21.10third party logistics-studie 2012

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Results and Findings of the 16th Annual Study

2012 THIRD-PARTY LOGISTICS STUDYThe State o Logistics Outsourcing


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Contents

2012 C. Jo Lagley, Jr., P.D., ad Capgemii. All Rigts Reserved.

no part o tis docmet may be reprodced, displayed, modiied or

distribted by ay process or meas witot prior writte permissio

rom Capgemii. Rigtsore is a trademar belogig to Capgemii.

4 Exective Smmary

7 Crret State o te 3PL Maret

15 Emergig Marets

23 Electroics

33 Talet Maagemet

41 Strategic Assessmet

44 Abot te Stdy

48 Abot te Sposors

50 Credits

GIVE US YOUR OPINIONSca tis code ad sare yorsggestios or topics to coveri ext years stdy.

2012 16Th AnnuAL ThIRD-PARTY LOGISTICS STuDY


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SpportigOrgaizatios

Balance is te state o eqilibrim a cotios ad sometimes evasive qest or spplycai exectives ad te teme o tis report. Weter teyre explorig emergig marets,avigatig te calleges o te electroics spply cai or i dig te rigt talet, attaiigeqal ad satisactory distribtio o resorces is a ogoig callege.

www.3plstdy.com


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Current State o the MarketSrvey resposes rom 1,561 idstry exec-

tives ad maagers represetig sers ad

o-sers o 3PL services, as well as respos-

es rom 697 3PL exectives ad maagers,

corm tat 3PLs cotie to provide strategic

ad operatioal vale, provide ew ad io-

vative ways to improve logistics eectiveess

ad are ey cotribtors to sippers overall

bsiess sccess. Total logistics expeditres

represet a average o 12% o sippers sales

revees, ad o tis, a average 42% is devot-ed to otsorcig. Metrics relatig to logistics

cost redctio, ivetory cost redctio, ad

logistics xed asset redctio remai co-

sistet wit te two previos years stdies.

A majority o sipper respodets, 64%, are

icreasig teir se o 3PL services, wile

24% are retrig to isorcig some 3PL

services ad 58% report tey are redcig

or cosolidatig te mber o 3PLs tey

se. Logistics activities most reqetly ot-

sorced cotie to iclde tose tat are

more trasactioal, operatioal ad repeti-

tive, wile tose tat are more strategic,cstomer-acig ad IT-itesive ted to be

less reqetly otsorced. A similar pe-

omeo is preset i expectatios o 3PLs

IT capabilities; exectio-orieted activities

ad processes sc as trasportatio ad

wareose/DC maagemet-related IT capa-

bilities are more i demad ta tose tat

are more strategic ad aalytical.

3PLs cotie to ra teir relatiosips

wit sippers a bit iger ta sippers

do, bt te vast majority (88% o sippers

ad 94% o 3PLs) view teir relatiosipsas sccessl. Opeess, trasparecy,

ad good commicatio as well as agility

ad fexibility cotribte to tis sccess.

Iterestigly, gres rom tis years stdy

sggest decreases i te se o gaisar-

ig ad collaboratio.

Tis report presets digs

o te 2012 16th Annual Third-

Party Logistics Study, based

o researc codcted i

mid-2011. I additio to doc-

metig te ogoig evoltio

o te tird-party logistics

maret, tis years report also

taes a close-p loo at treespecial topics:

Te logistics o operatig i

emergig marets

Te iqe calleges acig

te electroics spply cai

For te rst time i te

stdys istory, te report

cosiders te implicatios o

talet i te spply cai ad

i sipper-3PL relatiosips

Eective wit tis report, we

are bradig eacAnnual 3PL

Studyi terms o its rst ll

year o circlatio ollowig

te reports aal October

release. Tereore, tis report

costittes te 2012 3PL Study.

Emerging MarketsA sbstatial 80% o sippers ad 77% o

3PLs i te srvey codct bsiess wit or

witi a emergig cotry atios wit

ecoomies tat are experiecig rapid growt

trog idstrializatio. Cia, Idia, Brazil

ad Mexico are cosidered top emergig mar-

et opportities by srvey respodets.

Operatioal diclties, icldig logistics

calleges, treate to erode te potetial

beets associated wit doig bsiess witor witi emergig marets. For sippers

based i matre marets, diclt laws ad

reglatios, cltral diereces, te ability

to deliver agaist promises or agreed-to ser-

vice levels ad complicated tax regimes top

te list o calleges.

Brazil is represetative o te ris/reward

calleges tat are posed by a emerg-

ig ecoomy. Govermet ivestmet i

irastrctre, as well as tax redctios

ad participatio i te Mercosr ree trade

agreemet, ave cotribted to te ast

growt tat as attracted global maac-trers ad 3PLs. Bt compaies movig ito

Brazil ace te very calleges sippers cite.

Ideed, eterig ay ew maret reqires

de diligece; we its a emergig mar-

et, its eve more critical. More ta al o

sippers based i bot matre ad emergig

marets agree tat a global 3PL coordiatig

wit a local 3PL is te most sccessl oper-

atig model or 3PLs operatig wit or witi

a emergig maret.

Te 3PL capabilities sippers most vale

we eterig emergig marets are visibility,expertise o te latest global trade regla-

tios ad maagig ad optimizig sipmet

rotig based o ree trade agreemet (FTA)

owledge. Tose participatig i worsops

spportig te stdy also added proactive

cosltig services, local isigt ad exper-

tise ad itegrated soltios to tat list. Te

majority o sippers i matre ad emergig

marets call 3PLs owledge o FTAs very

importat (65% ad 73%, respectively).

Executive Summary

4 2012 16Th AnnuAL ThIRD-PARTY LOGISTICS STuDY


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ElectronicsElectroics prodcts ca be igly poplar,

bt alog wit eviable demad comes pres-

sre to mae prodcts smaller, aster, cooler

ad at a lower price poit. hittig tese tar-

gets demads a ast ad imble spply cai.

Icreasig pressre to lower costs ad ma-

age material ad sppliers more ecietly

as triggered a preerece amog electroics

compaies or asset ligtess, otsorcig

bot prodctio ad logistics, especially iemergig marets. Sippers call price pres-

sre to redce operatig costs teir top

logistics callege (59%), bt electroics

maactrers also wrestle wit oter isses

icrred by a log, ti spply cai, employ-

ig strategies sc as postpoemet.

Te electroics idstry is otoriosly dis-

itegrated, wit mltiple players ivolved i

te spply cai ad a ig rate o mergers

ad acqisitios. Frter complicatig mat-

ters, electroics compaies sell ito may ver-

tical marets, eac wit its ow iqe eeds.

Mltiple layers, spply costraits, mased-togeter spply cais ad te specic cal-

leges o retail caels itrodce cost,

saety stoc, orecast calleges ad addi-

tioal time ito logistics processes. Aoter

callege is to desig a commo, cost-e-

ciet irastrctre across spply cais.

Becase electroics prodcts are ote

ig vale, tey pose calleges icldig

assrig secrity, prevetig coter-

eit ad pacagig scietly to adle

log-distace trasportatio. Sort lie-

cycles combied wit te calleges oaccrately orecastig demad also mea

ivetory obsolescece is a sigicat

problem, leadig electroics compaies to

see soltios sc as o-lie actios.

uortately, electroics sippers give

low mars to 3PLs ability to solve teir top

logistics calleges. Te largest gaps occr

o teir igest priorities: or example, 59%

regard price pressre to redce operatig

costs as teir top callege, wile jst 28%

believe 3PLs ca elp tem wit tis cal-

lege. 3PLs eed to do a better job o sellig

te qality ad vale o teir capabilities to

electroics cstomers, ad sippers eed to

be more ope to collaboratig wit 3PLs to

address teir top calleges.

Talent ManagementDespite te spply cais role as a sigicat

cotribtor to attaiig strategic bsiess

goals, te logistics idstry is experiecig

a sortage o capable ad well-roded sp-

ply cai maagers prepared to step ito ey

maagemet positios. Tis ca be overcome

by developig programs or talet maage-

met te vigoros, systematic process o

coectig a clear, well-deed bsiess

strategy to te recritmet, retetio ad

developmet o talet.

May sippers ad 3PLs are trobled by te

crret state o talet maagemet witi

teir orgaizatios, wit promotio ad rota-

tio practices ad idetiyig ad developig

leaders te top cocers.

As spply cais grow more complex ad

itrisic to a compays ability to attai its

bsiess goals, tey reqire leaders wo are

more diverse ad mlti-aceted. A sigi-

cat mber o sippers ad 3PLs eel teir

crret leaders dot ave wat it taes

to address tre bsiess calleges.Sippers ad 3PLs most igly vale opera-

tioal exectio (51% ad 60%) ollowed

by people maagemet ad developmet

sills (54% ad 43%) i teir leaders.

Todays spply cai leaders ave bee

reqired to grow well beyod teir opera-

tios bacgrods, developig a broad

rage o competecies wile o te job;

sippers (37%) ad 3PLs (39%) are most

codet i te learig ability o todays

leaders. Also importat are leaders ability

to dedce, execte, codct talet reviewprocesses ad lead visioary cage ad

orgaizatio by-i. Bt ew orgaizatios

ave bee idoctriatig tese compete-

cies ito mid-maagemet traiig ad

developmet, leadig to te talet crisis.

Te scarcity o spply cai talet pres-

ets a real callege or may sippers ad

3PLs. To date, te majority o bot sip-

pers ad 3PLs recrit rom iside teir ow

idstries, bt a growig tred is to loo or

talet i adjacet idstries. Compay sc-

cess ad perormace, attractive salary ad

beets ad persoal developmet oppor-

tities witi te compay are cosidered

te top qalities eeded to attract talet.

Strategic AssessmentCostatly cagig ecoomic ad political

dyamics ecessitate cotial re-evala-

tio o spply cai directios. Ispired by

te digs o tis years stdy, i tis stra-

tegic assessmet, te stdy team examies

several treds sprrig yet more cage ad

iovatio i te spply cai world.

Te srvey od sippers i developig

regios exibit a greater icliatio to bot

otsorce ad isorce logistics servicesta tose i te more developed cotries.

Wile tese reslts may seem to cotradict

oe aoter, te derlyig dig is tat

sippers i developig ecoomies are more

liely to mae cages to teir otsorc-

ig strategies ta tose i more developed

regios. Cosiderig te icreasig complex-

ity o may spply cais, tere is a strog

argmet tat sippers sold be looig

carelly at bolsterig logistics capabilities

via 3PLs ad 4PLs.

A growig mber o compaies aspire to

maage tis complexity via spply caicotrol towers, a cetral repository or all

evet data, ad several 4PLs oer tis ser-

vice. A well-desiged spply cai cotrol

tower eables a compay to measre ad

cotrol te eectiveess o te spply cai

i terms o agility, resiliece, reliability ad

resposiveess. Tis tred ca be viewed as

a positive metod o maagig overall spply

cai activities ad processes, bt 3PL ad

sipper mst collaborate to prevet dplica-

tio o eorts ad de added costs.

nearsorig is aoter sig o costatlycagig global dyamics. Compaies ave

moved prodctio to emergig marets i

prsit o lower costs, bt tat decisio

sometimes caged coditios i tose

very marets. Tis calleges compaies

to recosider te overall ecoomics ad i

some cases retr to earsorig.

Lie oter idstries, te spply cai ids-

try is i te early stages o worig ot ow

to best leverage social media or tass sc

as collaboratio, eacig orecastig ad

locatig talet, to eace day-to-day bsi-

ess ctios wile miimizig te riss.

Tog social media was ot iclded as a

topic drig tis years srvey, a sigicat

mber o respodets ad participats see

te beets o social media i te logistics

world ad qestio ot weter social media

will tae o, bt oly we.

5EXECuTIVE SuMMARY


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Balancing internal logistics competencies with external expertise


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Results o the 2012 16th Annual Third-Party

Logistics Studyonce again rearmed that

third-party logistics providers continue to

provide strategic and operational value to

many shippers across the globe. Shippers

consider logistics and supply chain man-

agement as key contributors to their over-

all business success, and approximately

three-quarters o survey respondents say

3PLs provide new and innovative ways to

improve logistics eectiveness.

These results are based on survey

responses rom 1,561 industry executives

and managers representing users and

non-users o 3PL services (reerred to as

shippers or shipper respondents through-

out this report), as well as 697 executives

and managers representing rms that

provide 3PL services (called 3PLs or 3PL

respondents). 3PLs were added to the

survey group in 009 in order to capture

both sides o the buyer-seller relationship.

The number o usable survey responsescontinues to rise each year, with a signi-

cant increase or the 2012 Study.

Please see About the Study on page 44 or

detailed inormation about survey respons-

es and the our streams o research used to

ully analyze the state o the 3PL market:

a web-based survey, desk research, ocus

interviews, and acilitated workshop ses-

sions at Capgemini Accelerated Solutions

Environment (ASE) locations in Chicago,

Illinois, and Utrecht, The Netherlands,and at the 011 eyeortransport 3PL

Summit in Atlanta, Georgia.

Current Global EconomicClimate and Use o 3PLs

As acknowledged in our Annual 3PL Studies

over the past two to three years, economic

volatility and uncertainty have impacted

global business markets and in turn, global

markets or 3PL services. Figure 1 includes

data rom Armstrong & Associates that

estimates the magnitude o global 3PL rev-

enues or 010 (US $541.6B), and provides

breakdowns or the our major geographies

that are included in the 2012 3PL Study.

Global 3PL revenues reported or 010

represent an increase o 6.8% over those

reported in 009, conrming the general

trend toward improving global business

conditions. Focusing specically on the US,

3PL revenues reported by Armstrong &

Associates have increased rom US $107.1B

in 009 to US $17.3B in 010, and are

expected to increase to US $141.B in 011.

Generally, these refect the somewhat-

improving global business environment

and ongoing economic globalization.

The Competitive StartingLine Has Been Re-SetThe chie reason or conducting the

2012 3PL Studyis to update our knowl-

edge o 3PL-shipper relationships, and

to learn how both types o organiza-

tions are using these relationships to

improve and enhance their businesses

and supply chains. Many shippers are

currently in search o new and innovative

global supply chain strategies, suggest-ing new opportunities or 3PLs to make

signicant contributions to supply chain

Current State o the 3PL MarketSippers Refect Cotied Codece wit use o 3PL Services

Figure 1: Global 3PL Revenues or 2010

Region2010 Global 3PL Revenues

(US$ billions)

nort America 149.1

Erope 165.1

Asia-Pacic 157.6

Lati America 27.5

Oter Regios 42.3

Total 541.6

Source: Armstrong & Associates, 2011

7CuRREnT STATE OF ThE 3PL MARkET


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are also similar to last year. A new series o

questions in the 2012 3PL Studyasked ship-

pers to report the percentages o trans-

portation and warehousing spend that are

managed by third parties. As indicated inFigure , the overall average or transpor-

tation was 56%, but the regional averages

ranged rom 41% in North America, to

more than 60% or shippers in Europe,

Asia-Pacic and Latin America. The aver-

age warehouse operations spend managed

by third parties was 39%, with only modest

variation by individual region.

Reported Changes inUse o 3PL ServicesIn recent years studies, we began to ask

shippers whether they were increasing

their use o outsourced logistics services,

or returning to insourcing many o them.

The responses represent an interesting

record o the shiting use o 3PL services:

Increasing use o 3PL services: Nearly

two-thirds (64%) o shipper respon-

dents report an increase in their use o

outsourced logistics services, and 76%

o 3PL respondents agree this is what

they are seeing rom their customers.

Regionally, 58% o North America ship-pers reported increased use, as well as

57% o European, 78% o Asia-Pacic

and 73% o Latin American shippers.

Returning to insourcing: Consistent

with the churn that occurs each year

with some companies increasing out-

sourcing and others bringing logistics

activities back in-house, an average

o 4% o shipper respondents are

returning to insourcing some o their

logistics activities, and 37% o 3PLrespondents observe that some o their

eciency and eectiveness. Many ship-

pers and 3PLs agree that todays business

challenges represent some version o a

new normal, driving the need or both

types o organizations to identiy andimplement new strategies or success. In

eect, the starting line has been re-set,

injecting a new, highly invigorated and

highly competitive spirit into the logistics

business environment.

Todays 3PL marketplace is experiencing

signicant change. Established 3PLs are re-

calibrating their business models to provide

greater value to their shipper-customers,

noted one prominent 3PL industry observ-

er. At the same time, they are looking over

their shoulders at emerging sources o com-

petition and the new and innovative oer-

ings they are bringing to market.

Spending on Logisticsand 3PL Services

As seen in Figure , shipper respondents

to the 2012 3PL Studyreport that total

logistics expenditures represent an aver-

age o 1% o their companies sales rev-

enues. Total logistics expenditures include

transportation, distribution, warehousing

and value-added services. Regional di-erences range rom 11% in each o three

regions to Latin Americas 14% o com-

pany sales revenues.

Shippers devote an average 4% o this

total to outsourcing, the same as reported

in last years study. That suggests that in

comparison with the previous year, average

changes in expenditures or outsourced

logistics have been proportional to chang-

es in total logistics expenditures. The

average percentages o logistics spendingshippers devote to outsourcing by region

customers are returning to insourcing

logistics activities.

Reducing or consolidating the num-

ber o 3PLs used: Slightly over one-hal (58%) o shipper respondents are

consolidating the number o 3PLs they

use, and 7% o 3PLs eel that customers

in general are reducing or consolidat-

ing the number o 3PLs they use. This

general trend toward consolidation is

consistent with contemporary trends in

procurement and strategic sourcing.

Interestingly, the percentage o shippers

increasing/decreasing their use o 3PL ser-

vices is very close to the gures we report-

ed in last years study. So, again this year,

there is strong evidence that the predomi-

nant direction among shippers is to move

toward increased use o outsourced logis-

tics services.

3PL-Shipper RelationshipsContinue to Progress and ImproveSimilar to last years study, 88% o shippers

view their 3PL relationships as generally suc-

cessul, compared with 94% o 3PL respon-

dents. Shippers ratings are consistent across

regions: North America 89%; Europe 88%;Asia-Pacic 89%; and Latin America 87%.

Somewhat ewer shippers, 71%, indicate

that 3PLs provide them with new and

innovative ways to improve logistics eec-

tiveness; 91% o 3PL providers eel that

this statement accurately characterizes

the services they provide. The gap con-

tinues between the ratings that shipper

respondents assign to various aspects o

the 3PL-shipper relationship and the more

positive evaluations provided by the 3PLrespondents themselves.

Figure 2: Outsourcing Spending Remains Consistent

Selected Inormation All RegionsNorth

AmericaEurope Asia-Pacifc Latin America

Total Logistics Expeditres as a

Percetage o Sales Revees12% 11% 11% 11% 14%

Percet o Total Logistics Expeditres

Directed to Otsorcig42 38 46 47 35

Percet o Trasportatio Sped Maagedby Tird Parties

56 41 66 61 66

Percet o Wareose Operatios

Sped Maaged by Tird Parties39 36 42 42 40

Source: 2012 16th Annual Third-Party Logistics Study



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Success Factors: According to the survey

ndings, the ollowing are key ingredients

to successul 3PL-shipper relationships:

Openness, transparency and good

communication: While 69% o shipper

respondents are satised with the open-

ness, transparency, and communication

received rom 3PLs, only 6% o 3PLs

are satised with these characteristics in

their relationships with customers. So,

apparently there is a need or both par-

ties to consider the value that could be

gained by being more willing to share

appropriate inormation with their busi-

ness partners.

Agility and exibility to accommodate

current and uture business needs and

challenges: Nearly all (98%) 3PLs eel

that their customers expect them to be

suciently agile and fexible to accom-

modate their (shippers) current and

uture business needs and challenges.

But just 68% o shippers judge their3PLs as suciently agile and fexible,

down rom 7% last year. This aspect

o 3PL-customer relationships clearly

needs improvement, and deserves care-

ul watching.

Interest in gainsharing between 3PLs

and shippers: Gainsharing comes up

requently during our shipper work-

shops, and we are receiving mixed sig-

nals regarding this orm o shipper-3PL

collaboration. This year 56% o 3PL

respondents and 4% o shippers (ver-

sus 56% last year), report engaging in

gainsharing arrangements. While many

shippers consider gainsharing to be a

useul incentive or themselves and their

3PL providers to work toward agreed-

upon objectives and in keeping with the

principles o good collaboration, others

seem to eel that the basic agreement

with a 3PL should cover all areas where

Figure 3: Shippers Continue to Experience Measurable Benef ts From Use o 3PL Services

Results All Regions

Logistics Cost Redctio (%) 13%

Ivetory Cost Redctio (%) 9%

Logistics Fixed Asset Redctio (%) 25%

Order Fill RateCaged From 70%

Caged To 79%

Order AccracyCaged From 80%

Caged To 87%


Figure 4: Shippers Still Prioritize Execution-Oriented 3PL IT Capabilities

Inormation TechnologiesPercentages Reported By

Shippers 3PL Providers

Trasportatio Maagemet (Exectio) 75% 79%

Trasportatio Maagemet (Plaig) 68 76

Wareose/Distribtio Ceter Maagemet 67 79

Electroic Data Itercage (Orders, Advaced Sipmet notices, Ivoicig) 66 78

Visibility (Order, Sipmet, Ivetory, etc.) 63 75

Web Portals or Booig, Order Tracig, Ivetory Maagemet, ad Billig 55 68

Bar Codig 47 56

Cstomer Order Maagemet 42 63

Trasportatio Sorcig 41 51

Global Trade Maagemet Tool 37 37

Spply Cai Plaig 31 54

networ Modelig ad Optimizatio 25 42

Collaboratio Tools (SarePoit, Lots notes, Video Coerecig, etc.) 25 38

Spply Cai Evet Maagemet 24 44

RFID 21 32

Advaced Aalytics ad Data Miig Tools 19 37

Yard Maagemet 16 26




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perormance is expected, and that it is

not necessary or appropriate to engage

in gainsharing practices. Interest in gain-

sharing may be diminishing somewhat

due to slight improvements in the globalbusiness economy. We plan to ollow this

closely in uture studies.

Interest in collaborating with oth-

er companies, even competitors, to

achieve logistics cost and service

improvements: When this question was

asked last year or the rst time, 68% o

shipper respondents and 80% o 3PLs

expressed interest in these strategies.

This year these percentages dropped to

44% and 67%, respectively. So, while last

year we stated it was reassuring to see

percentages that suggest a true interest

by both parties in working with other

companies, even competitors, perhaps

the easing o global economic condi-

tions have made this less o a priority.

We will continue to ocus on this issue in

uture studies.

Measurable Benefts: Shipper respondents

experience measurable benets rom 3PL

services, as seen in Figure 3. Metrics relat-

ing to logistics cost reduction, inventory

cost reduction, and logistics xed asset

reduction are consistent with what was

reported in the two previous years studies.

Shippers also report improvements in

order ll rate and order accuracy resulting

rom use o 3PLs, although the absolute

levels o these metrics are a little lower

than those reported in both the 2009and

2010 3PL Studies. This may be an indicator

o the continuing impact o the global eco-

nomic recession.

Finally, survey results showed that 60% o

the shipper respondents report their use

o 3PLs has led to year-over-year incre-

mental benets; and 88% o 3PL respon-

dents agree. Despite the positive success

ratings perceived by both shippers and

3PLs, there appears to be opportunity to

enhance the benets experienced by users

o outsourced logistics services.

Inormation TechnologyFigure 4 summarizes the inormation tech-

nology (IT) capabilities that shippers and

3PLs eel are must haves or 3PLs to suc-

cessully serve customers. Overall, the most

needed capabilities are those that relate

directly to execution-oriented activities

and processes such as transportation, ware-house/DC management, electronic data

interchange, visibility, etc. Others that have

somewhat lower rankings tend to be more

strategic and analytical.

Highlighted in Figure 5 is a ten-year view

o shippers opinions on whether they eel

inormation technologies are a necessary

element o 3PL expertise, and whether

they are satised with their 3PL provid-

ers IT capabilities, the dierence that has

become known as the IT Gap. In recent

years there has been a modest increase in

the percentages o shippers who indicate

satisaction with the IT capabilities o their

3PLs; in act, it is worth noting that the sat-

isaction rate has doubled since this ques-

tion was rst asked in 00. Despite this

improvement, the opportunity remains to

urther narrow the gap between these two

ratings. Similar to last years study, 68% o

3PLs eel that their customers are satised

with the IT services they provide.

Figure 5: IT Gap Shows Improvement, But Further Opportunity Remains

0%

20%

40%

60%

80%

100%

2011201020092008200720062005200420032002

IT Capabilities Necessary Element of 3PL Expertise

Shippers Satisfied with 3PL IT Capabilities

IT Gap

89%

27%

85%

33%

91%

42%

90%

40%

92%

35%

92%

42%

92%

37%

88%

42%

94%

54%

93%

54%




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What 3PL Users Outsourceand What 3PL Providers OerFigure 6 shows the percentages o shipper

respondents that outsource specic logis-

tics activities. Provided below are somegeneral observations about this years

results and the contrasts they reveal rom

previous years:

Transactional, operational, and repeti-

tive activities tend to be the most re-

quently outsourced. These include

international and domestic transporta-

tion (78% and 71% across all regions

studied), warehousing (6%), reight

orwarding (57%) and customs broker-

age (48%). This usage varies across each

o the regions. Another observation

is that or the most part, the percent-

ages indicated in Figure 6 or the all

regions results are somewhat lower

than comparable percentages rom

the previous years study. This may beexplained somewhat by the act that the

current study yielded a higher percent-

age o shipper respondents in the lowest

revenue category than in the previ-

ous years study, as noted in the About

the Study chapter later in this report.

Further analysis o the available data

conrmed that the higher the sales cat-

egory, the higher the average number o

logistics activities outsourced.

Perhaps due to the globally volatile

business environment, the percentage

o shippers outsourcing internation-

al transportation declined rom 84%

in 009 to 75% in 010, and now has

increased slightly to 78%. Over the same

time rame, the reported use o customsbrokerage declined rom 71% to 58% to

48% and the reported use o reight or-

warding services declined rom 65% to

53% and then increased to 57%.

The less-requently reported activities

indicated in Figure 6 tend to be some-

what more strategic, customer-acing,

and IT-intensive. Examples include: IT

services; supply chain consultancy servic-

es; order management and ulllment;

feet management; customer service;

and LLP/4PL services.

Figure 6: Shippers Continue to Outsource a Wide Variety o Logistics Services

Outsourced Logistics Service

User Percentages

All RegionsNorth

AmericaEurope

Asia-Pacifc

LatinAmerica

Iteratioal Trasportatio 78% 66% 91% 77% 84%

Domestic Trasportatio 71 65 77 74 69

Wareosig 62 65 61 65 63

Freigt Forwardig 57 52 54 64 65

Cstoms Broerage 48 49 43 56 45

Reverse Logistics (Deective, Repair, Retr) 27 25 28 33 22

Cross-Docig 26 29 28 25 22

Prodct Labelig, Pacagig, Assembly, kittig 24 19 28 24 26

Trasportatio Plaig ad Maagemet 23 24 27 21 16

Ivetory Maagemet 21 20 16 27 25

Freigt Bill Aditig ad Paymet 17 35 12 11 8Iormatio Tecology (IT) Services 15 15 14 13 16

Order Maagemet ad Flllmet 14 19 10 15 14

Service Parts Logistics 14 10 14 19 10

Cstomer Service 11 9 7 14 16

Spply Cai Cosltacy Services Provided by 3PLs 11 15 7 13 9

Fleet Maagemet 10 8 9 14 9

LLP (Lead Logistics Provider)/4PL Services 9 7 10 13 4

Sstaiability/Gree Spply Cai-Related Services 4 3 3 6 4




12/52

Figure 7 is a summary o the types o logis-

tics services provided by 3PLs participating

in the 01 survey and reveals that many

3PLs provide a wide range o services.

Based on ndings rom last year, it is very

common or 3PLs to oer many, or even

most, o the range o services included in

the question: the typical model is or 3PLs

to oer a substantial number o services to

respond eectively to their customers and

their logistics needs.

Earlier, the 2008 3PL Studyincluded a

special topic ocus on shippers expecta-

tions and usage o 3PLs as a part o their

green supply chain initiatives. Follow-up

questions on this topic in the 2012 3PL

Studyreveal that 9% o shippers rely on

3PLs to provide visibility to uel eciency

and carbon emissions inormation. Fully

53% o shippers say uel eciency and

carbon emissions have become an impor-

tant part o their 3PL procurement

decision processes.

The Voices o CurrentNon-Users o 3PL ServicesThe Annual 3PL Studysurvey also reaches

a substantial number o organizations

who do not currently use 3PLs. One objec-

tive o this study is to provide insight into

shippers decisions not to outsource. As

indicated in Figure 8, the most common

reasons are core competency, the impor-

tance o logistics, realization o cost reduc-

tions, integrating IT systems with 3PLsystems and control over outsourced activi-

ties. While there is a certain logic behind

using these concerns to support a decision

not to outsource, our discussions with

shippers indicate that sometimes these

very issues are used by other companies to

justiy their decision to outsource certain

logistics services.

Figure 7: 3PLs Provide a Wide Range o Outsourced Logistics Services

Outsourced Logistics ServiceProvider Percentages

All Regions

Domestic Trasportatio 83%

Wareosig 81

Iteratioal Trasportatio 70

Ivetory Maagemet 66

Order Maagemet ad Flllmet 65

Cstomer Service 64

Trasportatio Plaig ad Maagemet 63

Cross-Docig 62

Prodct Labelig, Pacagig, Assembly, kittig 62

Freigt Forwardig 58

Cstoms Broerage 50

Reverse Logistics (Deective, Repair, Retr) 56

Iormatio Tecology (IT) Services 51

Spply Cai Cosltacy Services Provided by 3PLs 51

LLP (Lead Logistics Provider)/4PL Services 42

Service Parts Logistics 38

Freigt Bill Aditig ad Paymet 34

Sstaiability/Gree Spply Cai-Related Services 31

Fleet Maagemet 26


Figure 8: Why Non-Users Do Not Use 3PLs

Reason Percent in Agreement

Logistics is a Core Competecy at Or Firm 19%

Logistics Too Importat to Cosider Otsorcig 18

Cost Redctios Wold not be Experiec ed 17

Too Di clt to Itegrate Or I T Systems wit t e 3PLs Systems 14

Cotrol Over te Otsorced Fctio(s) Wold Dimiis 13

Service Level Commitmets Wold not Be Realized 12

We have More Logistics Expertise Ta Most 3PL Providers 9




13/52

GO ONLINEFor more iormatio go towww.3plstudy.com



14/52

Balancing growth and opportunity


15/52

For many companies, doing business in

emerging markets is no longer a nice-to-

have; its a must-have to uel continued

growth. For example, General Motors

sold more cars in China than it did in

the United States last year, and PepsiCo

captured about hal o the Russian juice

market through an acquisition, accord-

ing to a CNNMoneyreport. As seen in

Figure 9, a substantial 80% o shippers in

the survey conduct business with or with-

in an emerging market, with the major-

ity (5%) doing so rom a mature market

and 8% rom within emerging markets.

Among 3PL respondents, 77% conduct

business with or within an emerging mar-

ket, 48% rom a mature market.

We dene emerging markets as nations

with economies that are experiencing

rapid growth through industrialization.

Mature markets are largely industrial-

ized nations with economies growing at a

slower, steadier rate. As seen in Figure 10on page 16, shippers and 3PLs in mature

markets concur that their top emerging

market opportunities are in China, India,

Brazil and Mexico, though their rankings

dier a bit.

Market Expansion ChallengesThe potential benets o moving into an

emerging market are oten ar more clear

than is the correct path to establishing busi-

ness there, particularly when making logis-

tics decisions. Successully balancing riskand reward requires a careul assessment o

the unique characteristics o each market.

As seen in Figure 11 on page 17, or ship-

pers based in mature markets dicult

laws and regulations, cultural dierences,

the ability to deliver against promises or

agreed-to service levels and complicated

tax regimes top the list o challenges.

Because o such obstacles, I could set up

a new operation in a more mature market

in much less time than in an emerging

market, says Gokhan Cakmak, Global

Logistics Manager or Orifame. This is

mainly due to the state o laws and regula-

tions as well as the inrastructure and lack

o international 3PL players present in

these markets.

Global trade compliance also represents

a hurdle or many companies operating

in emerging markets. For example, oneLogistics Director or a US-based apparel

manuacturer described the application

o customs regulations in Asia as a vexing

challenge. The authorities can become

bureaucratic and are normally not very

transparent, leaving a lot o execution and

interpretation to the eld ocers, and they

can be very erratic in their classication.

Bureaucracy and local processes make

working in emerging markets more chal-

lenging, says Cyrill Gaechter, Head oMarketing and Sales or Panalpina Black

and Caspian Sea. In more mature markets

it is less complex, however the emerging

markets are catching up continuously.

Proper preparation such as documentation

is o high importance around the world but

even more critical in emerging markets to

achieve reliable end-to-end-service.

Concerns vary by market and industry. For

example, shippers in electronics express

ar more concern than the overall respon-

dents (45% vs. %) about global trade

compliance, as well as attracting and

retaining good local sta and lack o secu-

rity or their goods.

Indeed, in contrast with the overall sur-

vey respondents, 3PL StudyASE workshop

participants and ocus interview partici-pants assert that security and countereit

intervention are key considerations in

operating global supply chains: How well

do you know the suppliers youre working

with and the quality o their due diligence?

Governments that are clear and consistent

on their security metrics and initiatives

make it easier to manage risk than those

where security eorts are less evident,

notes one US manuacturer. Some shippers

engage transportation security providers

when they perceive a high level o risk.

In ocus interviews, several experts

also cited green concerns as they move

into emerging markets. One Head o

Distribution or a communications equip-

ment manuacturer noted the diculty in

reducing its CO2 ootprint, which requires

limiting air reight and road transporta-

tion, while catering to the sales growth

expected in the next two years. To mini-

mize these modes we need to plan ahead

to allow or alternative modes like sea

reight and rail, not always an easy task in

a ast-growing market.

Opportities or Drivig Corporate Growt

Emerging Markets

Figure 9: Most Shippers Are Active In Emerging Markets

Neither

I am Based in an Emerging Market

I am Based in a Mature Market,But I Conduct Business With

or Within an Emerging Market

Shippers3PLs

52%

48%

28%

29%

20%

23%


15EMERGInG MARkETS


16/52

Case in Point: BrazilBrazil is representative o the risk/reward

challenges posed by an emerging econo-

my. Brazil will play host to two mega sport-

ing events, the FIFA World Cup in 014and the Olympics in 016, events which

are driving a large-scale inrastructural

improvement program. The Brazilian gov-

ernment plans to invest up to US $880B

in an economic stimulus program by 014

to propel growth, with a portion o those

unds devoted to upgrading its inrastruc-

ture, primarily roads and railways, but

also ports and waterways. The government

is also oering eligible corporations a 75%

corporate tax reduction on exploration

prots until 013. Brazils gross domestic

product average growth rate rom 1991

through 011 was 3.6%, according toTrading Economics.

A critical step in Brazils growth was

the ormation o Mercosur, the South

American ree trade agreement. Regional

growth together with the tax incen-

tives available in ree trade zones such as

Manaus have attracted global manuac-

turers such as Sony, Whirlpool, Samsung

and Honda, as well as international 3PLs,

according to a story inDC Velocity. Fast

growth in the 3PL market has enabled the

emergence o modern, specially built ware-

houses that meet the needs o multipleshippers. More than 90% o Brazilian com-

panies outsource transportation, accord-

ing to a survey by BDP International, while

75% outsource other activities, such as cus-

toms expediting and warehousing. Quality

o service has become a key metric or

Brazilian shippers.

Figure 10: Shippers and 3PLs Concur on Top Emerging Markets

Colombia

Egypt

Other

Philippines

Vietnam

Indonesia

South Africa

Turkey

Russia

Mexico

Brazil

India

China

Shippers Based in Mature Markets 3PLs Based in Mature Markets

Other

Egypt

Colombia

Philippines

Russia

Turkey

South Africa

Vietnam

Indonesia

Brazil

Mexico

India

China77%

63%

56%

55%

47%

44%

41%

39%

37%

34%

30%

29%

28%

80%

61%

60%

56%

41%

41%

41%

40%

39%

37%

27%

26%

22%




17/52

However, or all o its opportunity, Brazil

presents some logistics challenges:

Byzantine Tax Laws: Brazils complex

tax laws can vary signicantly amongregions, with at least 70 dierent types

o taxes, many o which require monthly

debits and credits. Enorcement is noto-

riously inconsistent. For example, regula-

tory law requires products manuactured

in Brazil to be returned to their point

o origin or disposition. One electron-

ics manuacturer was excused rom

compliance in 009, then required to ol-

low the regulation in 010, and was once

again excused in 011.

In addition, companies must get alicense or a warehouse to ship to custom-

ers, and then goods can only fow rom

that warehouse, says Wally Shaw, Market

Group Supply Lead, Americas, or Philips

Consumer Liestyle. You cannot ship

rom an overfow warehouse; you have to

ship the goods back to the main licensed

warehouse, which is very inecient.

Limited Inrastructure: Brazil is best

considered as dierent countries inside

one country in terms o its inrastruc-

ture and markets. In the south and

southeast regions, there is a big satura-tion o providers, which generates more

competition and lower costs. The cen-

tral west, northern (Amazon area) and

northeast regions lack providers and

inrastructure, so costs are much higher.

Many companies work with independent

drivers who own their own trucks as a

cost ecient solution or transporting

Figure 11: Difcult Laws Top Mature-Market Shipper Challenges in Emerging Markets

Other

Lack of Free Trade Agreements/Free Trade Zones

Lack of Security

Lack of IT Capabilities

Corruption

Global Trade Compliance

Attracting and Retaining Good Local Staff

Inadequate Physical Infrastructure

Language Barriers

Complicated Tax Regimes

Ability to Deliver Against Promises/Agreed Service levels

Cultural Differences

Difficult Laws and Regulations50%

47%

42%

42%

32%

31%

30%

28%

20%

19%

19%

15%

42%

29%

55%

28%

20%

36%

34%

22%

22%

33%

21%

12%

3%

5% Shippers Based in Mature MarketsShippers Based in Emerging Markets


17EMERGInG MARkETS


18/52

low-cost products such as seeds and con-

struction materials, but its a challenge

or these independent truck drivers to

secure a steady volume. Brazils invest-

ment in ports and airports has been

limited over the past many years; a con-

sequence is that containers can sit in cer-

tain ports or weeks awaiting unloading.

Brazils government has resisted private

investment in inrastructure.

Trade Zone Tradeos: Free trade zones

such as Manaus encourage growth in

underdeveloped areas by attracting

large manuacturers, but also serve as anexample o how tax benets alone do not

translate into logistics eciency. Manaus

has one road in and out, which cannot

take heavy truck trac, orcing many

shippers to use air/water reight.

Political and Regulatory Obstacles: Like

many emerging markets, Brazil has its

share o political infuences that impact

supply chain eciency. For example,

Brazils customs and duty regulations

have created a protectionist market orsome goods.

Evolving Logistics Marketplace: Rapid

growth has ueled demand or outsourc-

ing, creating a ragmented marketplace

populated by a range o providers. Many

were started by individual truck drivers

who acquired more trucks and then even-

tually bought a warehouse, though Brazil

is also served by major national and inter-

national players. Many logistics provid-

ers are individual-unction oriented, with

ew integrated supply chain, value-added

oerings, says Mauricio Ferreira, Latin

America Supply Chain Director or Krat

Foods. A ragmented logistics inrastruc-

ture oten drives companies to maintain

higher inventory levels.

In Brazil we are ten hours away rom

the US by air and 11 hours rom the

main European cities by air. It takes 17

days navigation by water to Europe and

38 to 45 days to reach China ports with

direct service, says Gilberto Zanon,

Head o Industry Verticals, Brazil at

Panalpina. The longer lead times mean

planning to avoid stock-outs or excess

stock is a challenge that companies need

to overcome. Successul companies and3PLs work together to do this.

Like other emerging markets, Brazils com-

pelling rate o growth and potential or

improvement has convinced many compa-

nies that the obstacles are worth the invest-

ment. As one participant at the eyeortrans-

port workshop noted, emerging markets

have the opportunity to build on what the

developed markets have already done and

then leaprog over them. One example is

the pervasive use o cell phones or bank-ing purposes in some emerging markets.

Selecting a 3PL Partneror Emerging MarketsEntering any new market requires due dili-

gence; when its an emerging market, gain-

ing local insight is even more critical, since

conditions are oten evolving rapidly. 3PLs

can play a critical role in both the plan-

ning and execution o shippers entry and

growth in emerging markets.

Early in the process, shippers must ask

themselves: What type o 3PL partner do we

want? Is it best to seek out a local player with

intimate knowledge o local practices, or a

global partner with more resources to bear?

As seen in Figure 1, more than hal o

shippers based in both mature and emerg-

ing markets agree that a global 3PL coor-

dinating with a local 3PL is the most suc-

cessul operating model or 3PLs operating

with or within an emerging market. We

look or two dierent types o providers,

says Tony Xia, Senior Logistics Manager

with Emerson Electric. One must be big

enough to have good coverage and good

IT, good assets, and can help growth and

expand. The other type is niche players,where they are pretty good in a small piece

o logistics.

The ideal, many shippers say, is to nd a

global player with strong local knowledge.

When they dont nd these qualities avail-

able in emerging markets, the combina-

tion o global and local 3PLs is the next

best thing. Michael Keong, Director,

Regional Logistics Asia, Levi Strauss and

Company, noted, We need to ensure

3PLs have the right resources, contentexperts, etcetera, to understand the local

favor. A strong account manager who

understands the local area is important to

us. That person need not know it all, but

must have the right network to solve any

problems that break.

Shippers participating in the ASE work-

shops illustrated the value o local knowl-

edge: One shared the story o a global

company that established a supply ware-

house in China to US specications, only

to nd the unloading docks to be at the

wrong height or local supply trucks.

Another shipper ound its pallet shiters

Figure 12: Shippers See Global 3PLs with Local 3PL Partners as Most Successul

Shippers Based in Emerging Markets

Shippers Based in Mature Markets(with Operations in Emerging Markets)

Global 3PL Coordinating with a Locally Based 3PLGlobal 3PLLocally Based 3PL

58% 24% 18%

51% 22% 27%




19/52

did not work in the narrow-bodied air-

crat coming out o Panama.

Signs indicate that the combination o

global and local players is working; as seenin Figure 13 on page 0, shippers and

3PLs are pretty well aligned in what they

believe are the most important services

in emerging markets. Shippers primary

needs rom 3PLs in emerging markets are

visibility (77% o those based in emerging

markets, 81% o those based in mature

markets), expertise on the latest global

trade regulations (60% and 69%) and

managing and optimizing shipment rout-

ing based on ree trade agreement knowl-

edge (59% and 57%).

Visibility: With the added risk and uncer-

tainty o emerging markets, the impor-

tance o visibility to shippers is understand-

able. Delivering products in Russia is

complex, says Panalpinas Gaechter, and

visibility over where our customers prod-

ucts are and a reliable service to ensure

products arrive on time are two critical

aspects o our customers needs. This is no

dierent than, or example, China, where

lead-time rom actory to exporting port

can take many days. Visibility and reliabil-ity play a key role there as well, and excel-

ling in this is more dicult in emerging

markets than more mature markets.

Its highly important or service-centric

computer manuacturers to be able to

provide order-level tracking to customers,

says the Supply Chain Director or a large

computer company, and 3PLs need this

capability to provide visibility to customers.

Even better is a 3PL taking proactive steps

to resolve issues detected through visibility,which many 3PLs in emerging markets do

not do, he says.

Global Trade Regulations: As noted in

Figure 13, 3PLs active in emerging markets

concur with shippers rankings, with the

exception o providing expertise on the

latest global trade regulations. Shippers

ranked this as the second most important

service they would like to get, whereas 3PLs

in mature and emerging markets ranked it

somewhere in the middle.

Compliance: In emerging markets, many

shippers rely on 3PL expertise to navigate

import/export documentation, embargoed

products/countries screening and other

compliance services. It would be useul

or 3PLs to have better relationships with

customs ocers to ensure they have localinput, etcetera, said Levi Strauss Keong.

3PLs should engage more in customs

meetings and be the conduit to discuss

customer requirements.

Other Services Sought From 3PLsIn addition to those capabilities cited in the

survey, ASE workshop and ocus interview

participants concur that they would like to

see these additional qualities and capabili-

ties in 3PLs active in emerging markets:

Proactive Consulting Services: At the

ASE workshop held in Utrecht, shippers

concurred that the timing o 3PLs assis-

tance was also key. Very oten an initia-

tive to move into an emerging market

begins with the shipper conducting ini-

tial research because their 3PL partners

lack insight into that market. Then the

3PL ollows, ramping up its own investi-

gation. Shippers would like to see 3PLs

take a more proactive approach and

are willing to pay or it.

Local Insight and Expertise: Its the

lack o local expertise on the part o

global 3PLs without a strong local pres-

ence, such as the best way to move prod-

uct in that country, that drives ship-

pers to local 3PLs and other experts.

Shippers want creative, inormed ideas

to overcome local barriers, or example,

using a barge in Vietnam to circum-

vent road congestion, or overland or

cross-border trucking in India and

Bangladesh or even how to handlelocal events such as labor stoppages.

In one telecom companys emerging

markets experience, Logistics service

providers ail to come up with new logis-

tics solutions or improvements, says its

Head o Distribution. Any new solution

or idea is brought up ourselves. This is

where LSPs really ail.

Integrated Solutions: Shippers that want

to amass the requisite logistics services

and knowledge required or an integrat-

ed approach oten nd they must engage

multiple 3PLs because no single 3PL has

what they need. One ASE participant

related how his company was seeking

integrated warehouse and transporta-

tion services in an emerging market it

was entering, ideally with the warehouseslocated close to air hubs. But the 3PL

they wanted to work with was not set up

to accommodate the shippers needs.

Security: Shippers in emerging markets

expect 3PLs to address their security

concerns through measures such as

delivery trucks with GPS systems, engine

shut-down systems, and drivers trained

on security protocols.

Long-Term Commitment: Its also

important that 3PLs eorts be stra-

tegic, not tactical. 3PLs still lack a

longer term sustainable plan or com-

ing into a country, says Arun Salvi,

Logistics Manager Asia Pacic, or Shell

Lubricants. They are taking more o

a short-term approach to make pro-

its much quicker than they should be.

Global players end up being like the

local players, but with a oreign name,

because they have not invested properly

in inrastructure, people and processes.

All o these points can make or a dicult

environment and require 3PLs and ship-

pers to work closely together and with high

degrees o trust i success in emerging mar-

kets is to be achieved. This might be one

o the reasons people choose global 3PLs

working with local players.

Free-Trade Agreements and 3PLsA ree trade agreement (FTA) is a pact

between two or more countries or areas in

which they agree to lit most or all taris,quotas, special ees and taxes, and other

barriers to trade among them to allow

aster transactions and a higher volume o

business. According to the United Nations

Statistics Division, FTAs such as the

North American Free Trade Agreement

(NAFTA), the European Union (EU-

7) and the Organisation or Economic

Co-operation and Development (OECD)

have made a denitive impact on growth

across sectors such as machinery, manuac-

tured goods and chemicals.

FTAs, ree trade zones (FTZ) and Special

Economic Zones (SEZ) have in turn ueled

19EMERGInG MARkETS


20/52

Figure 13: 3PLs Are Delivering on Shippers Emerging Market Needs

ProvidingFinancial Services(Such as Factoring)

Managing10+2 Filings

Screening forEmbargoed Countries and

Restricted Products

Maintaining aProduct Database forGlobal Classification

Establishing and/orManaging Operations

Within a Free Trade Zone

ProactiveComplianceConsulting

Managing and ValidatingExport/ImportDocumentation

Managing and OptimizingShipment Routing

Based on Free TradeAgreement Knowledge

Providing Expertiseon the Latest Global

Trade Regulations

Providing ShipmentVisibility

82%

46%

58%

74%

45%

46%

28%

34%

34%

12%

81%

69%

57%

70%

50%

37%

26%

29%

26%

11%

81%

48%

51%

64%

42%

41%

23%

23%

19%

14%

77%

60%

59%

58%

50%

38%

30%

21%

19%

17%

Shippers3PLs

Based in Emerging Markets Based in Mature Markets




21/52


22/52

Balancing long lead times with short product liecycles


23/52

Electronics products are oten the rock

stars o the consumer and business prod-

ucts worlds, with buyers eagerly anticipat-

ing the next release with the latest and

greatest eatures. But along with enviable

demand comes pressure to make products

smaller, aster, cooler and at a lower price

point. Some electronics products liecycles

closely resemble ashion: Whats in today

is out tomorrow. But even everyday devices

are eeling the heat. Everyone wants to pro-

duce the next iPad.

Hitting these targets demands a ast and

nimble supply chain. The challenges o

attaining this all into three major buckets:

global manuacturing and sourcing issues,

channel and network complexity and the

implications o an intricate, high-value

product set.

Electronics Manuacturing andSourcing Challenges

Electronics products liecycles are growingever shorter and margins tighter, increas-

ing pressure to lower costs and manage ma-

terial and suppliers more eciently. This

has triggered the ollowing trends in man-

uacturing and sourcing:

Asset Lightness: One industry trend

is toward ewer original equipment

manuacturers (OEMs) actually manu-

acturing, moving or storing their own

products. Many preer to engage both

contract manuacturers and third-partylogistics providers or these services. For

example, Sonys adoption o an asset

light philosophy prompted the com-

pany to sell o assets including a major

TV manuacturing acility in Mexico to

Foxconn Electronics in January, 010.

Emerging Markets Sourcing: Many

electronics companies have sought out

manuacturing and logistics partners

in emerging markets, a move which can

lower costs but at the same time create a

long, thin supply chain. Sourcing rom

emerging markets also oten means

insucient inrastructure and emerging

logistics capabilities, creating challenges

in expediting reight and maintaining

pipeline inventory, as well as increasing

supplier and global trade compliance

risks. 3PLs with experience in these mar-

kets can play a critical role in devising

strategies to overcome these obstacles.

Global Supply Chain Complexity and

Risk: Too many product lines and too

many components sourced rom too

many araway places creates a com-

plex, costly and long supply chain. As

seen in Figure 15 on page 4, supply

chain complexity and risk is the second-

highest-ranked challenge or shippers.

Figure 18 on page 30 reveals that 3PLs

are somewhat more condent in their

ability to help address this challenge

than shippers are (4% to %), per-

haps because more o the cost empha-

sis is on the product itsel and not the

logistics wrapped around it. An excep-

tion is Philips, which merged two divi-

sions, both selling to retail and at timesto the same customers, in an eort to

reduce complexity and lower its ware-

house count.

Make to Order/Make to Stock: A make

to order production strategy enables

electronics companies to customize

products such as computers to cus-

tomers exacting specications. Dell

achieved signicant supply chain rec-

ognition or its work toward its make to

order supply chain model. The majorityo electronics companies in the survey

(78%) agree that or most electron-

ics companies, a make to order supply

chain model may not always be as cost

eective as a make to stock model. It

can also lead to inventory obsolescence,

especially when product liecycles are

short. Dell maintains as many as six

supply chains. Business products are

made to order, but diering demand

requirements mean some move via air

reight while others leverage alternative

modes, according to a Supply Chain Digest

Webcast. Dells retail products are made

to stock and planned well in advance to

get products to market cost eectively

or peak seasons.

Complexity Iside ad Ot

Electronics

23ELECTROnICS


24/52

Figure 15: Price Pressure Tops Electronics Shippers Logistics Challenges

Pressure to ManufactureOnshore or Near Shore

Make/Configure to Order Products

High Obsolescence RatesAssociated with Stocked Product

High Product Throughput LevelsAssociated with New Product

Launches and Seasonal Demand

Data Integration and Synchronization

Short Product Lifecycles

Supply Chain Security

Service Parts Logistics, IncludingProduct Returns Processing

Supply Chain Disruptions

Volatile/Unpredictable Demand

Lack of Supply Chain Visibility

Global Supply Chain Complexityand Risk (Including Compliance)

Price Pressure to Reduce Operating Costs60%

60%

47%

37%

38%

54%

47%

44%

28%

40%

37%

24%

24%

59%

54%

41%

37%

36%

36%

35%

30%

30%

20%

17%

14%

13%

Shippers3PLs




25/52

The bottom line is that one size does

not t all, even within one electronics

company, due to varying market and cus-

tomer needs.

Postponement: A related strategy

avored by electronics manuacturers,

which both reduces inventory and pro-

vides a higher level o customization, is

postponing nal conguration, includ-

ing packaging, until the product is in or

close to the market where the product

will be consumed services that may be

perormed by 3PLs in these markets.

People want the benets o manuactur-

ing in China, but are doing more pack-

aging in the US, as well as light assembly

where possible, says Wally Shaw, Market

Group Supply Lead, Americas at Philips

Consumer Liestyle. This helps with

orecasting by reducing the number o

SKUs you are planning, and also helps

reduce cube in transportation by using a

bulk pack.

Price Pressure: Shippers view price

pressure to reduce operating costs as

their top logistics challenge (59%). One

increasingly common solution is to shit

rom a heavy emphasis on ast but costly

air reight to other modes according to

specic channel needs, but this requires

signicant advance planning. Nearly

two-thirds (65%) o electronics shippers

in the survey avor air reight over slower

modes to shorten supply chain transittime. 3PLs believe they can play a larger

role in helping electronics shippers

address this challenge than shippers do

(Figure 18, 38% vs. 8% o shippers).

Use o Contract Manuacturers as 3PLs:

The lines between industry groups are

blurring as contract manuacturers in

emerging markets oer services that

are more traditionally associated with

3PLs, a trend noted by about two-thirds

o shippers and 3PLs in the survey. Most

common services include transportation

management, warehousing and distri-

bution services and returns manage-

ment. Some contract manuacturers are

oering the more advanced services

typically provided by 3PLs, such as sup-

ply chain network design, logistics plan-

ning and consulting services. Contract

manuacturers see this as a logical

extension o their services and a higher-

margin opportunity. Discussions with

3PLs reveal that they do not see this as

a major threat yet, since logistics is their

core competency and they believe that

electronics companies will choose them

over contract manuacturers or complex

international logistics needs.

Environmental and Social

Sustainability: Like many industries,

electronics manuacturers are con-

cerned with CO2 emissions and uel

consumption, particularly with long sup-

ply chains. Manuacturing byproducts

such as lead rom printed circuit board

production are an additional concern;

70% o heavy metals in US landlls

come rom discarded electronics prod-

ucts, according to Supply Chain BrainsHigh Tech Outlook, February 011.

Companies and savvy 3PLs are get-

ting creative to solve materials and pack-

aging problems. Dell is trying protective

packaging made o bamboo and even

mushrooms and is scaling down package

sizes to t more on a pallet, according to

an April, 011, article inFortune.

Complex Networks and ChannelsThe electronics industry is notoriously

segregated, with multiple players involved

in the supply chain, not all o which are

marching to a common beat. These play-

ers include:

Component suppliers

Contract Manuacturers, Original

Design Manuacturers and Joint Ventures

Original Equipment Manuacturers/

Brand Owners

Distributors/Partners/Value-Added

Resellers

End Customers

Electronics is also a highly dynamic indus-

try: Technology changes so rapidly that

many companies are driven to ailure due

to their inability to keep up with changing

technologies. That in turn drives signi-

cant merger, acquisition, and divestiture

activity; Cisco alone has acquired more

than 145 companies in the last 18 years,according to the companys Web site.

Motorola recently split into a consumer

products company and a business and gov-

ernment products company while selling

o a division that makes network inra-

structure equipment.

Further complicating matters, electronics

companies sell into many vertical markets,

each with its own unique needs. Among

the most trying is retail, which oers

opportunity but also complexity to elec-tronics supply chains. Among the challeng-

es o interacting with retailers:

Inaccurate retail-level orecasts

Retailers risk tolerance

Exacting vendor compliance programs

with signicant penalties

Consumer electronics products oten

have a long lead time and a short prod-

uct cycle, which creates obsolescence or

excess stock

25ELECTROnICS


26/52

More than two-thirds o electronics com-

panies in the survey (73%) agree that

establishing a branded retail presence

themselves is a good way or consum-

er electronics manuacturers to driveincreased revenue.

Multiple layers, mashed-together supply

chains and the specic challenges o retail

channels introduce cost, saety stock, ore-

cast challenges and additional time into

logistics processes.

One impact can be seen in electron-

ics companies orecast accuracy, which

averages 60% to 70%. Chris Armbruster,

Senior Director, Business Transormation,

at Motorola Solutions, who participated in

the ASE workshop in Chicago, noted that

the vertically dis-integrated supply chain

common in electronics slows and oten

limits the sharing o orecasts, leading to

a bullwhip eect in inventory levels at both

the retail and sourcing levels, when chang-

es in supply or demand occur. Sharing

inormation on true demand more quickly

would result in improved orecasts and

reduced inventory levels. Electronics com-

panies must be agile to adapt to market

changes and unanticipated events, such asthe recent Japanese tsunami or earthquake

in China, and use demand sensing and

shaping to detect and infuence demand.

Another challenge is to design a common,

cost-ecient inrastructure across supply

chains. Lean is a common goal reducing

inventory, containing SKU prolieration,

and limiting xed assets, such as in Sonys

supply chain, described previously.

These challenges provide opportunity or3PLs to oer services such as visibility, set-

ting up inventory hubs in key locations,

helping to rationalize inventory across the

supply chain and nding ways to reduce

cycle time on transit legs. Fully 55% o

3PLs report that they can help electron-

ics companies redesign supply chain

networks, which can help them respond

to diering channel needs while shar-

ing common inrastructure and services

wherever cost eective. However, as seen

in Figure 17 on page 9, only 14% o ship-

pers use 3PLs or this service. To capture

more o this business, 3PLs need to invest

in understanding the customer at all lev-

els in the organization. An electronics

manuacturers Supply Chain Manager

participating in the ASE workshop in

Utrecht noted that in his experience some

3PLs lack the ability to eectively respond

to shippers organizational changes.

Consumer electronics products share

characteristics with ashion retail (veloc-

ity) and consumer products (short lie-

cycles, demand volatility, peak season

demands); 3PLs with experience in retail

and consumer products can also cross-pol-

linate best practices in product distribu-

tion and demand management with elec-

tronics companies.

High-Demand, High-Value ProductsElectronics companies build products peo-

ple want, with the latest, most in-demand

eatures that appeal to specic markets.

That makes them high valued and sub-

ject to thet, countereit and the whims o

consumer tastes. These are some o the

challenges this poses:

Visibility: Global supply chain visibility is

a clear priority or electronics shippers. In

Figure 15, its the third-most-cited logistics

challenge (41%). Electronics shippers in

the US rank this more highly than thosein Europe and Latin America, and larger

shippers place more importance on it than

smaller companies. Visibility is essential to

provide inventory availability and order sta-

tus to customers as well as to provide secu-

rity while in transit.

In Figure 16, 74% o electronics companies

cite visibility as the top service they would

like to see rom 3PLs, no matter the size or

location o the shipper. A leading comput-

er manuacturer, or example, has begunto pursue a model in which a 4PL manages

all o its 3PLs in a given country in order to

ensure visibility.

Figure 17 reveals that improved orecast-

ing and inventory visibility is the third

most-used cost-saving strategy by elec-

tronics companies, although curiously,

despite the act that 3PLs are ideally situ-

ated to provide visibility to customers,

both shippers and 3PLs report that 3PLs

are not very likely to be assisting in this

improvement process. Perhaps 3PLs are

providing sucient visibility, but work

needs to be done on the shipper side to

maximize its use.

74%o electronics companies cite

visibility as the top service they

would like to see rom 3PLs



27/52

Figure 16: Visibility Tops Services Electronics Companies Seek rom 3PLs


Software Loading/Flashing

Launch of New Product

Warranty Processing

Testing

Willingness to Own and Manage Inventory

Managing Global Production Supply

Lean/Six Sigma

Environmental Certifications Such as ISO 14000

Final Assembly/Configuration/Postponement

Facilitate Just in Time (JIT)Manufacturing/Kanban Systems

Kitting

Service Parts Logistics

Quality Certifications Such as ISO 9000

Experience with Local Product Regulations

Vendor Managed Inventory

Reverse Logistics


Global Supply Chain Visibility 74%

56%

44%

40%

11%

6%

11%

7%

25%

12%

21%

19%

17%

12%

8%

15%

40%

38%

4%

8%

26%

11%

22%

15%

21%

9%

34%

27%

24%

32%

6%

11%

22%

9%

5%

8%

Important Today

Important in Near Future

27ELECTROnICS


28/52

Security: As seen in Figure 15, 35% o ship-

pers call security a supply chain challenge;

while thet o electronics goods has steadilydeclined over the past ve years, it still rep-

resents 1 in 5 thets across all industries,

according to FreightWatchs Annual Supply

Chain Survey. Figure 16 reveals that security

is the second most important capability

that electronics companies look or when

they hire 3PLs. Security is a particular pri-

ority in emerging markets which dont have

all o the protections available in mature

markets. Technologies can help, such as

covert and visible shipment tracking solu-

tions, GPS and engine shutdown systems,

as well as practices including driver train-

ing and use o transportation security com-

panies such as FreightWatch. As the results

indicate, shippers are looking to 3PLs to

enact these measures.

Countereiting: A related need is to com-

bat countereiting o goods through pre-

vention and detection; electronics compa-

nies must thoroughly vet their suppliers

and employ security measures or com-

ponent parts as well as nished goods.

Package seals with serial numbers are animportant anti-countereit measure. One

potential concept is to borrow e-pedigree

practices rom the pharmaceuticals indus-

try; 3PLs could provide the supply chain

integrity and manage the component pedi-

gree processes.

On-Board Intelligence: Electronics compa-

nies are beginning to tap the digital supply

chain or applications such as remote mon-

itoring and diagnosis. Diebold, or exam-

ple, enables predictive maintenance oATMs via an embedded device, according

to a company white paper. The company is

notied when a component is at risk o ail-

ure and dispatches a service repair person

with the correct part beore it ever aects a

user, reducing costs and increasing custom-

er service. 3PLs could act as the centralized

depot in this scenario to receive service

messages and send replacement parts.

Packaging: Shiny packaging or oten-del-

icate electronics products is designed to

attract customers, but oten requires outer

boxes to protect it. Electronics companies

are testing cost-reduction and sustainabil-

ity strategies such as using new protective

materials, including the mushrooms andbamboo mentioned on page 5, as well as

smaller packages and postponement o

light assembly and packaging to the desti-

nation market also a SKU reducer, and

an opportunity or 3PLs.

Many retailers place electronics cartons

right on the sales foor. I this packag-

ing is too thin, it is susceptible to damage,

and glossy coatings can be slick, causing

cartons to shit in transit and pallets to

collapse, damaging cartons and, poten-

tially, contents. Sony solved this problem

by improving shipment integrity through

the use o corner boards, banding, air bags

and improved shrink wrapping techniques.

Local Market Customization: Individual

markets come with their own appetites

and preerences, such as 0-volt electric

service in Europe and Asia with dierent

electrical outlets in dierent countries vs.

110-volt in The United Sates and Canada.

Regulation may also dictate specic design

eatures. 3PLs might help electronics com-panies with sotware downloads or minor

localization o the hardware, such as power

supply units, as well as insight into local

regulations and import/export require-

ments, especially in emerging markets.

Short Liecycles: Like ashion apparel,

many electronics products are made in

emerging countries such as China, Taiwan,

India and Brazil and consumed in US and

European markets. This means a relatively

long supply chain or liecycles that otenrun just six to 18 months, creating obsoles-

cence issues.

These short liecycles combined with

the challenges o accurately orecasting

demand also means inventory obsolescence

is a signicant problem or electronics

companies, particularly or make to stock.

The majority (69%) o electronics ship-

pers believe 3PLs can help them deal with

inventory obsolescence by proactively iden-

tiying slower moving items and items that

have been replaced with newer releases.

26%o shippers eel 3PLs can help

them improve distribution center

processes as a cost-saving

strategy, the top-ranked way

they believe 3PLs can assist

them in lowering costs



29/52

Figure 17: Electronics Companies Employ Many Logistics Cost Savings Methods

Employed More Fuel-Efficient Transport

Moved to a Make to Order Model

Improved Inventory Turns ThroughVendor Managed Inventory

Rationalized or Decreased the Number of SKUs

Implemented or Improved Logistics-RelatedInformation Technology Tools or Enablers

Improved Returns Management/Reverse Logistics Processes

Improved Shipment Density/Load Utilization

Redesigned Supply Chain Network

Switched to Multimodal or Slower Mode of Transport

Increased Outsourcing

Instituted Internal Training Programs to EncourageCost Effectiveness/Lean Behaviors

Renegotiated Rates for Warehouse Services

Improved Forecasting and Inventory Visibility

Improved Distribution Center Processes

Renegotiated Rates for Logistics Services63%

62%

57%

52%

49%

49%

48%

45%

39%

37%

18%

26%

10%

17%

10%

10%

19%

18%

14%

10%

47%

41%

37%

31%

22%

14%

16%

2%

6%

9% Our Company Uses

Assisted by 3PLs


29ELECTROnICS


30/52

Figure 18: More 3PLs Than Shippers Believe 3PLs Can Help with Challenges

Other

Pressure to ManufactureOnshore or Near Shore

Make/Configure to Order Products

High Obsolescence RatesAssociated with Stocked Product

Short Product Lifecycles

High Product Throughput LevelsAssociated with New Product

Launches and Seasonal Demand

Volatile/Unpredictable Demand

Data Integration and Synchronization

Supply Chain Disruptions

Service Parts Logistics, IncludingProduct Returns Processing


Global Supply Chain Complexity andRisk (Including Compliance)

Lack of Supply Chain Visibility

Price Pressure to Reduce Operating Costs38%

39%

42%

32%

43%

27%

17%

16%

26%

14%

13%

11%

13%

28%

24%

22%

21%

20%

17%

13%

11%

9%

4%

4%

2%

0%

1%

0%Shippers3PLs




31/52

3PLs could help to identiy at risk inven-

tory in the warehouses that they manage,

as well as arrange intermodal and other

consolidation services to increase the sup-

ply chain velocity without dramatically

increasing transportation costs. You need

a very good level o integration to be adap-

tive and fexible to cope with these shorter

lie cycles, says Tony Xia, Sr. Logistics

Manager with Emerson Electric.

When inventoried items become obsolete,

58% o electronics shippers in the survey

agree that online auctions are an impor-

tant means or electronics companies to

reclaim some value. Facilitating online

inventory disposition is the next logical

step in a 3PL value-added service oering.

A number o electronics companies use

FreeFlow, provider o online private mar-

ketplaces and auctions, to sell at-risk inven-

tory through secure channels or each

stage o the inventory aging process.

The Role o 3PLsAs seen throughout this chapter, electron-

ics companies avor outsourcing in both

manuacturing and logistics services.

Thats especially true in emerging markets.

Yet there is a clear gap between the services

3PLs are currently providing and the addi-

tional value they could provide.

As seen in Figures 15 and 18, electronics

shippers give low marks to 3PLs ability to

solve their top logistics challenges. The

largest gaps occur on their highest pri-orities: 59% call price pressure to reduce

operating costs their top challenge, while

just 8% believe 3PLs can help them with

this challenge. A similar gap is revealed

in 3PLs ability to help electronics com-

panies with global supply chain complex-

ity and risk, including compliance. 3PLs

themselves also see a gap, albeit smaller,

between these challenges and their involve-

ment in helping their customers with these

challenges.

The same is true in top savings methods

used by electronics companies in Figure 17;

there are signicant gaps between strate-

gies used and assistance by 3PLs in those

eorts, conrmed by 3PLs themselves.

At the ASE workshop in Utrecht, one con-

tract manuacturer shed some light on

one o the reasons shippers may not seek

to undertake problem-solving with 3PLs.

They do not bring cost reductions and

a lean approach to the table very oten,

he said. They will do only what they are

asked to do; they do not proactively oer

many value-added services.

Its clear in Figure 18 that 3PLs see oppor-

tunities to support shippers in ways elec-

tronics shippers themselves do not. Both

sides need to meet in the middle: 3PLs

need do a better job in selling the quality

and value o their capabilities to electron-

ics customers, and shippers need to be

more open to collaborating with 3PLs to

address their top challenges.

Generally speaking, electronics shippers

view 3PLs as skilled and capable at un-

damental

21.10third party logistics-studie 2012

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