third-party logistics 2005

2005THIRD-PARTYLOGISTICS

Results and Findingsof the 10th Annual Study

2005 Third-Party LogisticsResults and Findings of the 10th Annual Study

Participants:C. John Langley Jr., Ph.D., Georgia Institute of Technology Erik van Dort, CapgeminiAlec Ang, DHLScott R. Sykes, SAP

Table of Contents

Introduction and 10-Year Retrospective..............................................2

Study Objectives and Methodology .....................................................4

Summary of Key Findings ....................................................................8

Logistics Outsourcing Practices ........................................................10

3PL Service Offerings and Capabilities .............................................15

Management and Relationship Issues ..............................................18

Customer Value Framework...............................................................24

Technology Enablement .....................................................................27

Strategic Assessment.........................................................................31

Appendix: 3PL User Focus Groups and Capgemini AcceleratedSolutions Environment (ASE) Meetings.............................................36

About the Participants........................................................................38

Contact Information............................................................................41

Supporting Organization

1

3PL 2005: Results and Findings of the 10th Annual Study

Introduction and 10-Year Retrospective

This report presents the findings from the 10th Annual Third-Party Logistics Study.From 1996 to 2005, this study has helped to identify and track key trends and views ofthe third-party logistics (3PL) industry from the perspective of the customers who use3PL services. Over its 10-year history, each annual study has addressed for anincreasingly broader range of user industries and regions the key issues that haveemerged from time to time relevant to the logistics and 3PL industries.

We would first like to acknowledge the much-appreciated participation of the 3,463logistics executives over the past 10 years who took the time to complete our annualsurvey and to share their 3PL experiences. They are why this study has been able toprovide 10 years of useful information on a vital industry that serves logistics profes-sionals every day.

Second, we would like to recognize the key businesses that have supported and beenpart of this research over its 10-year history. Among these companies are Exel(formerly Exel Logistics Americas), Ryder System, Inc., FedEx Supply Chain Services,Inc., Capgemini (formerly Cap Gemini Ernst & Young), and beginning this year, DHL andSAP. Without the involvement of key people from these companies and the financialresources they have provided, this study would not have been able to achieve theprofessional respect and attention it receives today.

Looking back over the past 10 years, the overall business environment and thelogistics sector has experienced significant—even tumultuous—change. Here aresome of the key ways in which professional life in 1996 was quite different from today:

❑ In 1995, U.S. logistics costs were reportedly US$773 billion. The comparable figurefor 2004 was US$1,015 billion.1

❑ Logistics costs as a percent of U.S. gross domestic product declined from 10.4% in1995 to 8.6% in 2004.2

❑ The U.S. 3PL/contract logistics market grew from an estimated US$31 billion in1996 to US$85 billion in 2004.3 Additionally, a large number of corporate mergersand acquisitions involving 3PL providers, many on a global basis, occurred between1996 and 2005.

❑ According to financial analysts in 1995, the logistics industry could be characterizedby “too many trucks chasing too little freight.”4 In 2005, it is difficult to find anysector in the logistics industry where lack of capacity is not a significant problem.

❑ Although the European Union was in place in 1995, it would be seven years beforethe euro was introduced as the official currency in most of Europe. In 1997, HongKong was returned to China from having been an important British crown colony.

❑ Business in general, and the 3PL sector in particular, have become far more globalin 2005 than they were in 1995. In response to the expanding regional needs ofcompanies across a broad range of industries, the logistics sector is being asked toexpand its services for customers with global logistics needs. This has created agrowing market for comprehensive, global 3PL services.

2

Over the years, this study has provided significant insight into how customers view anduse outsourced providers of logistics services. The first six years of the study, 1996 to2001, focused exclusively on the trends in North America. Since 2002, the study alsosurveyed users in Western Europe, Asia-Pacific, Latin America, South Africa, and theMiddle East. The following are some of the changes we have seen in the 3PL industryover the past 10 years:

❑ While for the first six years of the study about 72% of the survey respondents fromNorth America described themselves as “users” of 3PL services, this percentagehas increased about 80% in the past four years. Significant use of 3PL providersand services also exists in the other regions studied.

❑ In all the years of the study, we asked logistics executives what factors wereaffecting their businesses. Exhibit 1 shows four major factors and changes in thosefactor’s rankings. In recent years, respondents have also cited increases in theimportance of “emphasis on improved supply chain management” and “intensifyinggovernment and regulatory policies,” among other factors.

❑ Annually, the most prevalent logistics services outsourced to 3PL providers aretransportation (outbound and inbound) and warehousing. In the past 10 years,however, many services have increasingly been outsourced, including customsclearance and brokerage, freight forwarding,cross-docking/shipment consolidation, andorder fulfillment and distribution.

❑ Throughout the history of this study, 3PLusers have given their outsourced 3PL effortshigh ratings in terms of “success.” As isdiscussed each year, however, 3PL users stillexpect their 3PL providers to improve in anumber of service areas.

❑ Survey findings in recent years indicate that logistics is increasingly an importantarea of activity within a company. Results from each of the regions studiedsubstantiate the fact that logistics represents a strategic, competitive advantage.

One conclusion stands out, though: The 3PL industry is still growing. Among thepriorities currently facing 3PL providers are regional expansion, broadening services tomeet the needs of current and future customers, integrating information technologies,and developing relationships with customers and other business firms that willfacilitate the growth and expansion that lies ahead.

It has been very exciting to see the 3PL industry develop over the past 10 years. Weexpect to see in the years ahead significant changes and enhancements to theprovision and use of outsourced logistics services.

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Factors Perceived by Logistics Executives, 1996-2005Factor 1996 North 2005

America North America All RegionsPressure to reduce cost 87% 96% 91% -100%Pressure to enhance customer service 65 80 74 - 84Globalization 58 80 63 - 90Develop new information technologies 47 82 81 - 96

© 2005, C. John Langley Jr., Ph.D., and Capgemini U.S. LLC. All rights reserved.

1 16th Annual State of Logistics Report. Oak Brook, IL: Council of Supply ChainManagement Professionals, 2005.

2 Ibid.3 Armstrong and Associates, www.3PLogistics.com.4 7th Annual State of Logistics Report. St. Louis, MO: Cass Information Systems,

1996, page 11.

Exhibit 1

Study Objectives and Methodology

During the spring and summer of 2005, C. John Langley Jr., Ph.D., of the GeorgiaInstitute of Technology, with Capgemini, DHL, and SAP, conducted an extensive studyabout using 3PL services in North America, Western Europe, Asia-Pacific, LatinAmerica, South Africa, and the Middle East.5,6 This is now the 10th annual researchstudy to examine critical trends and issues among key markets and key customers inthe 3PL industry.

Study Objectives❑ Measure the development and growth of the 3PL industry across major industry

segments and across several diverse regions of the world.❑ Summarize the current use of 3PL services.❑ Identify customer needs and how well 3PL providers are responding to those needs.❑ Understand how customers select and manage 3PL providers.❑ Examine why customers outsource or elect not to outsource to 3PL providers.❑ Investigate leading topics, including 3PL service offerings and capabilities,

structuring and managing effective 3PL relationships, how customers view successand value from 3PL relationships, and technology enablement.

❑ Provide a strategic assessment of the future of the 3PL industry.

Methodology and Research ApproachThis study identifies and tracks key trends and views of the 3PL industry from theperspective of customers who purchase and use 3PL services. In addition, a number ofrespondents who are not using 3PL services provide key information as to why they donot currently outsource logistics services and what their plans may be in the future. Asis done every year, the 2005 3PL study incorporates appropriate revisions of contentand terminology from past year’s surveys to be current and to respond to recentchanges in the logistics, supply chain, and 3PL/4PL industries.

Survey recipients were asked to think of a “third-party logistics (3PL) provider” as onethat provides multiple logistics services for its clients and customers. Following severalexamples of firms that would be typical of such a definition,7 recipients were asked tothink of a “fourth-party logistics (4PL) provider” as one that may include more advancedlogistics outsourcing services than a conventional 3PL normally would provide.8

The study methodology included using e-mail to contact logistics and supply chainexecutives across North America, Western Europe, Asia-Pacific, Latin America, SouthAfrica, and the Middle East. (In this study, an “executive” holds the title of manager,director, or vice president of logistics or supply chain management.)9 Executives willingto participate in the survey were asked to click an Internet link that would lead them toan online survey. Although surveys had been sent by mail in earlier years of this study,the Internet has been used for the past several years to contact participants and tofacilitate their involvement. The 2005 3PL study used a web-based commercial firm to

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Regions Surveyed

North America

Western Europe

Asia-Pacific

Latin America

South Africa

Middle East

Exhibit 2

administer and manage the survey, including e-mailing surveys and invitations toparticipate, tabulating results, and preparing reports for analysis.

To better understand the results of the survey and to gain valuable perspective from3PL users, the research team also held a workshop session at the CapgeminiAccelerated Solutions Environment (ASE) facilities in Boston, MA, USA. Additionally, twofocus group conference calls were held with European logistics executives, and aworkshop was held in Singapore with key logistics executives from Asia-Pacific. Theparticipating executives helped by reviewing selected research results and bycommenting on various topics related to the use of 3PL services. Details about the ASEand the focus group sessions are in the appendix.

Regions Covered and Survey Response RatesIn addition to the regions included in last year’s study (i.e., North America, WesternEurope, Asia-Pacific, and Latin America), the current study surveyed logisticsexecutives in South Africa and the Middle East (see Exhibit 2).10

Exhibit 3 shows the number of companies contacted in each region, the number ofresponses received, and the response rate. As in previous years, multiple waves of e-mails were sent to logistics executives to increase response rates. The researchteam also tried to delete obsolete and duplicate e-mail contacts. As a result, theoverall response rate doubled from last year’s study to 14%. Unfortunately, the totalnumber of responses in South Africa and the Middle East were not sufficient formeaningful analysis. These two regions have been targeted for improvement in thenext annual study.11

Industries StudiedThe industries predominantly represented by the survey respondents included:12

❑ Automotive❑ Chemical❑ Consumer Products❑ Food and Beverage❑ High-Tech and Electronics❑ Industrial Manufacturing❑ Life Sciences (Pharmaceutical) and Medical❑ Retail ❑ Telecommunications

These industries were selected because they view logistics as strategicallyimportant and because they are viewed as purposefully moving toward integratedsupply chain management.

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5 The authors of the study would like to thank the Latin America Logistics Center(LALC) as a Supporting Organization and particularly Maria F. Rey, Executive Director,for their helpful involvement with the Latin American portion of the 2005 Third-PartyLogistics Study. In addition to providing contact information for Latin Americanlogistics executives, Ms. Rey and the LALC graciously translated the entire 3PLsurvey into both Spanish and Portuguese. Also, the study team would like to thankGary Allen and Kenneth Edwards, formerly of Capgemini, for their diligent and helpfulwork as members of the project team.

6 The 2005 study includes the Middle East, but as explained elsewhere, the number ofresponses was not sufficient for meaningful analysis or a true understanding of the3PL environment in that region.

7 The firms cited as examples in the survey included DHL, Exel, FedEx, Kuehne &Nagel, Menlo Logistics, Panalpina, Ryder, Schenker, Schneider Logistics, UPS, andUTi Worldwide.

8 As explained elsewhere, the industry executives participating in the ASE, focusgroups, and workshop sessions provided valuable insights to help distinguishbetween the terms 3PL and 4PL, as well as more advanced services that may beavailable from integrated logistics services providers.

9 To facilitate completion, surveys were translated into French, Portuguese, andSpanish for executives in various parts of the world.

10 South Africa had been included to a limited extent in the 2003 Third-Party Logisticsstudy.

11 The response rate for Latin America increased significantly from 2004 to 2005. Theresearch team is most appreciative of the efforts of Maria Rey and the Latin AmericaLogistics Center (LALC) in helping with this improvement.

12 The study also included a few respondents in the apparel and utility industries.

Exhibit 3

Survey Response Rates

NorthAmerica

WesternEurope

Asia-Pacific

CompaniesContacted

3,649

1,997

881

1,060

175

13

7,775

ResponseRate

14%

17

6

14

18

62

14

UsableResponses

516

339

53

144

31

8

1,091

LatinAmerica

Totals

Regions

SouthAfrica

MiddleEast

Characteristics of Survey RespondentsThe following are key characteristics about the firms participating in the 2005 3PL study:

❑ Although a broad range of company types were included in this study,13 the percentof respondents representing the manufacturing sector were 70% in North America,65% in Western Europe, 70% in Asia-Pacific, 59% in Latin America, and 67% inSouth Africa. The wholesale/distribution/retail sectors were represented by 18% ofthe respondents in North America, 22% in Western Europe,13% in Asia-Pacific, 22%in Latin America, and 22% in South Africa.

❑ Users indicated a broad regional scope for their logistics operations.For example, the logistics responsibilities of 96% of the respondentsin North America, 98% in Western Europe, 97% in Asia-Pacific, and95% in Latin America included at least their own region (see Exhibit4). In general, the respondents also had broad responsibilities forlogistics in other major areas of the world. For example, NorthAmerican respondents had responsibilities in Western Europe (48%),Asia-Pacific (47%), and Latin America (46%). The composition ofregional responsibilities has tended to be somewhat the same for thepast three years. The study also indicates that North American 3PLusers tend to have broader regional responsibility than non-users of3PL services; non-users more often have strictly local responsibility.

❑ Respondent firms have a relatively broad range of anticipated salesrevenues for 2005.14 Of the North American respondents, 47% of thefirms have revenues between US$1 billion and US$25 billion; another11% project revenues over US$25 billion. In contrast, 3PL user firms inWestern Europe tend to be larger; 77% of them expect 2005 salesrevenues to exceed the equivalent of US$1 billion.15

❑ North American 3PL users expect that logistics expenditures will represent approx-imately 6% of their organizations’ anticipated total sales for 2005. Comparablefigures are 9% for Western Europe, 8% for Asia-Pacific, and 13% for LatinAmerica. These figures are slightly lower but essentially similar to those reportedin the 2004 study.16

❑ Exhibit 5 shows how many 3PL users indicated what factors are “having asignificant impact on the industry in which your organization competes.” Across theregions, “significant pressures to reduce cost” and “emphasis on improved supplychain management” are again in 2005 identified as key business pressures. Ofparticular interest this year, however, is the extent to which “implementation of newinformation technologies” is significant.

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13 Respondents were asked to classify their firms in one of the following categories:raw materials supplier, manufacturer (components/ingredients, contractmanufacturer), manufacturer (finished product), wholesale/distribution, and retail.

14 Respondents were given the option of responding to financial questions incustomary monetary units (e.g., US$ or euro). Results were then converted to US$.

15 Data from respondents in Asia-Pacific, Latin America, and South Africa wereinsufficient for meaningful analysis.

16 For reference, the 16th Annual State of Logistics Report published by the Councilof Supply Chain Management Professionals (Oak Brook, IL: CSCMP, 2005) statesthat for 2004, the U.S. business logistics costs were US$1,015 billion and equalto 8.6% of the gross domestic product (GDP). This percentage has been between8% and 9% for the past three years. Although North American organizations inthis 3PL study indicate logistics costs average 6% of sales revenues, therespondents generally tend to be from industries with higher-value products. Thissuggests that total logistics costs as a percent of sales may be slightly lowerthan for the overall economy.

Regional Scope of Users’ Logistics Responsibilities, 2005*

NorthAmerica

WesternEurope

Asia-Pacific

NorthAmerica

96% (98%)

26(22)

16(19)

16(16)

Asia-Pacific47%

(46%)

28(28)

97(100)

11(8)

WesternEurope 48%(45%)

98(99)

19(24)

13(12)

LatinAmerica*Numbers in parentheses represent results from 2004 study. Percentages in each “home” region maynot quite equal 100% because a number of survey respondents may have responsibilities that exclusivelyextend beyond their “home” region (e.g., 96% of North American respondents have responsibility thatincludes North America, while the remaining 4% have responsibilities that do not include North America).

LatinAmerica

46%(43%)

23(26)

10(14)

95(96)

Locationof 3PLUser

Regional Scope

Exhibit 4

Generally, the percent of 3PL users citing this as a key business pressure haveincreased from 76% in the 2004 study to 81% to 96%, depending on region, inthe 2005 study. The percent of North American users indicating that “intensifyinggovernment and regulatory policies” was of concern rose from 64% in 2004 to78% in 2005. Last, while the data in Exhibit 5 suggest that issues relating totransportation/logistics capacity and congestion concern 58% to 77% of theusers, these percentages are generally lower than for other types of businesspressures cited.

❑ Respondents also attachgreat importance to logisticsand supply chain issues. Forexample, 75% of the NorthAmerican respondents, 82%from Western Europe, 84%from Asia-Pacific, 94% fromLatin America, and 100%from South Africa agree that“logistics represents astrategic, competitiveadvantage for our company.”Also, the percent ofrespondents agreeing with“our customers are placinggreater emphasis on logistics customer service” was 84% in North America, 81% inWestern Europe, 77% in Asia-Pacific, 78% in Latin America, and 100% in SouthAfrica. Across the regions, about half of the 3PL users felt their buying behaviorindicated “a willingness to pay for value-added services.” Overall, the percent ofcustomers agreeing with “using 3PLs is a key to satisfying their company’scustomers” was 56% in North America, 49% in Western Europe, 68% in Asia-Pacific, 56% in Latin America, and 89% in South Africa. Interestingly, 73% of theNorth American respondents agreed with that statement in 2003, and thatpercentage decreased to 50% in 2004.

Organization of This ReportFollowing a summary of key findings, the 2005 3PL study results are discussed in fivesections. The first, “Logistics Outsourcing Practices,” describes trends in logisticsamong users and non-users of 3PL services. The next four sections deal with areas ofstrategic interest to 3PL users: “3PL Service Offerings and Capabilities,” “Managementand Relationship Issues,” “Customer Value Framework,” and “Technology Enablement.”These discussions encompass results from this year’s study and provide perspectiveson the study’s findings over its 10-year history. The final section in the main body ofthe report provides a strategic assessment of the future of the 3PL industry, includingan explanation of the value readers should derive from this study. The appendix detailsthe ASE session held in Boston, the focus groups with European logistics executives,and the workshop that was conducted in Singapore.

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Exhibit 5

Factors Affecting 3PL User Firms

Factor North Western Asia- LatinAmerica Europe Pacific America

Significant pressures to reduce cost 96% 99% 100% 91%Emphasis on improved supply chain management 90 92 89 81Implementation of new information technologies 82 90 96 81Significant pressures to enhance customer service 80 84 84 74Globalization 80 90 86 63Consolidations, mergers, acquisitions, etc. 78 71 71 61Intensifying government and regulatory policies 78 76 79 74Rapidly accelerating new product introductions 76 79 72 81New markets 76 77 67 63Security issues 74 60 67 61Transportation/logistics capacity issues 71 63 75 75Transportation/logistics congestion issues 63 58 75 77 (e.g., port congestion)

Summary of Key Findings

This study helps provide a better understanding of the marketplace for 3PL servicesand the ways providers of such services continue to develop and grow. Consideringthat the total annual revenues of U.S.-based 3PL providers in 2004 are approximatelyUS$85 billion,17 the services offered by 3PL providers continue to consume a significantportion of overall logistics and supply chain budgets.18

Here are the major findings of this year’s 3PL study:

❑ LOGISTICS OUTSOURCING PRACTICES. The use of 3PL services is significant inthe five regions studied. Between 1996 through 2001, the percentage of 3PL usersremained relatively constant among North American respondents (between 68%and 73%). In the years 2002 to 2005, however, the percentage of North Americanusers has shown modest growth and this year is at 80%. Based on the three mostrecent years of survey data, the percent of firms using 3PL services in WesternEurope has been 77%. In Asia-Pacific, the use of 3PL providers is high (84% in2004 and 83% in 2005), but in Latin America, outsourced logistics is less prevalentthan in the other regions (67% in 2004 and 72% in 2005). In South Africa, the 3PLusage rate was 74%.

❑ 3PL SERVICE OFFERINGS AND CAPABILITIES. This year’s survey shows continuedimprovements in overall service levels from suppliers. Moreover, 3PL users continueto view a collaborative partnership approach with their 3PL providers as key toimproving the user-company 3PL performance. However, unlike in past surveys,pricing has become the most important attribute in selecting a 3PL provider. This isdifferent from last year’s study where value-added services was ranked first. Infact, this year the proficiency of a 3PL provider’s core services was consideredmore important than the provider’s ability to deliver value-added services. This shiftfrom frills to core services is a major change; in past surveys, a 3PL provider’sdelivery of core services was considered a “given.” The “value” that is created by a3PL relationship is a function of several factors, including benefits derived fromservice offerings, price versus perceived benefit, standardized versus customizedservice offerings, breadth of service offerings, integration (operational andtechnology integration), and geographic coverage.

❑ MANAGEMENT AND RELATIONSHIP ISSUES. This year, 88% of those surveyedview their relationship with their service provider as successful. Although users aregenerally satisfied with their 3PL providers, the providers are continually pressuredto expand their service offerings. For 3PL providers to properly address thischallenge, they must determine their market positioning, business models, andapproach to exceeding customer satisfaction. Pressure to “be all things to allcustomers,” to continually grow, and to maintain profitability makes it difficult for3PL providers to address this challenge.

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❑ CUSTOMER VALUE FRAMEWORK. Across all the regions studied, 3PL users arebenefiting from their choice to outsource certain logistics services. Logistics costreductions were relatively consistent at 10% or 11% across North America, WesternEurope, Asia-Pacific, and Latin America. Order fill rates in each of the regionssuggest improvements occurred as the order fill rates increased in all regions.Reductions in average order-cycle length of approximately 25% to 30% were seenin North America, Western Europe, and Asia-Pacific, while the average order-cyclereduction in Latin America was halved. Inventory turns increased for 3PL users inNorth America and Asia-Pacific, and decreased in both Western Europe and LatinAmerica. In terms of cash-to-cash cycles, the number of days reduction rangedfrom 2.8 days in Latin America to 4.5 days in North America. Last, 3PL usersagreed that service levels had improved (North American executives in agreement,62%; Western European, 67%; Asian-Pacific, 64%; and Latin American, 77%).Nevertheless, additional study results indicate these user-provider relationships arenot without areas for improvement.

❑ TECHNOLOGY ENABLEMENT. Approximately 90% of respondents agreed thatinformation technology (IT) capabilities are a necessary element of overall 3PLprovider expertise. Implementing IT ranked third behind cost pressures (97%) andimproving supply chain management (89%) as a leading factor affecting 3PL userorganizations in 2005. While a high percentage of users identify IT as a necessaryelement of overall 3PL provider expertise, far fewer (38%) are satisfied with theirproviders’ capabilities. In general, 3PL users have yet to think of their 3PL providersin a newer, more strategic light. Not only do over 70% of the survey respondentscharacterize their 3PL provider relationships as tactical in nature, their IT-basedservices align with this thinking. The survey suggests that as more firms progressfurther into outsourced logistics relationships, the complexity of those relationshipsnecessitates a combination of effective IT services for a broad spectrum of supplychain processes.

❑ STRATEGIC ASSESSMENT. Since the inception of this survey, customer evaluationof outsourcing success has ranged between 82% and 90%. In the last four years,satisfaction rates have consistently been around 90%. Along with high satisfactionrates, users have stated continued benefits over the last six years. Plus, the 3PLindustry has continued to achieve annual growth rates greater than 10% over thelast decade, while also experiencing a tremendous amount of mergers andacquisitions. Customer expectations have continually increased from year to yearwhile 3PL providers are pressured into ongoing development of new capabilities.Although many 3PL providers satisfy user requirements around basic services, suchas transportation or warehousing, users continue to identify ongoing developmentof capabilities as a key issue. The stated need for advanced supply chain servicesand for organizations that can serve as “integrators” has validated a “strategicservice” model in meeting—and servicing—the needs of 3PL users. The continualgap between user expectations and what 3PL providers deliver is a clear signal that3PL providers and users need to “re-invent” themselves to be more capablebusiness partners to one another.

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17 Source: Armstrong & Associates, Inc., www.3plogistics.com. Estimated total contractlogistics market revenues were US$56.6 billion for 2000, US$65.3 billion for 2001,US$71.1 billion for 2002, and US$76.9 for 2003.

18 16th Annual State of Logistics Report (Oak Brook, IL: Council of Supply ChainManagement Professionals, June, 2005) states that for 2004, U.S. business logisticscosts were US$1,015 billion and equal to 8.6% of the U.S. GDP.

Logistics Outsourcing Practices

Overall TrendsThe use of 3PL services is significant in the regions of the world that were studied.Exhibit 6 provides a 10-year profile of the firms using 3PL services. From 1996 through2001, the percentage of 3PL users remained relatively constant among North Americanrespondents (between 68% and 73%). Between 2002 and 2005, the percentage ofNorth American users showed modest growth coupled with some stability.

In the three most recent years of survey data, the percentage of firms using 3PLservices in Western Europe has been between 76% and 79%. In Asia-Pacific, 3PL usefor the past two years has been 84% in 2004 and 83% in 2005. Based on two years of3PL usage data from Latin America, outsourced logistics services here are lessprevalent than in the other regions. Last, the single year of information from SouthAfrica shows a 3PL usage rate of 74% in this region.

We have further insight into the overalluse of 3PL providers. As shown inExhibit 7, from 64% to 82% of therespondents use one to five 3PLproviders. Smaller percentages ofrespondents use larger numbers of3PL providers, in some instances morethan 50 providers.

Exhibit 8 confirms that “cost” and“service” are the two most prevalentfactors responsible for using a 3PLprovider. Across the board, thepercentages of users indicating cost tobe a factor are between 65% and74%. Those indicating service to be afactor ranged between 51% and64%.The third most prevalent factorfor using a 3PL provider was so that

the user company could “focus on corporate core competencies” (percentages rangedfrom 29% in North America to 43% in Asia-Pacific).

Respondents were asked what percent of total logistics expenditures are directed tooutsourcing (see Exhibit 9 on page 12) currently (2005) and in the near future (2008 to2010). A few observations about their responses are:

10

1996 1997 1998 1999 2000 2001 2002 2003

North America

Western Europe

Asia-Pacific

Latin America

South Africa

0%

20%

40%

60%

80%

100%

3PL User Percentages, 1996 - 2005*

*Although these percentages are comparable from year to year, and respondents are asked to identify themselves as users or non-users of 3PL services,3PL users may be more likely to respond to this study. This may be particularly true in Asia-Pacific.

Perc

ent o

f Res

pond

ents

2005

7978

58

767984

67

778083

72

2004

7173 71

6873 71

78

94

74

Exhibit 6

❑ The 3PL users in Western Europe, Asia-Pacific, and South Africa tend to spendgreater portions of their logistics budgets on outsourcing than theircounterparts in North America and Latin America.

❑ One way to look at the future plans for outsourcing is to calculate the expectedthree- to five-year growth rate of outsourcing expenditures as a percent ofoverall logistics expenditures. These percentages are: North America, 16%;Western Europe, 18%; Asia-Pacific, 12%; Latin America, 14%; and South Africa,11%. While these percentages suggest that the growth rate in 2005 for NorthAmerica is the highest at 16%, over the past few years these growth rateshave not provided any consistent pattern of increase or decrease.

❑ Between 2002 and 2005, with the exception of Asia-Pacific,19 the percentageof total logistics expenditures directed to outsourcing has not significantlygrown. This is an important observation, considering that users in all regionshave reported each year that they have plans to increase this percentage in“three to five years from now.”

The percentage of total logistics expenditures represented by transportation,warehousing, inventory carrying, and administration and information managementcosts are about the same across North America, Western Europe, Asia-Pacific, andLatin America (see Exhibit 10 on page 12).

Logistics Activities OutsourcedThe activities most frequently outsourced to3PL providers are outbound transportation(North America, 78%; Western Europe, 88%;Asia-Pacific, 96%; and Latin America, 84%),warehousing (North America, 63%; WesternEurope, 72%; Asia-Pacific, 88%; and LatinAmerica, 55%), customs clearance andbrokerage, inbound transportation, and freightforwarding (see Exhibit 11 on page 13).Interestingly, the use of outbound transportationby North American respondents increased byabout 10 percentage points, while the use ofwarehousing services decreased by about thesame amount. The percentages for the other regions remained about the same from2004 to 2005.

A new question for 2005 asked respondents about how much they outsourcedtransportation management services to 3PL providers. The percentages were: NorthAmerica, 49%; Western Europe, 79%; Asia-Pacific, 82%; and Latin America, 53%.

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Exhibit 7

Exhibit 8

Number of 3PL Providers Used

0%

20%

40%

60%

80%

Perc

ent o

f Res

pond

ents

North America

Western Europe

Asia-Pacific

Latin America

161712 10

62

6

0

148

15

8

Six to

ten

Elev

en to

fifty

Mor

e tha

n fift

y

One to

five

64

7367

82

10%

30%

50%

70%

Factors Responsible for Decision to Use 3PL Provider

Factor North Western Asia- LatinAmerica Europe Pacific America

Cost 72% 74% 71% 65%Service 61 55 51 64Focus on corporate core competencies 29 40 43 38Industry experience 27 16 20 26Unique services available from 3PL provider 24 14 17 10Asset reduction 22 30 31 30Access to capable information technologies 16 10 20 9Seasonality or surges in logistics activity 16 21 9 20Corporate philosophies encourage outsourcing 12 10 17 16Need for “change agent” 3 4 3 3Labor problems 2 7 6 7

19 During the three years that Asia-Pacific has been included in this study, the “currentuse” percentages were reported as 50% in 2003, 63% in 2004, and 69% in 2005.

Several logistics activities appear to be outsourced to 3PL providers more in WesternEurope, Asia-Pacific, and Latin America than in North America. These activities includeprocurement of logistics, reverse logistics and waste disposal, and fleet management.

Historically, North American 3PL users have outsourced freight billauditing/payment activities to a much greater extent than users in theother regions. This year with no exception.

Among the additional observations that can be made from the data inExhibit 11 are the following:

❑ Generally, 3PL users in Western Europe, Asia-Pacific, and LatinAmerica tend to outsource logistics activities to a greater extent thanusers in North America. One obvious exception is freight billauditing/payment; previous years’ studies have noted the muchlower incidence of outsourcing of this activity in Western Europe thanin North America.

❑ Again in 2005, the activities most frequently outsourced are thosethat are more operational in nature. Conversely, those that are lessfrequently outsourced tend to be customer-related, involve the use ofinformation technology, and are more strategic in nature.

According to Karim Alhusseini of Eaton Corporation and an ASE participant, the “futureexpectations of a 3PL provider are to do more than the labor intensive and tacticalactivities, but to expand into consulting/implementation services that integrate the 3PLsystems and tools with our applications for turnkey solutions.” His opinion is thatexecution processes are far easier to outsource, and that users need to rely oncapable providers of 3PL services to ensure sufficient depth of talent in key areas ofservice offerings.

Integration of 3PL ServicesIn recent years, this study has addressed how much 3PL services are“tied together” or “integrated” by 3PL providers. This is a critical issue,particularly when a “strategic” relationship exists between 3PL providersand customers. The percentage of respondents indicating “some” or“significant” integration of 3PL services was 75% in North America, 66%in Western Europe, 64% in Asia-Pacific, 80% in Latin America, and 70%in South Africa. When asked what future expectations 3PL users hadregarding this issue, most of the respondents (90% to 100%) in four ofthe regions expected “some” or “significant” integration of 3PL services.As in last year’s study, 87% of the North American respondents had afuture desire for their 3PL suppliers to provide integrated services.

12

Exhibit 9

Current vs. Projected Logistics Expenditures Directed to Outsourcing

0%

20%

40%

60%

80%

Perc

ent o

f Exp

endi

ture

s D

irect

ed to

Out

sour

cing

LatinAmerica

NorthAmerica

WesternEurope

SouthAfrica

Asia-Pacific

2005

2008 - 2010

51

44

67

57

77

69

59

52

70

63

Exhibit 10

North America

Western Europe

Asia-Pacific

Latin America

South Africa

0%

20%

40%

60%

Components of Total Logistics Expenditures

Perc

ent o

f Res

pond

ents

910 812 101110 9 11

16

2925

2823

17

5155 55 54

60

Trans

porta

tion

Ware

hous

ing

Inve

ntor

y Carr

ying

Costs

Adm

inist

ration

&

Infor

mati

on

Man

agem

ent

A strategic issue is how customers feel3PL providers should position themselvesin terms of the depth and breadth of theirservice. When asked whether “third-partysuppliers should provide a broad, compre-hensive set of service offerings,” most ofthe 3PL users strongly agreed (84% to90%). Approximately half of these usersagree “our company is moving torationalize or reduce the number of thirdparties we use.” As suggested as well inthe 2004 study, this observation may bebased on a trend among 3PL users to takesteps to improve and streamline theirprocurement practices in relation toexternally provided, integratedlogistics services.

Views of Non-UsersDepending on the region, 20% to 30% ofthe respondents classify themselves as“non-users” of 3PL services. Thus, severalquestions tried to determine why thesecompanies chose not to outsource logisticsservices (see Exhibit 12 on page 14). Themost prevalent reason is because “logisticsis viewed as a core competency” (thisresponse was given by 35% of the non-users from North America, 44% from Western Europe, and 40%from Latin America). These percentages have increased significantlyfrom those reported in the 2004 study. The reluctance to outsourceactivities and processes that are “core” is understandable, providingthose non-users have sufficient logistics expertise, experience anacceptable return on investment from insourcing, and find that theinternal provision of logistics activities fits strategically with themission of their organizations.

13


Exhibit 11

Outsourced Logistics Services

Logistics Activity North Western Asia- LatinAmerica Europe Pacific America

Outbound Transportation 78% 88% 96% 84%Warehousing 63 72 88 55Customs Clearance and Brokerage 63 49 67 55Inbound Transportation 58 66 68 68Freight Forwarding 56 53 49 45Transportation Management 49 79 82 53Freight Bill Auditing/Payment 45 10 18 11Cross-Docking/Shipment Consolidation 39 50 58 43Order Fulfillment and Distribution 29 31 52 19Consulting Services 23 22 27 23Procurement of Logistics 23 31 42 47Carrier Selection 19 16 24 19Product Marking/Labeling/Packaging 18 27 27 19Product Returns and Repair 18 25 30 9Inventory Management 17 23 36 13Reverse Logistics and Waste Disposal 16 31 24 25Product Assembly/Installation/Manufacturing 16 16 18 0Information Technology 15 21 18 19Rate Negotiation 14 9 12 8Fleet Management 13 26 36 19LLP/4PL Services 11 13 18 8Materials Management 10 10 6 9Inventory Ownership 8 6 6 9Order Entry/Processing/Customer Service 7 8 15 8Customer and Supplier Compliance 5 4 0 2Factoring (Trade Financing) 2 3 6 6

For some non-users, “logistics is too important to outsource” (23% of the non-usersfrom North America, 33% from Western Europe, and 27% from Latin America). Otherreasons why companies chose not to use 3PL services include the feelings that “costs

would not be reduced,” “control [overlogistics activities] would diminish,” morelogistics expertise existed within theorganization, and “service levels would notbe realized.” Again in 2005, these resultsgenerally support the contention thatlogistics executives in North America mayhave higher expectations of potential 3PLsuppliers than do their peers in WesternEurope and Latin America. Interestingly,while only 8% and 9% of non-users inNorth America and Western Europe,respectively, indicated that “corporatephilosophy” excludes use of outsourcedlogistics services,” a much larger 27% ofthe non-users from Latin Americaindicated the same thing. Looking back to

Exhibit 6, this may help explain why the percentage of 3PL users from Latin America isthe lowest of the regions studied.

Regardless of the reasons why a company might not choose to outsource logisticsservices, good logistics management suggests that the idea of using a 3PL providerbe considered. When doing so, the organization may find that the 3PL alternative hassome significant advantages over current operations. Alternatively, evaluating theoutsourcing option may reinforce the company’s decision to continue pursuing anapproach that includes insourcing logistics. In either case, considering the use of 3PLservices should provide valuable knowledge and perspectives for improving logisticsin general.

14

Exhibit 13

1

3

Ranking of Key 3PL Selection Attributes

5

4

2

Acce

ss (E

ase o

f doin

g

busin

ess w

ith 3

PL)

Serv

ice (V

alue-a

dded

serv

ices

receiv

ed fr

om 3

PL)

Expe

rienc

e (Ove

rall

feelin

g abo

ut 3

PL)

LeastImportant

Prod

uct (

Core s

ervic

es

receiv

ed fr

om 3

PL)

2.7 2.82.7 2.7

3.73.3 3.5

3.83.4 3.4

2.7 2.62.5 2.72.2

2.8 2.72.5 2.52.6

North America

Western Europe

Asia-Pacific

Latin America

All Regions

MostImportant

3.5 3.43.4 3.7

Price

(Fee

s paid

for 3

PL se

rvice

s)

3.1

0%

20%

50%

Non-User Respondents:Rationale for Not Using 3PL Services*

40%

30%

10%

Contro

l wou

lddim

inish

We h

ave

mor

e exp

ertise

Serv

ice le

vels

would

not b

e rea

lized

Time/e

ffort

would

not d

ecrea

se

*Asian-Pacific and South African results insufficient for meaningful analysis.

Perc

ent o

f Res

pond

ents

24

3633

11

27

13

22

41

23

15

23

30

Corpo

rate p

hilos

ophy

exclu

des 3

PL ou

tsour

cing

98

27

Logis

tics t

oo im

porta

nt

to ou

tsour

ce

33

2327

Logis

tics i

s a co

re

com

peten

cy

4440

35

Costs

would

not

be re

duce

d

17

31

23

North America

Western Europe

Latin America

Exhibit 12

3PL Service Offerings and Capabilities

This year’s survey shows continued improvements in overall service levels fromsuppliers. Moreover, 3PL users continue to view a collaborative partnership approachwith their 3PL providers as key to improving the user-company 3PL performance.However, unlike in past surveys, pricing has become the most important attribute inselecting a 3PL provider. This is different from last year’s study, where value-addedservices was ranked first. In fact, the proficiency of a 3PL provider’s core services wasconsidered this year more important than the provider’s ability to deliver value-addedservices. This shift from frills to core services is a major change; in past surveys, a 3PLprovider’s delivery of core services was considered a “given.”

The “value” created in a 3PL provider-user relationship is a function of several factors,including benefits derived from the service offerings, price versus perceived benefit,standardized versus customized service offerings, breadth of service offerings,integration (operational and technology integration), and geographic coverage.

Outsourced OfferingsAlthough the overall satisfaction of 3PL providers and their related service offeringsand capabilities continues to increase, we see a change in how 3PL providers areselected and judged. To assist with this challenge, we introduced a question four yearsago that asks users to rate the importance of provider attributes across five categories:

❑ Price. Attributes: Fees paid for 3PL services.❑ Product. Attributes: Performance and capability of core or basic service offerings

by a 3PL provider (e.g., transportation and warehousing services).❑ Service. Attributes: Performance and capability of advanced service offerings by a

3PL provider (e.g., supply chain planning, supplier management, strategicconsulting, change management, and order management).

❑ Access. Attributes: Ease of doing business with a 3PL provider.❑ Experience. Attributes: Overall satisfaction and feeling about a 3PL provider.

In aggregate, users rated “price” as the most important attribute, followed by“product,” “service,” “experience,” and “access” (see Exhibit 13 on the previous page).An interesting change from last year is that “price” is now the highest attribute, albeitonly slightly; last year it was second, the previous year it was third. This change can beinterpreted to mean that core “product” offerings, or capabilities, are beingcommoditized and users are exerting pressure on pricing. This change is also indicativethat users typically view the role of the 3PL provider as tactical in nature. Anotherimportant difference with this year’s results was in Asia-Pacific; respondents rated“product” higher than “price” and “service.” This result could be because 3PLproviders are still building out their core product offerings in Asia-Pacific (i.e., theindustry is not as mature in that region). All of these factors confirm that core productofferings are being commoditized, driving 3PL providers to focus on product portfoliomanagement skills and the creation of innovative value-added capabilities to differ-entiate themselves.

15


One reason for this switch may be because of the increased global consolidationamong major 3PL providers. There is a perception that these consolidations haveweakened core services. This deterioration may have caused 3PL users to focus moreon core services rather than taking them as a “given” as in the past.

A second observation is the lack of consistency in core services among 3PL providers.As 3PL users expand their usage of 3PL services regionally, they find that the levels ofservices they have grown accustomed to in their home markets cannot be taken forgranted—even when they use the same 3PL provider as in their home base. Veryoften, they find a marked difference in service levels from the same 3PL provider indifferent parts of the world. Users attribute this difference to the difficulties providershave in consolidating different 3PL providers that have been acquired.

There is now a belief that different 3PL providers have different strengths andweaknesses in different parts of their organization. Karim Alhusseini from EatonCorporation reiterated this point during an ASE session: “[3PL users] desire to go frommultiple 3PL providers to one, but they are challenged on how to get there.Technology capabilities are a factor, but even more so are the regional executionstrengths and weaknesses.”

What was once classified as “core” service in the 3PL user’s view has evolved frombasic inbound/outbound transportation and warehousing services. Now, core servicescan include traditional value-added services. As a result, user expectations regardingthe delivery of core services has changed. By implication, this means that 3PLproviders need to go back to basics, especially major 3PL providers who have

undergone major mergers and acquisitions. Theseproviders need to focus on consistently delivering coreservices throughout their organization and regardless ofwhere in the world these services are rendered.

The third observation is that one of the key challenges isthe ability of the 3PL provider to master modularizing keysolution components, which would let it quickly and costeffectively replicate its key competencies in differentmarkets across the globe. The degree it can quickly define,design, and replicate key modular solutions impacts theeconomies of scale, which in turn drives down the unitcost of specific solutions for its customers.

3PL Supply Chain AccomplishmentsThe survey revealed that 3PL providers were able to helptheir users in the following areas (see Exhibit 14):

❑ Facilitate supply chain improvement.❑ Provide information technology.❑ Provide global supply chain solutions.❑ Provide supply chain integration.❑ Facilitate regional expansion.❑ Provide advanced supply chain services.

16

0%

20%

50%

3PL Provider Accomplishments

40%

30%

10%

Prov

iding

nee

ded

infor

mati

on te

chno

logy

60%

Perc

ent o

f Res

pond

ents

70%

56 5658

67

Facil

itatin

g sup

ply

chain

impr

ovem

ent

67

51

44

5661

37

North America

Western Europe

Asia-Pacific

Latin America

South Africa

80%

90%

Prov

iding

glob

al su

pply

chain

solu

tions

39

3329

18

23

Prov

iding

supp

ly ch

ain

integ

ration

solu

tions

33 33

42 42

22

Prov

iding

mea

ns fo

r

geog

raphi

cal e

xpan

sion

56

33

53 52

27

Prov

iding

adva

nced

supp

ly

chain

serv

ices

3133

36

27

16

Exhibit 14

Interestingly, the responses to these areas are similar to last year’s study. The goodnews is that a majority of respondents in each region this year felt their 3PL providerswere helping to “facilitate supply chain improvement.” For 3PL users in North America,Western Europe, and Asia-Pacific, a majority also felt that their 3PL providers were“providing needed information technologies”20 and “providing means for geographicalexpansion.” The available data suggest that fewer Latin American and South Africanrespondents agreed with these statements. That said, the responses also highlightthree areas for improvement by 3PL providers: “global supply chain solutions,” “supplychain integration solutions,” and “advanced supply chain services.” Of particular note isthat the percentage of North America users agreeing that their 3PL providers offeradvanced supply chain services increased from 20% in 2004 to 31% in 2005.

Looking Forward – The Future of 3PL ProvidersRespondents agree that the 3PL providers that have a comprehensive array of servicescan perform a more strategic partnership role, compared with those 3PL providers thathave only a more focused set of services (90% agreed in 2005; 88% in 2004).Moreover, 71% of the respondents feel that 3PL providers are well positioned toperform the 4PL provider role. This percentage is up compared to the 2004 study; then,only 57% felt similarly.

Respondents believe that 4PL providers can add the greatest value in the following areas:

❑ Ability to manage activities of multiple 3PL providers.❑ Supply chain integration.❑ Reduced management time and expense.

When asked what it would take for existing 3PL providers to evolve into 4PL providers,respondents felt that 3PL providers need to focus on what they do best. That is, 3PLproviders must deliver value for their core services. After that, 3PL providers need tounderstand the businesses of the industries that they intend to focus on when being a4PL player. An ability to understand the peculiar needs of the industry, together withtheir understanding of supply chain management, will strongly position heretofore 3PLproviders as 4PL providers.

However, 3PL users generally do not see this happening in the short term. Their mainreservation is that 3PL providers have not provided convincing evidence that they candeliver value beyond the core services they currently focus on. Participants in the ASEand focus groups offer an alternate view: Should 3PL providers begin to build strongcapability in the area of supply chain management, they might move up the valuechain to become 4PL providers or Lead Logistics Providers (LLP). In short, for users tobelieve that a 3PL provider has made it to 4PL player status, the 3PL provider mustfirst prove that it has successfully integrated its global capabilities. Once this has beenachieved, users will be able to believe that further development beyond core serviceswill be more likely from the newly anointed 4PL provider.

17


20 This is similar to findings from earlier studies. In other sections of this report, weexplain that from a user’s perspective, IT capabilities have significant room forimprovement.

Management and Relationship Issues

As in previous years, 88% of those surveyed this year view the relationship with their3PL providers as successful (65% “somewhat successful” and 23% “extremelysuccessful”). The results for North America and Europe match last year’s results, whileAsia-Pacific and Latin America showed improvement. This is indicative of 3PLproviders’ continual investment in client relationships, especially in developing regions.

Despite users’ satisfaction with 3PL providers, the providers are being pressured toenhance their relationships—while expanding their service offerings. For 3PL providersto properly address this challenge, they must determine their market positioning,business models, and approach to exceeding customer satisfaction. Pressure to “be allthings to all customers,” as well as continually growing and maintaining profitability,make it difficult for 3PL providers to address this challenge.

In the focus group sessions, oneof the discussions touched uponsuccessful relationships between3PL providers and users beingpredicated on settingexpectations (see Exhibit 15).Mike Studley from Reebok saidduring an ASE session that “todevelop a long- term sustainablerelationship with serviceproviders, companies mustinvest in the relationship andwork in a collaborative fashion. Itneeds to be mutually beneficialfor providers and customers.”

The participants agreed that 3PL providers cannot be all things to all people; they needto clearly define their customer satisfaction strategy. The attendees also agreed thatthis strategy differs by industry, client size, and tactical or strategic relationshipexpectations. We conclude that opportunities exist for 3PL providers to get closer totheir customers through collaboration, investment in the relationship, deeper industryknowledge, and proper expectation setting. This, in turn, should have a directcorrelation on overall customer satisfaction.

Key to a successful relationship between providers and users is whether customerexpectations are properly aligned with the appropriate 3PL business model andrelationship structure. This year’s study showed that 71% of the respondents view their3PL as a “tactical service provider,” 23% as a “logistics strategist,” and 28% viewthem as a “supply chain integrator” (see Exhibit 16). These results match those of thelast three years. And yet, users expect their 3PL provider’s capabilities and advancedservices to continually expand.

18

Exhibit 15

Expectation Setting Relative to Relationship Management

• Superior service and execution (proven resultsand performance)

• Trust, openness, and information sharing

• Solution innovation and relationship reinvention

• Ongoing executive level support

• Service offering aligned with customer strategyand deep industry knowledge

• Mutually beneficial, long-term relationshipwith company

• Trust, openness, and information sharing

• Dedicating the right resources at the right levels,including executives

• Clearly defined service level agreements

• Fiduciary responsibility and overall fairnessrelative to pricing

Customer Expectations of 3PL Providers 3PL Provider Expectations of Customers

Three conclusions can be drawn from these results. First, 3PL providers are notexpanding their capabilities quickly enough to satisfy customer expectations. Second,3PL users have not aligned expectations with the appropriate relationship structures.Third, users have a preference to utilize 3PL providers in a tactical capacity.

These conclusions were reached in our European focus group sessions as well. Oneparticipant highlighted this disconnect by saying that most of his company’srelationships were still tactical. Therefore, for 3PL providers to make a shift toward astrategic role, they need to invest in the expansion of services, client relationship, andease of integration. However, this participant continued, most 3PL providers, even thosein a strategic position, tend to act too operationally and tactically, almost from acontractor point of view.

Additional concerns regarding the desire to shift toward a strategic role wereexpressed in the ASE and focus group sessions. For instance, “3PL providers need tobe better at expectation management, executive presence, education, and culturalchange,” said Susan Norris, Vice President of Supply Chain, from Bacou-Dalloz.

On a positive note, Niek Visarius from Rockwell Automation highlighted some positivechanges. “We started in a tactical approach, outsourcing our operations with very strictservice level agreements. Over the last one and a half years, there has been a shifttoward a strategic relationship. We recently started to discuss our five-year planningactivities with our provider so they can collaborate with us on how to architect the bestsupply chain solution.”

As 3PL providers continue to expand their capabilities to match client expectations,users should be prepared to pay a premium for advanced services. These advancedrelationship models must incorporate risk-and-reward pricing mechanisms to offset thehigher cost of satisfying service level expectations.

Relationship ProcessesWhen asked whether “using 3PL providers is a key to satisfying our company’scustomers,” 56% of the respondents said “yes.” Seventy percent feel they have a“collaborative” relationship with their 3PL providers. These findings are similar to lastyear’s results. They also suggest that customers view their 3PL relationship as non-strategic, and that there are continued pressures on maintaining ongoing collaborativerelationships with their 3PL providers.

In time, we believe successful 3PL relationships will establish appropriate roles andresponsibilities for both the 3PL providers and their customers. While sometimes theuse of a 3PL provider is interpreted simply as “turning over all logistics activities” tothe outsourced provider, respondents over the last three years suggest that a jointclient-and-provider management structure is a highly effective way to manage 3PLrelationships. Raymond McGuire from Kellwood New England reiterated this in our ASEsession by saying, “The 3PL should be viewed as an extension of the logisticsdepartment in your business and be treated in the same way as any other internaloperation of your business.”

19


Exhibit 16

0%

20%

50%

3PL Provider Roles

40%

30%

10%

Supp

ly Cha

inIn

tegrat

or

60%

Perc

ent o

f Res

pond

ents

70%

79

7167 67

Tacti

cal S

ervic

ePr

ovide

r

53

23 2320

2428

North America

Western Europe

Asia-Pacific

Latin America

All Regions

80%

90%

Logis

tics

Strate

gist

2428

3230 30

Respondents are essentially expressing their desire as customers to have sufficientpower over operations until a track record of performance, or “trust” factor, is built.Although most customers (appropriately) retain control over strategy formulation anddirection setting for their logistics, this shared approach to managing operationscontinues to be an innovative response to the challenge of successfully managing 3PLprovider-client relationships.

3PL “Deal Structures”In past studies, users indicated willingness to share bothgains and losses from alternative relationship structures.This was again true this year; 58%21 of the respondentsuse alternative deal structures with their service providers.

The total respondents using or considering alternative dealstructures is a slight increase from last year’s results.However, North American and European responses havedropped between 10% and 15% from last year whileAsian-Pacific and Latin American responses increasedapproximately 50%. The drop in the matured outsourcingmarkets is indicative of the difficulties and challenges withdesigning and managing these types of alternative pricing

structures. Adrian Gonzalez from ARC Advisory Group commented during the ASE aboutthe broad range of alternative deal structures possible in a 3PL relationship, saying that“the relationship needs to be dynamic enough to allow services to move in and outdepending on the changing needs of clients, thereby pressuring how agreementsare structured.”

The survey results show that cost sharing (joint coverage of startup or cost over-runs)and cost-plus (open book plus markup) programs are clearly the preferred approachesto contractual arrangements between 3PL users and providers (see Exhibit 17).Changes from the last two years’ survey results include:

❑ Significant drop in risk/reward sharing programs (33% in 2004 to 19% in 2005).❑ Sharp drops in joint venture programs, especially in Latin America and Europe (20

and 10 percentage points, respectively).❑ Although still very popular, cost sharing dropped from 46% to 32%.❑ Increased interest in cost-plus programs.❑ Drop in revenue-sharing programs.

20

Share

holde

rVa

lue

0%

20%

50%

Types of Deal Structures

40%

30%

10%

Cost

Shari

ng

Risk

/Reward

Shari

ng

60%Cos

t-Plu

s

Perc

ent o

f Res

pond

ents

North America

Western Europe

Asia-Pacific

Latin America

All Regions

Reve

nue

Shari

ng

70%

3328

42

2832

24

04 33

6 69

5

201721

1719

2528

3330 28

46

9 9

Join

tVe

ntur

e

6

Exhibit 17

21 Based on 42% of the survey respondents who stated they were either consideringor were already using alternative deal structures.

The difficulties with most value-based arrangements come down to two processes:measurement and savings distribution. Most of these arrangements are complex tomanage, requiring data accuracy and appropriate personnel to administer theprocesses and associated baseline data. Second, once savings are identified, declaringthe savings and distributing the dollars between supply chain partners is difficult.Recent regulatory programs like Sarbanes-Oxley and increased global sourcinginitiatives have added to these challenges.

These difficulties were echoed in one focus group session. In short, it’s very difficult tomeasure and track the actual benefits in 3PL deal structures. Then, once a method hasbeen established and results accrued, the big discussion for both parties regardssharing the benefits or the costs. Unfortunately, both companies typically have difficultyin opening their “books” and understanding each other’s business models. As a result,the key to many of these deal structures comes down to trust in the relationship.

As the industry continues to mature, 3PL providers evolve their business models toaccommodate increasing customer expectations and capture additional market share.These models vary based on the scope of service offerings, regional coverage,relationship structure, service expectations, and degree of collaboration across thesupply chain. In previous years, we depicted this business model migration fromLogistics Service Providers to 3PL providers, to LLP, and finally to 4PL providers. Tosimplify terminology and avoid some of the confusion within the industry and acrossregions, the focus groups segmented these business models into a two-tieredrelationship structure (see Exhibit 18).

21


Exhibit 18

Two-Tiered Relationship Structure

ServiceAttributes

• Broad supply chain expertise• Deep industry domain and consultative skills• Advanced technology capability• Business process outsourcing, beyond logistics• Project management and provider coordination• 3PL technology integration• Innovation and continual improvement

• Traditional logistics services• Modular product offerings• Focused cost reduction and service

improvement• Operating excellence• Niche services

TraditionalOutsourcing Terms

•Fourth-PartyLogistics Provider(4PL)

•Lead LogisticsProvider (LLP)

•Supply ChainManager (SCM)

•Third-Party LogisticsProvider (3PL)

•Logistics ServiceProvider (LSP)

RelationshipAttributes

• Partnership JointVenture

• Value Based• Risk Sharing• Few Partners• Long Term (5+ years)• Common Core Values• Alignment and Trust• “Coopetition”

• Contractual• Fixed and

Variable• Transaction

Oriented• Short Term

(1 to 5 years)

RelationshipStructure

Strategic

Tactical

While 3PL customers are beginning to understand the definitions and relative benefitsof these relationship structures, this year’s responses highlight a general dissatisfactionand confusion with the terminology. When we asked if the respondents understood thedifferences between “3PL” and “4PL” providers, over 78% responded “yes” or

“somewhat.” This number decreased 10 percentage points from last year.When we asked if the 4PL terminology is “confusing” and “ambiguous,”76% responded “yes” or “somewhat.” Respondents seem to be graspingthe benefits of moving from a 3PL to a 4PL (43% of the respondentsreplied “yes” or “somewhat” to whether they see the potential benefits ofthat move). However, only 36% of the North American respondents see thepotential benefits of this shift toward a 4PL, while 46% to 53% of therespondents in the other regions see the potential benefits.

In short, users are just beginning to understand the differences and relatedbenefits of the various relationship models. Unfortunately, and at the sametime, companies are becoming pessimistic about adopting the “strategic”type of relationship models because of the general confusion of terms, lackof proven case studies, and complexities involved. This point was madeduring a focus group session. Michael Lontke from Kraft said, “Beforestarting with new terms like the 4PL terminology, we should look into thebusiness model, services deployed, and overall governance.”

Survey respondents were asked to rate the suitability of five types of companies tooffer these advanced business models. Last year, to capture some of the newcompanies or business models (e.g., 4PL) being developed, we added a new type ofbusiness: “new firms staffed with former 3PL executives.” The companies best suitedto offer 4PL services were existing 3PL providers and new firms with former 3PLexecutives (71% and 38%, respectively; see Exhibit 19). The “existing 3PL provider”response is back to about the same level as in the 2003 survey (71%), while thesuitability of “consultants” dropped from 25% in 2004 to 16% this year.

Despite the general confusion over terminology and the value of the various logisticsoutsourcing models, and despite these models being new (17% of those surveyedcurrently use or “somewhat” use a 4PL model), enough evidence shows that these“strategic” logistics outsourcing business models will continue to prosper. This year weadded a couple questions regarding broad business process outsourcing (BPO) andusers’ willingness to outsource comprehensive supply chain functions to a 3PL provider.Nearly 40% of the respondents already have or are “somewhat interested” in havingbroad BPO or entire functions outsourced to 3PL providers. While there are deterioratingviews about terminology, the pressure to continually improve and respond to industrychallenges is driving users to evaluate the advanced outsourcing relationships.

22

Exhibit 19

0%

20%

50%

Types of Companies Best Suited to Offer 4PL Servicesa

40%

30%

10%

2002 Responses

2003 Responses

2004 Responses

2005 Responses

80%

70%

60%

1716

b

2724 25

41

c

90%

Exist

ing 3

PLPr

ovide

rs

Tech

nolog

yPr

ovide

rs

Web

-Bas

edFir

ms

Consu

ltant

sNew

Firm

s With

Form

er 3P

L Ex

ecs

Perc

ent o

f Res

pond

ents

aAll regions.bThe 2004 and 2005 survey did not have “web-based firms” as a category.c “New firms by former 3PL execs” was included as a category for the first time in the 2004 survey.

69

47

57

71

913

22 23

16

38

Impact of GlobalizationThe globalization of traditional businesses is a major factor affecting logistics andsupply chain management. In particular, globalization involves these considerations:market expansion, new sources of supply, advanced security processes, continualimprovement initiatives, and redesigning logistics and supply chains for greaterefficiency and effectiveness.

For a broader world view of 3PL services, this year’s survey covers North America,Western Europe, Asia-Pacific, Latin America, and now South Africa. Approximately 55%of the survey respondents feel that 3PL providers would be able to keep up with thechallenges of global supply chain integration. This suggests, as we continue to stretchthis study’s regional coverage, that 3PL providers need to address user demands forglobal supply chain solutions.

A number of factors significantly affect the industries in which 3PL users compete (seeExhibit 5, page 7). Globalization was respondents’ fourth concern with 81% of themcategorizing this as a “high” concern, and coming after “significant pressures toreduce cost,” “emphasis on improved supply chain management,” and “implemen-tation of new technologies.” “Significant pressure to enhance customer service,” “newproduct introductions,” “intensifying regulations,” and “new markets” follow as factorsaffecting the respondents’ globalization efforts. A few interesting changes from lastyear’s responses:

❑ Increased importance on implementing new technologies (moving from 69% in2004 to 84% in 2005).

❑ Increased importance on government and regulatory policies (moving from 68% in2004 to 76% in 2005).

❑ Two new questions regarding capacity constraints showed that the lack oftransportation (drivers and equipment) and port capacity negatively affected organi-zations (70% and 64% respectively).

Users of 3PL services continue to advance their purchasing-decision skills and aremore aware of the benefits and pitfalls of outsourcing. Likewise, 3PL providerscontinue to improve their capabilities and are slowly addressing the gaps betweencustomer expectations and actual performance. These factors will continue to shapethe industry and advance the relationship models toward more complex and morecreative structures that offer higher upside benefits for both users and providers of3PL services.

23


Customer Value Framework

Successful relationships between 3PL providers and users require a sharing of vision,information, and strategies. Those relationships that emerge as successful over the longterm are those that prove to be agile and flexible, and that address end-to-endsolutions. Longer term, the creation of value in the 3PL provider/user relationship willlead to satisfaction and ultimately behavioral change. The latter may occur in the form offuture decisions to purchase additional services from a 3PL provider or the 3PL sector.

Exhibit 20 summarizes responses to thequestion “to what extent have your outsourced3PL efforts been successful?” North American3PL users continue to have successfuloutsourced 3PL efforts (90% reportedoutsourcing success in 200522). This experienceis similar to the North American success ratingsfor the past several years. Generally similarevaluations by 3PL users were seen in WesternEurope (88%) and Asia-Pacific (89%). As withlast year, the average success ratings for LatinAmerican 3PL users was much lower—theaverage rating for 2005 was 77%. Last, thesmaller number of users from South Africareported an average success rating of 93%.

Discussions with logistics executives confirmed the validity of a number of criticalsuccess factors that lead to the creation of customer value through the use of 3PLservices. Included among these factors were the following:

❑ Well-understood goals and objectives of the relationship.❑ Ability to reach consensus on matters of importance.❑ Corporate compatibility and strategic alignment.❑ Effective measurements and measurement strategies.❑ Migration plan toward advanced services.❑ Clear exit strategy and succession plan.

While the importance of individual factors will vary among individual 3PL provider-userrelationships, the success of a relationship also is dependent on skillfully managingseveral important dimensions involving objectives, communications, corporate compati-bility, and measurement strategies, to name a few. Also, the “value” that is created bya 3PL relationship is a function of several other factors including benefits derived fromservice offerings, price versus perceived benefit, standardized versus customizedservice offerings, breadth of service offerings, integration (operational and techno-logical integration), and geographic coverage. Based on discussions with logisticsexecutives, value in the 3PL provider-user relationship can be achieved only if bothparties work together to design, implement, and execute in key areas such as thoselisted above.

24

0%

20%

Customer Evaluation of Outsourcing Success*

40%

60%

Perc

ent o

f Res

pond

ents

North America

Western Europe

Asia-Pacific

Latin America

South Africa

80%

1996 1997 1998 1999 2000 2001 2002 2003 2004

100%

81

89 89

76

90

7985

89

7872

8582

888683

90

*Figures indicate the percentage of 3PL users by region who ratetheir relationship with their 3PL providers as either “very successful”or “extremeley successful.”

2005

8890 89

77

93

Exhibit 20

Measuring Success and Opportunities for ImprovementWe asked users for metrics that would help us better understand the benefits theyhave experienced from 3PL services. The 2005 study introduced two new metrics:order fill rate and inventory turns (see Exhibit 21 for the various performance metrics).Here are some comments about the results:

❑ Logistics cost reductions were relatively consistent at 10% or 11% across NorthAmerica, Western Europe, Asia-Pacific, and Latin America. While these percentagesare generally lower than those reported in 2004, they are similar to the percentagesreported in the few years before 2004.

❑ Notable among the fixed logistics cost-reductionpercentages is that the North American figure of 8%represents a decline from 16% reported in 2004. Also, the14% reported for Latin America is significantly less thanthe 41% reported last year.

❑ Order fill rate in each of the regions suggestsimprovements occurred as the order fill rates increased inall regions.

❑ Reductions in average order-cycle length of approximately25% to 30% were seen in North America, Western Europe,and Asia-Pacific, while the average order-cycle reduction inLatin America was halved.

❑ Inventory turns increased for 3PL users in North Americaand Asia-Pacific. Conversely, the same metric decreased inboth Western Europe and Latin America. While certainlyreasons exist why inventory turnover may decrease, itwould seem the more likely result would be an increase or improvement in thismetric. Further investigation of these results will be part of the 2006 3PL study.23

❑ Cash-to-cash cycles were seen to decrease as a result of 3PL use. The number ofdays reduction ranged from 2.8 days in Latin America to 4.5 days in North America.

❑ Users of 3PL services agreed that service levels had improved: North Americanexecutives in agreement, 62%; Western European, 67%; Asian-Pacific, 64%; andLatin American, 77%. These results are consistent with the findings from the ASEand the focus group sessions.

Although the commentary so far suggests that 3PL users are benefiting from theirchoice to outsource certain logistics services, and they are experiencing successfulrelationships with their 3PL providers, additional study results indicate these user-provider relationships are not without areas for improvement. Exhibit 22 on the nextpage identifies a number of areas for improvement, along with the percentage of 3PLusers indicating they have had “continuing problems” with each of these areas.

Across all four regions, the most prevalent problem areas include “lack of continuous,ongoing improvements and achievements in offerings” and “cost reductions have notbeen realized.” Among 3PL users in North America, Western Europe, and Latin America,

25


Quantifiable Measures of 3PL Success

Logistics costreduction

Fixed logisticsasset reduction

Average order-cyclelength change (days)

WesternEurope

10%

20%

From86.6 to 92.7

From6.3 to 4.3

10.0 to 9.3

From37.1 to 33.3

67%

NorthAmerica

11%

8%

From91.6 to 93.9

From9.3 to 7.0

7.1 to 8.2

From41.4 to 36.9

62%

Order fill rate (%)

Cash-to-cash cyclereduction (days)

Asia-Pacific

11%

33%

From91.5 to 95.8

From6.3 to 4.1

28.3 to 29.7

From31.0 to 26.2

64%Service level improve-ment (percent “yes”)

LatinAmerica

10%

14%

From77.5 to 83.9

From16.0 to 8.0

14.5 to 14.3

From33.7 to 30.9

77%

Cost/Benefit

Inventory turns*

*Two regions showed increases in inventory turnover and two showeddecreases. While there surely are circumstances that would validatethese occurrences, this question will be given significant scrutinyas part of the planning process for the 2006 3PL study.

Exhibit 21

22 Degree of success is measured on a five-point scale ranging from “extremelysuccessful” to “extremely unsuccessful.” A response of “extremely” or “somewhat”successful indicates a successful outsourcing effort.

23 One possible source of these differences is that some respondents had a differentinterpretation of how to measure inventory turnover. The most common definition ofinventory turnover is average sales in a time period divided by the value of averageinventory level during that same time period. For the 2006 3PL study, we will reviewthis question to make sure that the results are as valid as possible.

the most prevalent area for improvement is “service level commitments not realized.”Interestingly, while the data indicate that North American users experience “cost creepand price increases once the relationship has commenced,” this problem does notappear to be as prevalent in the other regions.

Although Exhibit 22reflects the feelingsof the respondents,these problem areasmay not be “critical”nor necessarilydifficult to resolve.Also, while thefindings do reflectthe experiences ofthe 3PL users in thevarious regions, the

areas for improvement may be relatively minor in contrast to other experiences thatindividual users may have had with alternative approaches to managing their logistics.

An interesting question is how this study can report relatively high success ratingswhile identifying numerous ways in which clients feel that 3PL providers can improve.While these two observations may appear to conflict, there are a few possibilities thatmay help to explain why this may be perfectly reasonable:

❑ Because “success” is a relative phenomenon, use of the term may be in relation tothe experience of the user before the current 3PL provider relationship. The priorsituation may have involved a different 3PL provider or perhaps an insourcing24 oflogistics activities. In both cases, a high success rating may suggest significantimprovement over whatever the previous alternative may have been.

❑ The determination of success is based on specific criteria, while the areas forimprovement cover a broader base of concerns that may be relevant to a 3PLprovider/user relationship.

❑ Generally, “success” does not exclude the existence of problems or areas ofopportunity. Even though these two may appear to be in conflict, it may very well bethat no real conflict exists between success and the existence of areas whereimprovement is needed.

A comment by Adrian Gonzalez of ARC Advisory Group provides insight into thisapparent conflict. He has “worked with clients that continually state that some of theirbest 3PL providers are also their worst.”

26

Exhibit 22

Areas for 3PL Provider ImprovementAreas for Improvement North Western Asia- Latin

America Europe Pacific AmericaService level commitments not realized 56% 58% 43% 63%Cost “creep” and price increases once relationship has commenced 49 35 43 23Lack of ongoing improvements and achievements in offerings 46 51 70 53Cost reductions have not been realized 42 41 47 50Lack of strategic management and/or consultative/knowledge-based skills 35 41 43 45Time and effort spent on logistics not reduced 35 33 27 38Unsatisfactory transition during implementation stage 28 28 23 25Lack of global capabilities 24 22 33 18Inability to form meaningful and trusting relationships 19 25 27 18

24 Insourcing refers to the internal or proprietary provision of logistics services by abusiness organization.

Technology Enablement

This year’s study addresses the increasing importance of information technology (IT)within its own section of the report. Approximately 90% of respondents agreed that ITcapabilities are a necessary element of overall 3PL provider expertise. However,far fewer are satisfied with their providers’ capabilities. In general, 3PL usershave yet to think of their 3PL providers in a newer, more strategic light. Not onlydo over 70% of the survey respondents characterize their 3PL providerrelationships as tactical in nature, their IT-based services align with thisthinking. The survey suggests that as more firms progress further intooutsourced logistics relationships, the complexity of those relationshipsnecessitates a combination of effective IT services for a broad spectrum ofsupply chain processes.

As in prior years of conducting this study, IT once again is a hot topic foranalysis and discussion. In the macro view, we can see that IT’s role in thedesign, delivery, and ongoing enhancement of 3PL services will continue togrow in importance and visibility. The implementation of IT ranked third behindonly cost pressures (97%) and improving supply chain management (89%) as aleading factor affecting 3PL user organizations in 2005.

All is not rosy, however, with 3PL users when it comes to the IT capabilities oftheir 3PL providers. This year, about 90% of the respondents agreed that ITcapabilities are a necessary element of overall 3PL provider expertise (seeExhibit 23). However, far fewer are currently satisfied with their providers’capabilities. In fact, only about 38% were satisfied with their 3PL providers’ ITcapabilities. Further, the responses in this area have been moving in the wrongdirection over the last two years. User satisfaction scores in North Americadropped from 75% in 2003 to 45% in 2004, to 40% in 2005. Western Europe’s resultsare not as dramatic, but they indicate the same general trend—from 56% in 2003 to45% in 2004, down to 42% in 2005.

These results lead to a series of key questions to explore in future research:

❑ Are 3PL providers falling behind in their IT capabilities, or are the IT expectationsthat the users have for 3PL providers increasing disproportionately year-over-year?

❑ Are there particular areas within IT where 3PL providers do exceptionally well? Arethere other areas where 3PL providers do exceptionally poorly?

❑ What are the primary requirements to address the satisfaction deficiencies in IT? Isit infrastructure investments or is it a personnel competency and training issue?

27


3PL Technology Expectations and Perceptions

0%

20%

40%

60%

80%

Perc

ent o

f Res

pond

ents

North America

Western Europe

Asia-Pacific

Latin America

3134 32 33

7980 81 78

4240 42

33

Rely

on 3

PL p

rovid

ers fo

r

IT le

aders

hip

Satis

fied

with 3

PL

prov

ider’s

IT ca

pabil

ities

Havin

g the

“righ

t soft

ware” i

s

majo

r com

petit

ive ad

vant

age

IT ca

pabil

ities

are

nece

ssary

for 3

PL p

rovid

ers

9489 87 89

10%

30%

50%

70%

90%

100%

Exhibit 23

Seeing the overall low marks that 3PL providers have earned in terms of IT satisfactionlinks to another survey result that shows that only a minority of 3PL users rely on their3PL providers for IT leadership. In this regard, the regional data is mixed year-over-year, but categorically, IT leadership results are low (33% overall). In North America,reliance went down from 37% in 2004 to 34% in 2005, as it did in Latin America from

40% to 33%. In Western Europe and Asia-Pacific, the numbers movedup, from 21% to 31%, and from 10% to 32%, respectively. In theaggregate, only one in three survey respondents looks to their 3PLprovider as a source for IT leadership.

Sources of TechnologyAs 3PL providers are not yet considered IT thought leaders in logisticsmanagement, respondents were next surveyed to determine fromwhere they source their IT. In years past, a high percentage ofrespondents indicated that they turned to internal company sources forsuch IT capabilities. With the exception of North America, all regionsaround the world now indicate that their supply chain IT solutions are acombination of solutions sourced from 3PL providers, internally, or fromIT providers and consultants, or all four (see Exhibit 24).

What these data suggest is that as more and more firms progress further intooutsourced logistics relationships, the complexity of these relationships necessitatesa combination of technology solutions from across the supply chain landscape. Insome regions of the world, many 3PL relationships are established as a means ofenabling a 3PL user to enter new markets. In these cases, there is no “existing” orlegacy IT investment on the books of the user to have to perform due diligence

28

Sources of Information Technology

0%

20%

40%

60%

80%

Perc

ent o

f Res

pond

ents

North America

Western Europe

Asia-Pacific

Latin America

3541

2721

Consultant

1116 15 17

Internal

873

19

3PLProvider

43

34

49

AllSources

38

336 4

TechnologyProvider

Exhibit 24

Exhibit 25

Web

-Ena

bled

Comm

unica

tions

58

7064

50

Trans

porta

tion

Man

agem

ent (

Plann

ing)

66

3946

33

86

65

8276

Trans

porta

tion

Man

agem

ent (

Exec

ution

)

Ware

hous

e/Dist

ribut

ion

Center

Man

agem

ent

72

64

91

53

Supp

ly Cha

inPla

nnin

g

75 7

21

Supp

lier M

anag

emen

tSy

stem

s

11

19

1117

Shipm

ent T

rackin

g/

Tracin

g/Eve

nt

Man

agem

ent

66

8075

56

Expo

rt/Im

port/

Freig

ht Fo

rward

ing/

Custo

ms C

learan

ce

747478 78

1718

31 33

Custo

mer

Order

Man

agem

ent

Radio

Freq

uenc

y Ide

ntific

ation

(RFI

D) & A

sset T

rackin

g

1511 13

10

Inter

net-B

ased

Tran

spor

tation

/

Logis

tics M

arkets

28

1710

14

0%

20%

50%

Currently Used IT-Based Services

40%

30%

10%

80%

70%

60%

Perc

ent o

f Res

pond

ents

North America

Western Europe

Asia-Pacific

Latin America

90%

assessments upon. The key question in such an instance becomes one of speed andagility, rather than cost and control. When the technological investments by definitionmust be made (because of net-new facilities), the determination of softwareownership and operation becomes part of the overall solution design process. Asmany of the existing IT investments made in North America during the Year 2000-upgrade cycle approach the end of their planned lifecycles, it will be interesting toascertain whether the future results in North America will also cross over frominternally sourced to a more shared model.

IT-Based ServicesThe 2005 survey identifies what IT-based services respondents were using, as well asthe services they believe will be requirements in the future. Exhibit 25 summarizes theresults by region, and once again the top five services are consistent with the 2004and 2003 results. In 2005, the top five IT-based services that users look for from 3PLproviders are:

❑ Export/import/freight forwarding/customs clearance❑ Transportation management (execution)25

❑ Shipment tracking/tracing/event management❑ Warehouse/distribution center management❑ Web-enabled communications

While survey respondents place a consistent emphasis upon their desire for their 3PLproviders to further develop their solution breadth and advanced offerings, they haveyet to think of their 3PL providers in a newer, more strategic light. Not only do over70% of the survey respondents characterize their 3PL provider relationships as tacticalin nature, their IT-based services align with this thinking.

29


Exhibit 26

25 In the 2005 study, we segmented out transportation execution fromtransportation planning to better identify what dimensions of the transportationmanagement process had been entrusted to the 3PL providers’ applicationsvis-à-vis the users’ applications.

Inter

net-B

ased

Tran

spor

tation

/

Logis

tics M

arkets

35

28

43

35

Radio

Freq

uenc

y

Iden

tifica

tion

(RFI

D) & A

sset T

rackin

g

55

41

53

45

1514 14

24

Custo

mer

Order

Man

agem

ent

Expo

rt/Im

port/

Freig

ht Fo

rward

ing/

Custo

ms C

learan

ce

77 9 11

Shipm

ent T

rackin

g/Trac

ing/

Even

t Man

agem

ent

22

8

16

27

Supp

lier M

anag

emen

tSy

stem

s

2519 18

21

Supp

ly Cha

inPla

nnin

g

2016

25 24

Ware

hous

e/Dist

ribut

ion

Center

Man

agem

ent

66 613

711

6

18

Trans

porta

tion

Man

agem

ent (

Exec

ution

)

Trans

porta

tion

Man

agem

ent (

Plann

ing)

1116

21

31

Web

-Ena

bled

Comm

unica

tions

23

1318

24

0%

20%

50%

Future Requirements of IT-Based Services

40%

30%

10%

80%

70%

60%

Perc

ent o

f Res

pond

ents

North America

Western Europe

Asia-Pacific

Latin America

90%

The aforementioned top five services are key tactical enablers, whereas applicationssuch as supply chain planning, supplier management, and customer ordermanagement can be characterized as being far more strategic in nature. For a 3PLuser to opt (as a matter of strategy) to use their 3PL provider’s IT offerings in theseareas, they would also need to bring the 3PL provider’s scope and role within thesupply chain further upstream as well. One participant in the European focus grouppointed out that 3PL providers are keen on selling their own technology as part of thesolution, but what 3PL users really need is a neutral technology that connects allparties involved, not just 3PL provider to 3PL user. The only area where this has begunto occur is in transportation planning, where there is a natural tie-in to the downstreamtransportation execution process.

In future surveys, we expect that the adoption of these more strategic IT services willincrease proportionally with the overall percentage of users who shift their characteri-zation of the 3PL relationship from one that is predominantly tactical to one that isincreasingly strategic in scope.

Looking Forward; IT’s Place in the Future On the previous page, Exhibit 26 summarizes the future requirements of IT-based 3PLservices. Overall, the top IT priority is radio frequency identification (RFID; NorthAmerica, 41%; Western Europe, 55%; Asia-Pacific, 53%; and Latin America, 45%).While these numbers are somewhat lower than the 2004 results, they did not decreaseenough to suggest that the 2004 results were merely a reaction to hype. The focus onRFID in 2005 is still 15 percentage points higher than the second most highlightedtechnology focus area: Internet-based transportation/logistics markets (across allregions studied: 48% versus 32%, respectively).

As the adoption and rollout of RFID technologies becomes more commonplace, 3PLusers will increasingly look to their providers to be in a position to capture, manage,and use the rich product information that RFID affords as part of their more advancedlogistics solutions offerings.

The other two areas of note in the data are the stated levels of future interest incustomer order management and supplier management systems, particularly in Asia-Pacific and Latin America. As more mature firms in North America and Europe movetheir production operations to low-cost countries, these new geographic locales willincreasingly look to IT tools to aid in their management of increasing volumes andcomplexity. Supplier management systems for better managing inbound flows, andcustomer order management systems for better managing outbound flows, are clearfuture candidates for adoption in the outsourced solution portfolio. Historically, thesesystems have been more commonly thought of as aiding in core (or more strategic)business processes to the 3PL users. Perhaps the regional shift of these businessprocesses will bring with them a subsequent shift in the types of technologies forwhich users will look to their 3PL providers to take a larger leadership role.

30

Strategic Assessment

Looking back through the 3PL study results since 1996, it is amazing to see thepositive results and continual advances within the industry. While there have beenimprovements and overall satisfaction, some challenges continue from year to year.This report’s conclusions come in four sections: summary of key successes, industrychallenges, future industry trends, and the value readers should get from this report.

Key SuccessesThe 3PL industry continues to go through an evolutionary change. Not only are 3PLproviders and their capabilities changing, but the expectations that user firms have oftheir 3PL providers and their services are also changing. In fact, the 3PL industry itselfis moving forward and showing signs of progress toward maturity. The industry hashad many successes over the last 10 years:

❑ Value Satisfaction. Since the inception of this survey, customer evaluation ofoutsourcing success has ranged between 82% and 90%. The last four years,satisfaction rates have consistently been around 90%. Along with high satisfactionrates, users have stated continued benefits over the last six years, for example,logistics cost reductions of 10%, asset reductions of 16%, order-cycle timereductions of three days, and inventory reductions of 8% (based on six-yearaverages from 2000 through 2005).

❑ Sustained Growth. The 3PL industry continues achieving annual growth ratesgreater than 10% over the last decade, while experiencing a tremendous amountof mergers and acquisitions. Current logistics expenditures directed towardoutsourcing have increased from 31% in 2001 to 49% in 2005. Five-yearprojected expenditures directed toward outsourcing ranged from 49% to 60% overthe same period, which equates to a 25% to 50% planned increase by existingusers of 3PL services.

❑ Industry Awareness and Usage. Back in 1996, not many people had heard of orunderstood the term 3PL. Familiarity with the terms and understanding the servicesand capabilities of 3PL providers has dramatically increased over the last decade.Survey responses over this time show an increased usage of 3PL provider servicesfrom 71% to 80%.

❑ Service and Capability Advancements. Services, such as transportation andwarehouse management, are now viewed as a basic offering, whereas 10 yearsago it was an emerging capability. Technology advancements have acceleratedservice offering development by 3PL providers. Customer expectations havecontinually increased from year to year. At the same time, the need for profitabilityis pressuring 3PL providers to develop new capabilities while effectively managingtheir basic services. Now, 3PL providers are viewed as logistics technology experts,and they possess the ability to continually innovate and develop advanced serviceslike consulting, manufacturing, reverse logistics, sequencing/mixing centers, andshared networks.

31


Industry ChallengesWhile the 3PL industry has seen success and continues to prosper, gaps continue toexist in several areas:

❑ Disappointment with the 3PL provider’s abilities to develop advancedservices. Although many 3PL providers satisfy user requirements around basicservices, such as transportation or warehousing, ongoing development ofcapabilities is still a key issue. Users continually state they are initially satisfied with3PL provider performance, but the providers fail to advance their capabilitiesaround their users’ evolving needs. These user needs include globalization,inventory/asset-based services, contract manufacturing, strategicmanagement/consulting, broad business process outsourcing, technologyinnovation, and leveraged solutions. A critical success factor in meeting theseneeds is for 3PL providers to get closer to users, thereby better understanding theusers’ industry challenges, and better anticipating the users’ evolving needs anddemands. Such an approach requires additional investment and skill-set changesby the 3PL provider, but it yields payback by creating longer-term relationships.

❑ Need for relationship reinvention, mechanisms for continual improvement,and solution innovation. The continual gap between user expectations and what3PL providers deliver is a clear signal that 3PL providers and users need to“reinvent” themselves to be more capable business partners to one another. Thesuccess of future 3PL relationships will depend on the ability of both parties to taketheir individual and collective capabilities “to a new level”; they will have toeffectively reinvent themselves to be more responsive to changing logistics andsupply chain environments. The industry is experiencing a convergence of serviceproviders as capabilities and services are enhanced. Distributors providing 3PLservices, contract manufacturers offering outsourced solutions, and consultingcompanies selling supply chain solutions are all signs that 3PL providers areencountering new competitors. The pressure for 3PL providers to continuallyimprove operations and develop innovative solutions to new or existing problems ispressuring them to rethink their operating models, skill-set development, andsolution development methods.

❑ Increasing importance of repeatable and leveraged solutions. Users continuallyexpect 3PL providers to leverage their solutions, including the technology behindthese solutions, across customers. Providers continue to struggle with standardizingofferings to lower their total cost of ownership, especially for some of the basicservices like transportation and warehousing. Although the need for successfulfunctional execution is great, a strategic shift has occurred: The need for capablestrategic management services and deep industry knowledge, coupled with theavailability of low-cost standard solutions, is now a high priority for both 3PL usersand providers.

32

❑ Emerging role of supply chain integration. The stated need for advanced supplychain services and for organizations that can serve as “integrators” has validatedthe “strategic service” model in meeting the needs of—and servicing—3PL users.Specifically, providers that can bring multiple service capabilities relating to the useof logistics information, operational knowledge, user-provider relationships, andsupply chain integration are of critical importance. The industry is flooded withvarious terms and marketing pitches around strategic service models, creatingconfusion and frustration among users. For example, the terms 4PL, SCM, and LLPcan mean the same thing depending on individual definitions. Initially, the use ofstrategic services has been limited to supply chains that are complex, large, andrapidly changing, as well as limited to user organizations that are themselves large,complex, and global. Recently, we have seen an increased demand in thesestrategic services from mid- and small-sized companies because they do not havethe capacity or capability to adequately manage these activities themselves.

❑ Global evolution of 3PL usage. Principal among the strategic directions for thefuture is the need for 3PL providers to offer globally capable services; that is,providers that can integrate processes and information across vast regionalboundaries. Although many 3PL providers market their “global” abilities, 3PL usersindicate significant improvement is needed before most of these claims arerealistic. Achieving this goal may be more realistic as a result of “reinvention” or“acquisition” rather than “marginal improvement.”

Several of these issues were validated during our ASE and focus group sessions:

❑ “There is so much noise and confusion around 3PL technology and servicecapabilities in the marketplace because of specialization and market maturity thatorganizations need to rely on neutral and experienced outsiders who live this stufffor best-fit recommendations and solutions,” said Karim Alhusseini fromEaton Corporation.

❑ “The real challenge with relationships is around building and maintaining trust andaccountability versus the technology used to manage the process,” said LeonShivamber from Harris Corporation.

❑ “I hate when a 3PL provider comes in and offers me a bunch of excuses. We wantopen and honest communication, and true partnership and collaboration,” said RayMcGuire from Kellwood New England.

33


Future Industry TrendsOverall, the task of understanding the success of 3PL relationships is challenging. Theresults of the 2005 3PL study once again have identified a number of areas in which3PL providers are viewed as creating significant benefit—hence value—for 3PL users.However, there appears to be no shortage of areas where improvement is desired.

We see the 3PL industry experiencing normal shifts as the market grows and matures.Moreover, customers like what they’ve purchased, see the benefits, and now wantsomething bigger/better. Being in a service industry, perhaps 3PL providers are tryingto offer improvements (advanced services) on an ad hoc or customer-by-customerbasis. A more traditional approach evident at many manufacturing enterprises is tohave a separate research and development department, rather than try time after timeto create new value offerings for individual customers one at a time.

Results from the 2005 3PL study, combined with our ASE and focus group sessions,identified several industry trends over the next 10 years (see Exhibit 27), groupedinto technology, relationship, capabilities, and economic categories. Some of thesetrends are:

❑ Continued expansion, acquisition, and consolidation of the 3PL industry.❑ Improved customer-needs alignment (provide the right solution, be involved in client

integration planning, and understand the client industry) and solution innovation.❑ Simplified advanced service definitions by adopting a two-tiered relationship model

(strategic and tactical).❑ Improved product management, flexibility in service offerings, cost management,

ease of integration, and process orientation capabilities by 3PL providers’ service-oriented architectures.

❑ Continual expansion of service offerings and capabilities across the supply chainand broad-based business process outsourcing (back office, finance, call center,and manufacturing).

❑ Continued activity in updating, enhancing, and improving/extending the overall 3PLprovider-user relationship.

❑ Expansion of global markets and 3PL providers’ abilities to provide necessaryservices.

❑ Increased adoption of shared service networks and “coopetition” strategies (collab-oration of traditional competitors).

❑ Improved usage of 3PL providers of product portfolio and channel managementstrategies.

Last, keep in mind that significant challenges will always exist when measuring andquantifying the value created by a 3PL provider for its clients. Even if the types ofbenefits from using a provider can be accurately identified, the conversion of benefit-to-value in financial terms typically is not an easy task. As the level of the playing fieldin the 3PL arena continues to rise, both 3PL providers and 3PL users should be betterable to accurately identify and quantify value.

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Value of ThisReportAlthough this reportprincipally emphasizesviews about the 3PLindustry from a userperspective, we havewritten it to be of valueto a broad range ofinterests in the logisticsand supply chainarenas. The relevance ofthis study applies tousers, non-users,service providers,managementconsultants, andeducators from anumber of vantagepoints:

❑ Understand the development and growth of the 3PL industry.❑ Compare personal experiences and results with market expectations and results.❑ Gain a better understanding of the depth and breadth of 3PL services.❑ Understand the 3PL value proposition and the results experienced by users.❑ Assess your role within the 3PL market and determine market strategy.❑ Understand sources of customer satisfaction and dissatisfaction with 3PL providers.❑ Utilize this information to help close performance gaps.

From a management perspective, this study documents the increased interest andsustainability of truly collaborative relationships between 3PL providers and theircustomers. While the study certainly identifies ways in which all parties can improvethese relationships, long-term success in the marketplace requires that more effectivelogistics and supply chain solutions be developed.

Finally, firms in all industries must see the 3PL option as one that can provide valuecreation for the user firm, its customers and suppliers, and the supply chain in general.As with previous years’ studies, we finish by again saying that 3PL providers willincreasingly be at the focal points of strategy formulation, operational excellence, andIT to make the maximum contribution in value creation for their customers.

The last 10 years of analyzing the 3PL industry has been very exciting, interesting, andrewarding. In consideration of this decade-long study, we will continue makingsignificant changes to this report next year…and beyond.

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10-Year Future Industry Predictions

3PL ProviderMerger &

Acquisition

Supply ChainManagement

Advanced ServicesCommonplace

Productized Offeringsvia Service-Oriented

Architectures Broad Business ProcessOutsourcing Services

Commonplace

Value of Yuan Levels

Market Disruption

$200 per Barrelof Oil

Increased InterestRates

Labor Rates Equalizedto Offshore Level

Next Low-Cost CountryIncreases Offshore

Movement

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Technology

Relationship

Capabilities

Economic

SoftwareProviderMerger &

Acquisition

Service-OrientedArchitecture (SOA)

Adoption

RFID(now viable)

RFID - GPSDynamic Tracking

WeightlessTrailers &Tractors “Teleportation”

True CollaborativeOutsourcing Models

Pay-for-PerformanceModels Commonplace

Subject Matter & ConsultantSkills (versus tactical labor)

Exhibit 27

Appendix: 3PL User Focus Groups and CapgeminiAccelerated Solutions Environment (ASE) Meetings

In addition to the conclusions drawn from the statistical data and responses gatheredfrom the Web surveys, the study team also gathered insight into emerging trends andreceived assistance in interpreting survey response data through 3PL client workshopsand user focus group sessions that involve 3PL users around the world.

3PL Client WorkshopsThis year, two client workshops were conducted. The first focused on interpretingresults gathered in North America; the second, on operations in Asia-Pacific. The NorthAmerican workshop leveraged Capgemini’s Accelerated Solutions Environment (ASE),bringing together over 20 participants representing 3PL users, study sponsors, andmarket analysts. As of this writing, the Asia-Pacific workshop attendees had not beenfinalized. Results from this workshop will be published as a supplement to this study.

The objectives of both workshops included:

❑ Collectively interpret the preliminary survey results on a regional basis.❑ Identify the implications of key trends, issues, and opportunities.❑ Share best practices and learn through other participants’ experiences in the areas

of networking, industry best practices, and common barriers.❑ Collaborate across industries to define the building blocks for a successful

3PL relationship.❑ Gain understanding of what is important to 3PL customers.

The results from the North American workshop were incorporated into each section ofthis report, providing additional insight and understanding to survey responses.

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North American ASE ParticipantsKarim Alhusseini Director, Supply Chain Management—Fluid Power Eaton Corporation

Bob Corcoran Manager, Worldwide Third-Party Logistics Management Hewlett-Packard

Luan Giannone Global Supply Chain Senior Manager Lucent Technologies

Adrian Gonzalez Director, Logistics Executive Council ARC Advisory Group

Conrad Hanf Director, Strategic Advisory Services ARC Advisory Group

Raymond McGuire Vice President, International Services Kellwood New England

Susan Norris Vice President, Supply Chain Bacou-Dalloz

Aaron Pernat Director of Logistics Foamex International Inc.

Michael Schmittlein Managing Director, Corporate Trade Sales, Global Trade Services Wachovia

John Sheehy Senior Group Manager, Strategy & Innovation PepsiCo

Leon Shivamber Vice President, Supply Chain Management and Operations Harris Corporation

Mike Studley Senior Director of Apparel Distribution Reebok

What is the ASE?In today’s business climate, innovation and collaboration may be the only competitiveadvantages that really matter. The Accelerated Solutions Environment is one ofCapgemini’s most important competitive differentiators.

Fortune magazine sums up the ASE experience as follows:

“ Avoid project teams and months-long investigations, and don’t bother with reports,committees, or levels of approval. Instead, select people from all levels of thecompany, add some consultants and even customers, put them all together, stir well,and come up with a completely new concept of how to organize and run thebusiness—all in just three intensive days...”

Capgemini’s ASE combines incomparably creative work spaces, a highly trained facili-tation support team, and a proprietary process and methodology that help acceleratebusiness decision-making and the creation of innovative solutions—anywhere andeverywhere in the world.

3PL User Focus Group SessionsUser focus group sessions were used in Europe with similar objectives as the clientworkshops. Six clients participated, representing multiple industry segments acrosstwo focus group conference-call sessions. To improve our interpretation of the studyresults, we conducted client workshops in Europe similar to the North American eventsheld in 2005.

The objectives of the focus group sessions include:

❑ Individual and group interpretation of select 2005 study results.❑ Identify and discuss key industry themes, trends, and issues.❑ Identify short-term change imperatives.❑ Discuss the future of the 3PL industry.

Capgemini, Dr. John Langley, DHL, and SAP all want to thank the companies andrepresentatives for their participation in the client workshops and focus group sessions.The enthusiasm, insight, and interpretation of the results by all the participants weregreatly appreciated in helping with this 10th annual 3PL survey and report.

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European Focus Group Session ParticipantsTom Berk Manager, Staff Logistics Deli XL

Len Dikker General Manager, Logistics Operations Europe Sony Logistics Europe B.V.

Michael Lontke Manager, SAP Competency Center, EMEA Kraft

Kees van der Vleuten Senior Director, General Purchasing—Forwarding & Distribution Philips Purchasing, Forwarding & Distribution

Niek Visarius Director, Supply Chain & Customer Services, EMEA region Rockwell Automation

Ed Voss Global Supply Chain Management Philips Consumer Electronics

About the Participants

C. John Langley Jr.Dr. C. John Langley Jr. is The Logistics Institute Professor of Supply ChainManagement and a member of the faculty of the School of Industrial and SystemsEngineering at the Georgia Institute of Technology. He serves as Director of SupplyChain Executive Programs at Georgia Tech and as Executive Director of the SupplyChain Executive Forum. Dr. Langley is a former President of the Council of LogisticsManagement and a recipient of the Council’s Distinguished Service Award. TheRichmond Events Logistics and Supply Chain Forum named him one of the“Outstanding Logistics Professionals” in 2004. Dr. Langley received the Ph.D. degreein Logistics from Penn State University, and he is a noted author and frequentpresenter at professional meetings and forums. He is a co-author of The Managementof Business Logistics: A Supply Chain Perspective, a seventh edition textbookpublished in 2003, as well as a number of other textbooks. In addition to his universityduties, Dr. Langley consults with both logistics user and provider firms, and serves onthe Boards of Directors of several major corporations.

Georgia Institute of TechnologyThe Georgia Institute of Technology, located in Atlanta, is a leader in logistics andsupply chain education. Through its School of Industrial and Systems Engineering (ISyE)and The Logistics Institute (TLI), Georgia Tech is committed to serving logisticseducational needs through its degree programs and its comprehensive professionaleducation program. Included are two short course series—the Logistics ProfessionalSeries and the Logistics Management series—and a fully accredited ExecutiveMaster’s in International Logistics (EMIL) program. Also, TLI sponsors a Global LogisticsProgram, a TLI Asia-Pacific program in partnership with the National University ofSingapore (a partnership with the National Science Foundation and more than 20corporations and government agencies), and a Leaders in Logistics Program. GeorgiaTech and The Logistics Institute impact logistics and supply chain direction setting andstrategy formulation through its Supply Chain Executive Forum, founded in 2003.Information about Georgia Tech’s ISyE programs may be found on the web athttp://www.isye.gatech.edu, while information about The Logistics Institute and theSupply Chain Executive Forum may be found at http://www.tli.gatech.edu andhttp://www.tli.gatech.edu/scef, respectively.

Erik van DortErik van Dort, Vice President and Global Sector Leader, Distribution, holds globalresponsibility for Capgemini’s business with logistic service providers. He is coordi-nating both sales and delivery of all international business in freight distribution andtransport. At Capgemini, Mr. van Dort has consulted on projects for government(municipal and central) as well as private companies (e.g., road transport, pharmacywholesale, engineering, chemical industry, textiles, electricity production, ports, andshipping lines). Mr. van Dort holds a Master’s Degree, Business Studies, from theErasmus University in Rotterdam. He joined Capgemini in 1984.

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Peter D. MoorePeter D. Moore is Vice President and leader of the Logistics, Fulfillment, and RFID(radio frequency identification) practice within Capgemini’s Americas region. Mr.Moore has over 30 years of experience in manufacturing, third-party logisticsservices, and consulting. He and his team of professionals provide strategic andtactical consulting in logistics and RFID technology. With his deep operationalknowledge in all aspects of supply chain, Mr. Moore is completing a Ph.D. inmanagement of complex global organizations.

Capgemini Capgemini, one of the world’s foremost providers of Consulting, Technology, andOutsourcing services, has a unique way of working with its clients, called theCollaborative Business Experience. Backed by over three decades of industry andservice experience, the Collaborative Business Experience is designed to help ourclients achieve better, faster, more sustainable results through seamless access to ournetwork of world-leading technology partners and collaboration-focused methods andtools. Through commitment to mutual success and the achievement of tangible value,we help businesses implement growth strategies, leverage technology, and thrivethrough the power of collaboration. Capgemini employs approximately 60,000 peopleworldwide and reported 2004 global revenues of 6.3 billion euros. For moreinformation, please visit www.capgemini.com.

Alec AngAlec Ang is the Supply Chain Logistics Director for DHL Asia-Pacific Global CustomerSolutions. He has over 10 years of experience in the industry, including working withclients such as Sun Microsystems, Hewlett-Packard, Cisco, and Philips MedicalSystems. Before his current role, Mr. Ang was Business Controller for GCL Asia-Pacific,also in DHL. Mr. Ang has a particular interest in how supply chain transformationsimpact business financials. He has experience in setting up activity-based costingmodels that help companies measure business profitability and track processimprovements. Mr. Ang has a BBA, MBA, and CPA. He is in the process of completingan executive masters program at Georgia Tech in the field of international supplychain management.

DHLWith annual revenues of over 24 billion euros in 2004, DHL is the global market leaderof the international express and logistics industry, specializing in providing innovativeand customized solutions from a single source. DHL offers expertise in express, air andocean freight, and overland transport and logistics, combined with worldwide coverageand an in-depth understanding of local markets. DHL’s international network links morethan 220 countries and territories worldwide, and employs over 170,000 peopleworldwide. DHL is 100% owned by Deutsche Post World Net. For more information,please visit www.DHL.com.

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Scott R. SykesScott R. Sykes is a Principal with SAP America, Inc., based in Charlotte, North Carolina.He is the North American Supply Chain Leader for the Services Industries, and has 15years of supply chain experience ranging from enterprise software to logisticsoperations and strategic consulting. He specializes in logistics services and softwaresolution design, and he leads SAP’s efforts in the third-party logistics and supply chainoutsourcing marketplace in North America. Mr. Sykes has worked on global supplychain projects throughout North America, Latin America, and Europe across a diversenumber of industries. Before joining SAP, Mr. Sykes held supply chain leadershippositions with Oracle Corporation and Accenture. He has an MBA in Logistics andTransportation from The University of Tennessee, and a Bachelor’s Degree in Economicsfrom The University of North Carolina at Chapel Hill.

SAPSAP is the world’s largest provider of collaborative business solutions for all types ofindustries and for every major market. With 12 million users, 91,500 installations, andmore than 1,500 partners, SAP is the world’s largest enterprise software company andthe world’s third-largest independent software supplier. SAP has a rich history ofinnovation and growth that has made it a true industry leader, employing more than32,000 people in more than 50 countries. For more information, please visitwww.sap.com.

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Contact Information

For additional copies of this publication or for more information about the study, contact:

C. John Langley Jr., Ph.D.TLI Professor of Supply Chain ManagementGeorgia Institute of Technology765 Ferst Drive, N.W.Atlanta, GA 30332-0205Phone: (404) 894-6523Fax: (413) [email protected]

Peter D. MooreVice PresidentLogistics, Fulfillment & RFID Leader Capgemini US, LLC600 Memorial Drive, Suite 100Cambridge, MA 02139Phone: (617) 768-5435Cell: (781) [email protected]

Alec AngSupply Chain Logistics DirectorGlobal Customer Solutions Asia-PacificDHL Asia Pacific Regional Office—Singapore600 North Bridge Road#23-01 Parkview SquareSingapore 188778DID: (65) 6.216.6808Tel: (65) 6.216.6216Fax: (65) 6.216.6871Email: [email protected]

Scott R. SykesPrincipalSAP America, Inc.1157 Elrond DriveCharlotte, NC 28269Phone: (704) 766-0147Fax: (704) 766-0148Cell: (704) [email protected]

Erik van DortGlobal Sector Leader, DistributionCapgeminiPapendorpseweg 1003528 BJ Utrecht(or P.O. Box 2575, 3500 GN Utrecht)The NetherlandsPhone: (31) 30.689.7119Fax: (31) 30.689.9527Cell: (31) [email protected]

Till DengelSAP AGSolution Manager, Logistics Service ProvidersNeurottstrasse 1669190 WalldorfGermanyPhone: (49) 6227.7.68642Mobile: (49) [email protected]

Donato CaporaleCapgemini Australia Pty LimitedLevel 2477 Collins StreetMelbourne VIC 3000AustraliaPhone: (61) 3.9613.3976Fax: (61) 3.9613.3333Cell: (61) [email protected]

From the ASE: 10 Years of 3PL and Beyond

third-party logistics 2005

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