, but shiers and3pls have different views on their reativeimortane to rie in seurin 3pl servies.

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more autious, ess oa shoer has emered inthe oba reession, haenin onsumer oods

manufaturers and their suier and retaier artnersto beome more demand-driven and resonsive. vaue-onsious ustomer is artiuar haeninfor roduers of fast-movin onsumer oods, definedas roduts reaed or used u in a short eriod oftime suh as trend aare, toietries, and roeries that are non-durabe and sod diret to the endonsumer. With are voumes and ow marins,fast-movin onsumer oods omanies (FMcg)must resond quik to deiver in-demand, on-trendroduts to shoers when and where the want them,to avoid ettin stuk with undesirabe merhandise.

TOP LOGISTICS CONCRNSts not surrisin that manufaturers of fast-movin

onsumer oods ite a on ist of hih-rioritonerns for their su hains. eduin oistisosts is the erennia number one oa aross aindustries in the Annual 3PL Study(Figure 18), butother riorities seak to the artiuar haenesof the fast-movin onsumer oods ateor,inudin erfet order fufiment (87%) raidsensin and resondin to hanes in onsumerdemand (83%) and shortenin new rodut time-to-market and su hain interation (81%).

FT-MVg

cUM gDemanding Consumers Increase Supply Chain Pressures

FIGURE 18

eduin loistis costs is a To conern for FMcg comanies

% of FMCG Shippers Who ThinkThat This is Relevant

% of FMCG 3PLs Who RecognizeThis as an Issue for Customers

Reducing Logistics Costs98%99%

87%88%

87%88%

83%86%

82%81%

81%82%

81%84%

66%76%

65%68%

63%67%

Shortening New Product Time-to-Market

and Supply Chain Integration

Ensuring Perfect Order Fulfillment

Improving Shipment Density / Load Utilization

Rapidly Sensing and Responding to

Changes in Consumer Demand

Building Sustainability into the Supply Chain

Having a Supply Chain Disruption / Mitigation

Strategy in Place

Accommodating Sales Promotions

Gathering and Utilizing In-Store Data on Products

Growing Market Share in Emerging Economies


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wedish manufaturer rifame cosmetis, forexame, deivers diret-to-onsumer within 24 to 48hours of when the order is aed; in some marketsthat means home deiver or deiver to one home onbehaf of severa ustomers, whie other markets favoriku at a kiosk or servie enter. Thats haeninthe manufaturer to inrease order aura andwork to avoid out-of-stoks whie oin with the ostsinurred b oeratin so man deiver modes.

Fast-movin onsumer oods manufaturers areatin on rowin oba awareness of the need tomitiate the environmenta imat of manufaturinand oistis roesses, with 82% ain riorit onbuidin sustainabiit into the su hain. green

is no oner eadin ede or ioneerin; it is now anorma art of a omans oerations, drivin theneed for manufaturers and others to deveo ohesiveand omrehensive earth-friend sourin strateies.

mrovin shiment densit and oad utiization is oneof these strateies (87%), enabin manufaturers tomaximize use of shiment aait to redue emissions,wasted aait and otentia osts as we. limitedBrands loistis ervies, for exame, ontinues towork on new onfiurations of its arton roortions tofit as muh merhandise into ontainers as ossibe.

ustainabiit is a mandate to do a better job in theoistis area, sas one FMcg exeutive, whoseoman has been testin hbrid eetri deiver truksand workin to om with emerin sustainabiit

reuations in jurisditions suh as caifornia. Beauseon 160 to 170 mies is the usua enth that ourroduts trave to et to their fina destination, itsdiffiut for us to take advantae of mutimodaaternatives, ike truk/rai or truk/shi, he sas.

3PLS AND SHIPPRS SHAR PRSPCTIFortunate, fast-movin onsumer oods manufaturersand the 3pls that serve them are remarkab ained intheir assessment of these to onerns. These resuts seemto im a muh oser areement between the two rousthan there miht have been ten to fifteen ears ao.

The on siht deviation ours in aommodatinsaes romotions, where 3pl resondents are more

ike to onsider this a to riorit than shierresondents (76% vs. 66%). perhas this is due tofast-movin onsumer oods omanies often heavreiane on romotions; for man in this ateor,muh of the business is romotiona, so the inventorsikes romotions reate are sim business as usua.dditiona, aommodatin the sikes in voumeenerated b a romotion requires seed, visibiit andT onnetions. ne shier sas brinin their 3plsinto the annin of romotions aowed an extra setof hands and ees benefiia to ettin roduts to thesheves faster. ur 3pls assist in exeditin shiments

throuh hanin oean moves to airfreiht or ross-dokin at the destination to redue handin time.

Whie fast-movin onsumer oods shiers and3pls ma aree on the issues, the view differentthe roe 3pls an a in addressin them. Figure19 reveas what issues fast-movin onsumer oodsshier resondents see 3pls hein them tomanae, versus the tes of issues 3pls thinkshiers wi imement aon with them.

Fast-movin onsumer oods shier resondents areose ained on their view of 3pls roe in hein

to imrove shiment densit/oad utiization, redueoistis osts, and ut a su hain disrution/mitiation strate in ae, as we as on erfetorder fufiment and sustainabiit rojets.

ustainabiit is ver imortant to our oman,sas Frits Voortman, iretor, cororate uchain at Friesandcamina. We wi be ominout with new, imroved sustainabiit roramost-merer and we wi exet 3pls to he.

Bringing 3PLs intothe planning of

promotions allowedan extra set of handsand eyes beneficialto getting products tothe shelves faster.

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But shiers are ess ike than 3pls (46% vs.62%) to see 3pls ain a roe in shortenin newrodut time-to-market and su hain interation.This is another area that, ike saes romotions,requires seed, visibiit and a stron shier-3pl Tonnetion; issues of trust and oaboration ma asobe at a. hiers ike see a oa of shortenin newrodut time-to-market as a broad ross-funtionaeffort that requires the shier to manae ativitamon interna funtions (from desin to rodutionto oistis to saes to marketin) and externaartners, inudin the 3pl, sas a eadin retaier.

The disarit seen earier in saes romotion oursaain here, with just 42% of shier resondents

seein a roe for 3pls, whie 60% of 3pls see one.t one FMcg shier, for exame, reation of a3pl joint venture with a sister oman means hih-veoit and hih-voume and resumab more

heavi romoted oods are handed interna, whie3pls are used for not-ore business, suh as rodutsthat are ow voume or not fast movin, or wherethe oman has not mirated to new T sstems.

But others re on 3pls reise f

2010 3pl report public

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