Dennis Wereldsma, Global Distribution Sector Leader, Capgemini; Dennis de Waard, Corporate Supply Chain Manager, Supply Chain Strategy, Panalpina; Dominic Regan, Senior Director, Oracle speak on 'The Hidden Opportunities of Economic Crisis - Findings from the 14th Annual Third-Party Logistics Study' at the 7th European 3PL Summit in Brussels, November 25th 2009.
To download all of the slides from the conference for free visit www.3PLsummit.com/eu_2009ppts
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CapGemini, Panalpina & Oracle on 'The Hidden Opportunities of Economic Crisis - Findings from the 14th Annual Third-Party Logistics Study'
1. The State of Logistics Outsourcing
2009 Third-Party Logistics
Results and Findings of the 14th Annual Study
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
2. Contents
About the Study
Current State of the 3PL Market
Economic Volatility
Supply Chain Orchestration
IT Capability Gap
Strategic Assessment
2
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
3. About the Study
Expanded Focus in 2009 to Include 3PL Users and Providers
3
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
4. This year’s 3PL study incorporated three major
research thrusts
E-Mail Survey of Executives from 3PL user and provider firms
• User survey targeted VP, Director, Manager of Logistics or Supply
Chain Management
• Provider survey targeted CEO’s and Executives
Focus Interviews with Executives and Industry Observers
• Interviews pertained directly to “special” topics included in 2009 study
Capgemini Accelerated Solutions Environment® (ASE) Facilitated
Workshop Session
• Chicago, USA and Utrecht, Netherlands
• Workshop in Singapore
4
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
5. Survey respondents represented range of geographies
and industries
Shipper respondents
Industry %
Europe 1. High-Tech / Electronics 14
(250) 2. Consumer Products 12
North America 33%
(248) 3. Food and Beverage 10
32% Asia-Pacific
(155) 4. Life Sciences and Pharma / Healthcare 10
20%
5. Automotive and Transport Equipment 10
6. Industrial Manufacturing 8
Latin America
(103) 7. Retail 6
13%
8. Chemical 6
Other Additional Industries (13) 13
(16)
2% Other 11
+ 279 Survey respondents from 3PL provider firms.
5
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
6. Current State of the 3PL Market
3PLs and Shippers – Different Perspectives to Ongoing Issues
6
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
7. Shippers currently outsource a wide variety of
logistics services
% Users % Users
Outsourced Logistics Services All Regions Outsourced Logistics Services All Regions
Domestic Transportation 86 Freight Bill Auditing and Payment 33
Transportation Planning
International Transportation 84 32
and Management
Customs Brokerage 71 Information Technology (IT) Services 30
Warehousing 68 Fleet Management 22
Supply Chain Consultancy Services
Forwarding 65 21
Provided by 3PLs
Cross-Docking 39 Customer Service 13
Product Labeling, Packaging, Order Entry, Processing
38 13
Assembly, Kitting and Fulfillment
Reverse Logistics
38 LLP / 4PL Services 12
(defective, repair, return)
7
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
8. Shippers and 3PLs have similar evaluations of success of
their relationships
75%
64%
60%
51%
45%
45%
30% 25%
15% 9%
3% 1% 1% 1%
0%
Extremely Somewhat Neither Somewhat Extremely
successful successful successful nor unsuccessful unsuccessful
unsuccessful
3PL Users 3PL Providers
Note: 3PL users and 3PLs were asked to rate success on a five-point scale, with “somewhat successful” and “extremely successful” representing the two most
positive categories
8
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
9. Shippers report a number of continuing problems with 3PL
services
Percentages
Top “Seven” continuing problems reported by shippers
Lack of continuous, ongoing improvements and achievements in offerings 46%
Service level commitments not realized 46%
Information technology capabilities not sufficient 43%
Cost reductions not realized 36%
Lack of project management skills 35%
Unsatisfactory transition during implementation stage 31%
Lack of global capabilities 30%
9
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
10. There continue to be significant opportunities for outsourcing
of IT-based services
Transp Mgt (Execution)
WH-DC Mgt
Global Trade Mgt
Yard Management
Transportation Sourcing
Transp Mgt (Planning)
EDI
Web Portals
Visibility
Bar Coding
SC Network Opt
SC Event Mgt
RFID
Customer Order Mgt
SC Planning
0 20 40 60 80 100
Currently use 3PL Internally managed
10
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
11. Economic Volatility
Shippers Thinking Both Short- and Long-Term
11
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
12. Unpredictable demand is the most difficult challenge to
managing a supply chain in an economic downturn
Unpredictable demand 71%
Fuel price volatility 47%
Excessive inventory in supply chain 46%
Currency exchange rate volatility 46%
Supplier financial risk 45%
Commodity price volatility
30%
(other than fuel prices)
Difficulty securing capital to
23%
fund improvement initiatives
Loss of key supply chain
19%
skills due to corporate downsizing
Labor rate volatility 11%
Other 4%
0% 20% 40% 60% 80%
12
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
13. In response, companies use different strategies, where for
some they need the help of a 3PL
Strategies used by Shippers Top 3 strategies used by 3PLs
1. Reduce Operating Costs (89%)
Reduce operating costs 82%
2. Expand to New Markets or Offer
Improve forecasting &
inventory management
77% New Products 59%
Renegotiate 3. Renegotiate Supplier Contracts 58%
supplier contracts 66%
Restructure supply
chain network 61%
Reduce order-to-cash
cycle time 60%
Expand to new markets or … other coping strategies
56%
offer new products
Increasing Control
Rationalize product
42%
catalog (SKUs) Risk / Gain sharing
Increase use of contract Improve Integration with 3PLs
29%
manufacturing and BPO
Horizontal Integration
0% 50% 100%
13
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
14. It’s significant that 30% of the shippers think they need more
3PL services to help them weather the storm
What is the net effect of current economic uncertainties on your company’s need for
3PL services?
14
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
15. Shippers are re-evaluating their 3PL relationships and
making changes where required
Strategies used to mitigate risks with 3PLs
Renegotiating payment terms /
54%
contracts with 3PL provider(s)
Switching 3PL provider(s) 26%
… But 3PL users in larger
Developing internal capabilities to companies are looking to
24%
complement / replace 3PL provider(s) rationalize the number of 3PLs
My company does not have a
and intensify their
proactive risk mitigation strategy 20% 3PL partnership
directed toward 3PL provider(s)
Investing in 3PL provider(s) 16%
Other risk mitigating strategies 8%
The economic crisis as an inflection point to rethink supply chain /
3PL relationships?
15
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
16. Supply Chain Orchestration
The Case for Rethinking Shipper / 3PL Relationships
16
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
17. Inventory as a percent of total logistics costs has been rising
for almost 5 years
120%
100%
80%
60%
40%
20%
1986 1990 1995 2000 2005 2007
Inventory Tranportation Total
Source: Council of Supply Chain Management Professionals 19th Annual State of Logistics Report (2008)
Last 4-5 years inventory as a percent of total has been growing
Inventory growth is unrelated to the current global economic situation
Businesses recognize that long thin supply chains may not necessarily be the best answer
Supply chains today are looking at alternatives to chasing the cheapest labor
17
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
18. Costs associated with global supply chains have proven to be
highly volatile and will continue to be unpredictable
Oil (fuel) 40 USD per barrel, 146 USD per barrel, now approx. 70 USD per barrel
Floating currencies … USD and China
Rapidly changing local labor rates … China, Mexico, Thailand, Vietnam, Malaysia
Supply Chain capacity reductions… Ocean, North Pacific 30% this year, rail 12%,
trucking 22%
Changes coming with expansion of the Panama Canal
18
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
19. Is the current global economic situation a possible inflection
point between 3PLs and shippers?
Not sure
19%
22% 59%
No Yes
A very high percentage of respondents feel this is the time in which to re-evaluate their
relationships with their 3PLs to possibly drive the relationship deeper
A significant number of respondents are somewhat confused by the current environment as
to what it means about their business and 3PLs
19
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
20. What is preventing you as a shipper from outsourcing more
to your 3PLs?
Supply chain is a core competency 56%
My 3PL does not have the business expertise 38%
I want my 3PL to be execution focused 40%
Many businesses still feel they are better at supply chain design and execution than their 3PLs, and
they are not asking the 3PL to be anything other than execution focused … However …
20
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
21. Which of the following critical capabilities would you like
your 3PL to bring as a strategic partner
Total Landed Cost reporting and analysis 64%
Deep business process and IT expertise 60%
Supply Chain Network Design 46%
These answers seem to indicate that business is looking closely at possible major changes in
sourcing and / or networks, and would welcome a 3PL doing these if they had the skills
and expertise
None of these services would be typical of 3PL services offered today
21
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
22. What value do you think you would realize by developing a
strategic relationship with your 3PL?
Reduce total landed costs 75%
Increase operational flexibility
and become more demand driven 58%
Reduce capital costs, head
count and operational expenses 58%
Research seems to indicate that companies are currently evaluating their processes and
capabilities, and clearly see that their businesses could benefit from some non-traditional services
being offered by their 3PLs
However, they need to be shown that the 3PLs they are dealing with have the capabilities and deep
business expertise needed to move to the strategic partner level
22
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
23. What is necessary to make strategic relationships work ?
19%
Number 1 overall of what is required….Knowledge of the 56%
business. If 3PL does not have deep knowledge and expertise,
22% 59%
will not become a strategic partner
38%
Incentives on both sides
Joint investment, maybe harmonized IT systems 40%
Guts to change, willingness to share data
Executive sponsorship on all levels, both sides
23
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
24. IT Capability Gap
Shippers and 3PLs: Contrasting Perspectives
24
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
25. CIOs face daunting challenges …
The IT performance gap, complex architecture, business alignment
Challenges / Wish List 100%
80%
Complex applications and technology eco-system dominated
by legacy ERP and operational systems that run on 60%
mainframes / mid-range systems
40%
Limited IT budgets predominantly focused on maintenance
20%
Multiple data silos with duplicate and incorrect data
0%
How can we ensure that the IT department can respond 2002 2003 2004 2005 2006 2007 2008 2009
quickly to the needs of the business?
IT capabilities necessary element of 3PL expertise
How can we allocate a higher percentage of resources to
innovation versus maintenance projects? Satisfied with 3PL IT capabilities
Alignment with the Business
Shippers
• More than 2/3 of shippers indicated that alignment between
business and IT was NOT STRONG and could be BETTER
3PLs
• Almost 2/3 of 3PLs indicated that alignment between
business and IT was NOT STRONG and could be BETTER
25
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
26. IT demand and supply: What IT services are shippers
outsourcing and what IT services are 3PLs offering today …
Shipper Perspective
94% of shippers run and operate customer order management internally, only 5% outsource currently
and only 5% would like to outsource in the future
91% of shippers run and operate supply chain planning applications internally, only 4% outsource
currently and only 4% would like to outsource in the future
22% outsource EDI transaction processing for orders, ASNs, shipment status updates, and invoicing,
19% would like to do so in the future
3PL Perspective
75% of 3PLs offer Transportation Mgt. as an offering to shippers today, 14% offer a TMS on a
subscription basis today, 4% expect to offer a TMS on a subscription basis in the future
81% of 3PLs offer Warehouse Mgt. as an offering to shippers today, 12% offer WMS on a
subscription basis today, and 3% expect to offer WMS on a subscription basis in the future
• 71% offer EDI services, visibility to orders, shipments, and inventory
Shippers outsource “execution focused” applications
TMS and WMS have become standard 3PL IT offerings
3PLs are adopting the software-as-a service model!
26
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
27. Shippers face a number of challenges with
3PL IT capabilities …
Lack of integration among
internal 3PL systems 50% Multiple operating platforms
at 3PLs leading to
• Varied service experience
Inability to provide sufficient and processes
36%
order / shipment / inventory visibility • Insufficient order /
shipment / inventory
visibility
Lack of sufficient project management
(PM) processes or trained PM personnel 27% Lack of project management
expertise leads to schedule
delays, budget overruns,
Inability to correctly invoice
Complex integrations result
for services provided 26% in long lead times to onboard
customers
Incorrect billing driven by
Too much time required disconnected quote-to-cash
to onboard customer 25% processes
27
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
28. Integration challenges stymie 3PL – Shipper collaboration
Manual and unique integrations, long lead times, differing priorities
Shippers
32.8% 24.6% 57.4%
Purchase order management
42.6%
32.4% 24.1% 56.5%
Inventory visibility
43.5%
33.1% 21.4% 54.5%
Shipment status updates
45.5%
30.0% 18.1% 48.1%
Transportation execution (Booking, tendering, document preparation and transportation)
51.9%
27.9% 18.6% 46.5%
Invoicing
53.5%
21.3% 11.6% 32.9%
Production schedules, transportation schedules
67.1%
18.4% 11.6% 30.0%
Demand forecasts
70.0%
13.8% 9.9% 23.7%
Capacity forecasts and availability
76.3%
Electronic Data Interchange (EDI) Manual Integration: Fax / phone / email
Unique Integration with each 3PL Standardized integration with every 3PL
EDI is primarily execution focused – Orders, Inventory, Shipment Status updates are the top
EDI transactions
EDI penetration is < 60% and is much lower for planning and scheduling data
28
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
29. Integration challenges limit 3PL – Shipper collaboration
Manual and unique integrations, long lead times, differing priorities
3PLs
47.9% 22.4% 70.3%
Inventory visibility
29.7%
Invoicing 43.6% 23.6% 67.2%
32.8%
Purchase order management 44.2% 22.1% 66.3%
33.7%
38.4% 27.4% 65.8%
Shipment status updates
34.2%
36.2% 23.5% 59.7%
Transportation execution (Booking, tendering, document preparation and transportation)
40.3%
36.7% 17.2% 53.9%
Production schedules, transportation schedules
46.1%
36.2% 8.8% 45.0%
Demand forecasts
55.0%
35.7% 7.8% 43.5%
Capacity forecasts
56.5%
Electronic Data Interchange (EDI) Manual Integration: Fax / phone / email
Unique Integration with each Shipper Standardized integration with every Shipper
3PLs focus on supporting Shippers – Inventory visibility, invoice processing, purchase
orders are the primary EDI transactions
EDI penetration is higher than shippers but integrations are predominantly Unique
29
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
30. Bridging the IT Gap: Shipper and 3PL perspectives
Timely KPIs and performance data 75%
Shippers would like to see
Real-time order and shipment visibility 71% 3PLs provide timely KPI
and performance data,
order and shipment
Alerts for orders and shipments visibility, accurate billing,
that deviate from plan 70% real-time inventory status
Real-time interfaces to shipper
order management systems 63%
3PLs need real-time
integration so they have
Timely demand forecasts 54% better visibility to demand,
timely payments,
collaborative planning,
Real-time inventory status – what’s and frequent feedback
coming inbound, what’s going 53%
outbound, and what’s on-hand
30
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
31. What shippers and 3PLs want – An open flexible platform to
support logistics planning and execution …
Rationalize and modernize applications,
data repositories, and infrastructure
Logistics Planning &
Execution Platform
Link systems using SOA to create a
business process platform that drives
key processes such as quote-to-cash,
Service 2
Service 1
Service 3
procure-to-pay
Client 1
Client 2
Client 3
Streamline collaboration with customers,
partners, suppliers, regulatory
authorities through collaboration hubs
Partner Portals, Applications UI, Edge Devices
Platform characteristics
• Supports best-of-breed solutions
Enterprise SOA, Workflow Mgt, Event Mgt
• Can be configured
• Leverages legacy applications
Applications, Data Hubs, Infrastructure
• Supports industry standards
• Expandable, scalable
A scalable, sustainable, differentiating platform … the technology exists today!
31
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
32. Strategic Assessment
Shippers and 3PLs Adapting to Economic Volatility
32
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
33. The recession signaled that the last two decades represented
exceptional conditions, unlikely to return
Previously, unprecedented factors fostered significant commercial growth
• Rapidly multiplying global manufacturing capacity
• Free trade agreements
• Ready access to credit
• Enhanced IT capability
The economic downturn has severely impacted supply chains globally
• Diminished consumer demand
• Excess capacity
• Price pressures
• Financing constraints
Near term, shippers are focused on cost cutting, but longer term, they are seeking to
understand and adapt to the “new normal”
Shippers are re-evaluating the role 3PLs can play in helping them attain more agile,
adaptable and efficient supply chains.
33
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
34. To continuously adapt to the “new normal”, shippers and
3PLs need to bridge some fundamental gaps
Shipper Perspectives 3PL Capabilities / Position
Often focus on 3PL execution Do not want to be perceived as
capabilities a “commodity service provider”
Some question prospects of deeper May be able to provide industry
business relationships with 3PLs specific business expertise
Re-evaluating how to leverage 3PLs
to survive (or thrive) in the economic Need to promote advanced
downturn offerings, particularly total
Many want price concessions landed cost analysis
without additional business
Legacy, business architectures
commitments
not delivering adequate KPIs,
Need improved IT offerings alerts and visibility
34
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
35. Shippers and 3PLs must proactively take steps to maximize
their chances to succeed in the new economy
3PLs need to reinforce and productize advanced offerings, advertise
these to shippers, and reinforce their value by showcasing results
Shippers need to be open to tapping 3PLs’ internal expertise and to
asking for the services they want
3PLs should consider new models and a new way of looking at their
customer sets
3PLs and shippers need to adopt an open standards based logistics
planning and execution platform that can be configured to support
multiple services for multiple clients so they reduce the IT complexity,
increase adaptability, and increase agility
3PLs and shippers need to develop new methods and frameworks for
collaboration, including shared key performance indicators, joint
brainstorming, longer-term commitments, and models that share both
the risks and rewards of innovation
The time is ideal for shippers to rethink how best to leverage 3PLs and for 3PLs to
align their offerings with what shippers really need.
35
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.
36. Thank You!
2009 Fourteenth Annual Third Party Logistics Study Team
Check out our website at www.3plstudy.com
Download copy of 2009 and earlier reports
Additional information about the 2009 3PL Study
36
Copyright 2009 C. John Langley Jr., Ph.D. and Capgemini U.S. LLC. All rights reserved.