Get documents about "3Pl Contract
W
Description
3Pl Contract document sample
Document Sample
THE USE OF THIRD PARTY LOGISTICS SERVICES
BY LARGE AMERICAN MANUFACTURERS, THE 2004 SURVEY
Dr. Robert Lieb (EM-ASTL)
Professor of Supply Chain Management
College of Business Administration
Northeastern University
214 Hayden Hall
Boston, MA 02115
617-373-4813
r.lieb@neu.edu
Brooks A. Bentz
Associate Partner
Accenture
100 Williams Street
Wellesley, MA 02481
617-454-4708
brooks.a.bentz@accenture.com
January 15, 2005
1
THE USE OF THIRD PARTY LOGISTICS SERVICES
BY LARGE AMERICAN MANUFACTURERS, THE 2004 SURVEY
Abstract
This article examines the findings of a survey conducted during 2004 of large American manufacturers that
addressed their use of third party logistics (3PL) services. The survey data show that the percentage of those
companies using such services is at a record high level, and that users are giving a steadily increasing percentage of
their logistics operating budgets to 3PL service providers. Many 3PL relationships are long-term in nature, and the
service providers continue to deliver value to their clients. The movement of large American manufacturers into other
geographies for sourcing, manufacturing, and sales has led many of their 3PL service providers to expand into those
areas to support those activities. During the next several years, the possible adoption of RFID technology by many of
these manufacturers will pose significant challenges to their 3PL providers in attempting to meet the related needs of
their clients.
Logistics outsourcing has become common among large American manufacturers as they
seek not only to control costs, but also use logistics services as a means of differentiation in both
domestic and international markets. The companies that use such services, or are considering
their use, have been faced with an industry that has undergone significant changes in the past
several years. The third party logistics (3PL) industry has changed structurally with mergers,
acquisitions, company failures, and the entry of many new competitors into niche markets. The
geographic coverage and service offerings of the major providers has expanded dramatically, and
the industry has had to cope with a significant economic slowdown. The technology employed by
the industry has also changed rapidly, not only increasing the capital costs of the service
providers, but also exerting pressure on industry prices.
This paper provides a summary of the findings of a survey conducted during 2004
as part of an annual research effort that examines 3PL service use by U.S. Fortune 500
manufacturers. The first survey in the series was conducted in 1991, and annual surveys
commenced in 1994.
Each year, a questionnaire is developed and mailed to the chief logistics executive of the
500 largest American manufacturing companies, in an attempt to gather data concerning the use
of 3PL services by those companies. The data generated each year not only provides an overview
of current use patterns, but also provides a basis for comparison with the results of the earlier
annual surveys. To provide a longer-term overview of 3PL use, each year the survey gathers data
on the following issues:
1. the extent to which large American manufacturers use 3PL services in their domestic
and international operations, and the specific 3PL services used by those companies
2
2. the impact of using 3PL on logistics costs, logistics service levels, customer
satisfaction, and employee morale
3. the future plans of users.
The annual surveys also seek to generate data concerning specific current topics of
interest in the 3PL user and provider communities. For example, the 2004 survey also included
questions concerning the following topics:
the 3PL contract renewal process
the value delivered by 3PL service providers to users
the extent of 3PL user commitment to RFID technology
the significance of the expansion of the membership of the European Union to
3PL users
the extent to which the companies surveyed operate in China and India, and their
use of 3PL services in those countries.
and, user views concerning the most significant developments that had occurred
in the 3PL marketplace during the past year.
Methodology
A cover letter, questionnaire and postage-paid return envelope were sent to the chief
logistics executive of the 500 largest manufacturers in the United States, based on annual sales
revenues, as identified by Fortune magazine and several other sources. The executives surveyed
were selected from the membership Directory of the Council of Logistics Management and phone
calls to individual companies. Sixty completed questionnaires were returned, and 44 were
returned as undeliverable. The effective response rate was 13%.
RESULTS
Usage Rates
Forty-eight (80%) of the 60 survey respondents indicated their companies use 3PL
services. In subsequent sections of this paper those companies are referred to as users. This was
the second year in a row that at least 80% of those responding to the survey reported using 3PL
services; it also marked the eighth consecutive year that approximately two-thirds or more of the
respondents were 3PL users. The long-term growth of 3PL service use by large American
manufacturers is clearly shown by the fact that when our initial survey was conducted in 1991,
the percentage of Fortune 500 manufacturers reporting use of 3PL services was 38%.
Among the users identified in the 2004 survey, 17% had been using 3PL services for 1-3
years (9% in 2003), 17% for 3-5 years (17% in 2003), and 67% reported using such services for
more than 5 years (72% in 2003). For five consecutive years at least half of the respondents have
3
reported using 3PL services for more than five years. This is important not only because the
experience of long-term users provides an important database for studying the impact of using
3PL services and the evolution of 3PL relationships over time, but also because it provides
evidence of a high rate of 3PL contract renewals. By far the majority of initial 3PL contracts are
one to three years in duration.
The 2004 questionnaire also asked those surveyed how long their “most important 3PL
provider” had been working with their organization, and the average response was slightly more
than six years. This would typically mean that there has been at least one contract renewal during
that period.
In responding to the survey, 60% of the users reported using multiple 3PL providers. In
several of our previous annual surveys, 3PL users have clearly indicated that they would prefer to
work with a single 3PL provider. But, as noted in several of our earlier papers, the scale and
geographical coverage involved in many recent 3PL contracts has made it increasingly difficult
for one provider to meet those requirements. As a result, many 3PL relationships are increasingly
complex, and management of those relationships is quite challenging to both parties. The
eventual outcome may well be the management of 3PL relationships not only across the supply
chain, but across the supply chains of multiple trading partners. In the longer-term, this may
provide opportunities for companies that seek to provide fourth party logistics (4PL) services in
the marketplace.
3PL Contract Renewals
The 2004 survey gave considerable attention to the 3PL contract renewal process. Data
generated in our earlier surveys clearly demonstrated that the contract renewal rate in the 3PL
industry is quite high. Those surveyed this year were asked to identify and rank, from 1 to 3, the
most important criteria used by their companies in determining if 3PL contracts should be
renewed. The responses were then weighted with three points being assigned to a first-place vote,
two points to a second-place vote, and three points being given to a third-place vote.
As shown in Table 1, service considerations tend to dominate the renewal process,
receiving 28 first-place mentions, and a total of 104 total weighted points. In contrast, cost
considerations were identified as being the most important criteria by 10 respondents, and
generated 70 total weighted points. Technology capability received 4 first-place mentions, and
finished a distant third with 20 total weighted points. Reliability, with two first-place mentions
and 10 total weighted points, was the only other consideration that reached double digits in total
weighted points. However, several of the other considerations mentioned by respondents are
worth noting. They included: provider responsiveness to client needs; their willingness to
4
“partner” with their clients; their specific industry expertise; the scalability of the solutions
offered; and the attitude and enthusiasm of the provider.
Two other observations should be made at this point. Data generated in our earlier studies
have indicated that cost considerations dominate the decision to initially select a third party
provider. But, as shown in the 2004 survey, the quality of service delivered by those providers
during the life of the contract tends to carry considerably more weight in the renewal process.
Further, it would be naïve to believe that contracts are renewed on the basis of any single
dimension. Clearly, a combination of service, cost, and other considerations lead to a final
renewal decision. It is not uncommon for companies to assign weights to the various issues
considered in the renewal process.
Because outsourcing has grown across business disciplines, those surveyed were also
asked if their companies had established a formal Director or Vice President of Outsourcing
position. We found that while that has happened in some organizations, it is not common. Only
eight of the respondents indicated that such a position had been established within their
organizations.
The survey also sought to determine at what organizational level 3PL contract renewal
decisions are made. As might be expected, of the 46 executives who responded to this question,
all but two indicated the decisions were made at the corporate level versus the mid-management
or operating level. .
Survey respondents were also asked if the final decision on contract renewal was made
by an individual or by a committee. Thirty-four (74%) of the 46 respondents who answered that
question indicated the decision was made by a committee rather than an individual. The
composition of those committees varied widely by company, but they generally included
representatives from several functional areas such as transportation, procurement, finance,
operations, fulfillment, distribution, customer service, and information technology.
Twelve respondents said that 3PL contract renewal decisions in their companies were
made by an individual. Among the job titles of those individuals were Director of Supply Chain,
Director of Logistics, Corporate Logistics Manager, Director of Transportation, and Divisional
Manager-Logistics.
3PL Services Used
As shown by the data generated in our earlier surveys, large American manufacturers
typically buys multiple logistics services from their provider(s). The range of services used by the
users identified in this year’s survey is shown in Table 2, which also includes comparable data
from our three most recent surveys. As shown, respondents indicated that the most frequently
5
outsourced logistics functions in 2004 were: direct transportation services 67%, customs
brokerage 58%, freight payment services 54%, freight forwarding 46%, warehouse management
46%, shipment consolidation 42%, tracking/tracing 42%, carrier selection 38%, order fulfillment
33%, reverse logistics 33%, and cross-docking 33%. Interestingly, despite the extensive
movement of many 3PL providers into non-traditional services during the past few years, very
few respondents reported using their 3PL providers for contract manufacturing, purchasing or
financial services. Similarly, only four respondents reported using 3PL providers to operate call
centers on their behalf, and no respondent reported using them for the after sales service function.
Use of 3PL Services by “User” Vendors and Customers. The most significant benefits of
progressive supply chain management come from true integration of services along a company’s
supply chain. Reflecting that belief, for the past two years we have sought to determine if the
primary third party logistics provider employed by the 3PL users identified in this survey also
serviced their major vendors and/or customers. Not surprisingly, 50% of the 3PL users reported
that their major vendors were also served by their company’s primary 3PL provider (49% last
year). Further, 67% reported use of their primary 3PL provider by their major customers (57%
last year). Strategically, this makes sense from the user’s perspective, and it also provides selling
opportunities for providers along their customers’ supply chains.
The Impact of Using 3PL Services
In each annual survey, users are asked to categorize the impact of their use of 3PL
services in several areas. Their responses to the 2004 survey are shown in Table 3. In one
surprising development, 40% of the respondents reported a negative or very negative impact on
employee morale. That was nearly double the percentage that reported a negative impact in last
year’s survey (22%). Our earlier research has shown that the negative impact has historically
been related to the downsizing of the logistics workforce that typically accompanies a decision to
outsource logistics functions, and it may be that as the longer-term users cut more deeply into the
full-time logistics workforce the remaining workers are becoming more skeptical about their
future with those companies. This matter is addressed more extensively later in this paper.
Seventy percent of users reported a positive or very positive impact on logistics costs,
and that figure has been at least 70% each year since 2000. The magnitude of this positive
response continues to be important because, in most instances, logistics outsourcing is initiated
due to cost considerations. Clearly, competitive pressures in the global marketplace will continue
to focus management attention on controlling logistics costs, and this should continue to draw
attention to the service offerings of 3PL providers.
6
Seventy percent of the respondents also reported a positive or very positive impact on
logistics service levels. While this is lower than the record 85% positive impact reported in last
year’s survey, more than two-thirds of the users have indicated a positive impact in this category
each year since 2000. As discussed earlier in this paper, service considerations typically dominate
the 3PL contract renewal process. Forty-five percent of the respondents reported a positive impact
on systems development/support activities, up from 43% last year, and nearly double the 23%
reported in 2002.
Each year, in discussing the data related to the impact of using 3PL services, we make
two additional observations. First, many respondents typically indicate that using 3PL services
had no impact in several of these categories. However, respondents do not necessarily expect
logistics outsourcing to produce benefits in all of these areas. For example, a 3PL application that
seeks to improve logistics service levels might actually increase logistics costs or have no impact
on them. Second, as has generally been the case, relatively few respondents indicated that they
believe using 3PL services had a very positive impact in any of these categories. This may reflect
the typical user desire for continuous improvements along each of these dimensions.
Nevertheless, a word of caution should be raised. The percentage of users who indicated
that the use of 3PL services had a negative impact on their companies increased in each of the
categories we examined this year. As noted above, 40% of the respondents said that 3PL use had
a negative impact on employee morale versus 22% last year. Fifteen percent reported a negative
impact on logistics costs (10% last year), and the other categories were as follows: systems
development/support 25% (10% in 2003), and logistics service levels 10% (1% in 2003).
Whether this year’s negative numbers are an aberration or a sign of the emergence of serious
problems in the industry is unclear at this point.
Value Delivered by 3PL Providers
For the first time, those surveyed were asked to comment upon the value delivered by
their 3PL providers over time. Forty-two percent of users indicated that the value delivered by
their providers has “continued to increase over time.” Forty-six percent said that it “stayed
relatively constant over time,” and 12% indicated that the value delivered by their providers
“decreased over time.” The fact that 88% of the respondents indicated that the value delivered at
least stayed relatively constant over time goes a long way toward explaining the high contract
renewal rate in the 3PL industy.
RFID and the 3PL Industry
During the past several years there has been extensive discussion within the logistics
profession concerning the possible application of RFID technology to the field. Much of that
7
discussion has been stimulated by the highly-publicized steps that Wal-Mart, Gillette, and the
Department of Defense have taken to implement that technology within their logistics networks.
In view of the interest in this topic, the 2004 survey sought to determine not only how
extensively RFID technology has been embraced by the large manufacturing firms that currently
use 3PL services, but also what the implications were to 3PL providers. Of the 48 3PL users
identified in this survey, one-third said that their companies are currently committed to using
RFID technology in their logistics operations. Eight of those 16 companies are conducting pilot
studies on RFID within their organizations. Further, of the 32 executives who indicated there are
not currently committed to using that technology in their logistics operations, half said their
companies are actively considering its possible use at some point in the future. In total these
numbers mean that two-thirds of the companies identified in this survey as 3PL users are either
committed to using RFID in their logistics networks, or actively considering its possible usage.
Clearly, this has important implications to 3PL providers not only in terms of the expertise related
this technology that must be developed within their organizations, but also in terms of possible
capital outlays and potential operational changes.
Those who indicated their companies were currently committed to using the technology
were also asked what types of support, if any, that commitment would entail with respect to their
3PL providers. Interestingly, most said “none.” Those who believed that some 3PL support would
be necessary focused on a requirement that provider-managed distribution centers would have to
be able to scan outgoing shipments. It would seem that this matter has not been thoroughly
examined by many of these manufacturers, and that it will likely become a more significant issue
in their discussions with 3PL providers in the near future.
Use of 3PL Services by Geography
The continued globalization of 3PL service use was again confirmed by our survey
results, with 80% of the respondents indicating that they use 3PL services in both domestic and
international operations. That figure had been 69% in our 2003 survey. Twenty percent of the
users identified in our survey indicated that they only use 3PL services domestically (20% in
2003). No respondent reported using 3PL service only in the international arena.
As might be expected, many of the companies identified as 3PL users in this survey use
those services in multiple geographies. Table 4 shows the geographies in which 3PL services are
used.
Sixty-three percent said they use 3PL services in Western Europe (65% in 2003), 42%
use them in Canada (52% in 2003), 58% in Asia (excluding China and India—50% in 2003), 47%
in Mexico (48% in 2003), 63% in China (46% in 2003), 53% in Latin America (40% in 2003),
8
58% in Eastern Europe (36% in 2003), and 21% in India. It should be noted that this is the first
year that we have examined 3PL use in India as a separate issue.
The impressive growth in 3PL use in China again reflects the rapid economic growth of
the country as both a manufacturer and a consumer of American goods. It appears that the growth
reported in the Eastern European market is at least partially related to the recent expansion of the
European Union (EU) which is discussed later in this paper.
3PL Services in China and India. The growing significance of both China and India as
not only sourcing and manufacturing locations for American manufacturers, but also as end
markets for many of their products, led us to include a number of questions in the 2004 survey of
3PL users to determine how extensively they use such services to support those activities in those
two countries.
One-half of the users identified in this survey, 24 companies, reported that they use 3PL
services in China, and 20 companies reported using 3PL services in India. All the companies
reporting 3PL use in China use those services to support their sales efforts in that country, while
16 use 3PL services to support their Chinese manufacturing operations. Similarly, 18 of the
companies that indicated they used 3PL services in India do so to support their sales efforts in
that country, and 10 support their manufacturing operations in India with 3PL services. Among
the most commonly used 3PL services in both countries are direct transportation services,
shipment consolidation, warehousing, customs brokerage, freight forwarding, and contract
manufacturing. Interestingly, when asked if their companies had encountered any significant
problems in finding or using 3PL providers in China, not one of the 3PL users in that country said
“yes.” Similarly, only four of the companies using 3PL services in India indicated that they had
any problems finding or using 3PL services, with all four indicating the problems were related to
the limited scope of 3PL operations in India.
Surprisingly, of all the companies reporting use of 3PL services in China and India, only
two indicated that transportation/communications infrastructure issues had caused their
companies any significant logistics problems in either country, and both cited delays in customs
clearance as their main problems.
Expansion of the European Union. In May, 2004 the EU expanded its membership to 25
countries by admitting ten Eastern and Southern European countries. This expansion effectively
created the largest single trading bloc in the world. Because many of the countries that participate
in our annual surveys are multinational organizations we included a number of questions related
to the EU expansion in the 2004 survey.
9
The data generated indicates that EU expansion is important to many of the companies
surveyed, and there are implications to their 3PL providers. Fourteen of the executives, 29% of
the survey respondents, indicated their companies are anticipating significant sales growth within
the new EU countries. Eight of those executives said their companies are planning to establish
new manufacturing operations in those countries, and the same number said the expansion would
lead to a significant reconfiguration of their companies’ logistics operations in Europe. However,
only two executives indicated their companies were going to establish new distribution facilities
in the new EU countries.
These developments have important implications to the 3PL providers currently being
used by those companies. Fourteen of the companies planning to either significantly expand sales
in the new EU countries or move manufacturing and/or distribution facilities into those countries
indicated that 3PL providers would be “very important” (8 companies) or “important” (6
companies) in supporting their logistics strategies in those countries. Based upon the data which
has been generated in our earlier 3PL user and 3PL provider CEO surveys, when companies that
use 3PL services expand into new markets, they generally want their existing providers to offer
services in those new areas. Consistent with that data, all but two of the companies planning to
expand the operations in the new EU countries indicated that they intended to use their existing
3PL providers to support those strategies. When asked what were likely to be the most important
3PL services required in those countries to support their logistics strategies the respondents most
frequently cited distribution services, warehousing, direct transportation, customs brokerage,
management of spare parts inventory, and retrieval of end-of-life products.
Outsourcing and the Logistics Operating Budget
The average 3PL user identified in the 2004 survey reported paying 40% of its annual
logistics operating budget to 3PL companies (33% in 2003, 24% in 2002, and 19% in 2001). The
40% figure is the highest ever reported in our annual surveys, and more than double the
percentage that had been reported in 2001. The range identified by users was 1% to 95%. It is
interesting to note that the average respondent to our 2001 survey projected that that figure would
be 34% in 2004.
Those surveyed were also asked to project what that percentage would be in 3 years, the
average respondent said 46% (40% in 2003, 32% in 2002 and 34% in 2002). The range for 3-year
projection was 3% to 98%. The three-year projection is also the highest reported in our annual
surveys, and it reflects the strength of many longer-term 3PL relationships.
User Plans for the Future
10
Users were asked how they would modify their use of 3PL services if they were given
complete corporate responsibility to make that decision. As shown in Table 5, in this year’s
survey 51% of users indicated that they would at least moderately increase the use of such
services (51% in 2003); 30% would stay at the same level (34% in 2003); 10% would moderately
decrease their use (13% in 2003); and 10% would eliminate the use of 3PL services by their
companies (2% in 2003).
While the data seems to be in conflict with the other optimistic data presented earlier in
this paper, it may reflect the growing customer selectivity of many 3PL providers. Those
companies are terminating many contracts that yield marginal returns, and focusing on customers
and specific industries that generate higher yields. That would tend to reduce the size of the
customer base while increasing the volume generated by their targeted customers and industries.
Most Significant Developments in the 3PL Market during the Past Year
Each year we ask survey participants to identify the most significant developments that
had occurred in the 3PL marketplace during the past year. As has typically been the case, the
responses to that question in the 2004 survey varied widely.
The 3PL marketplace development that was most frequently cited in the 2004 survey was
the continued consolidation of the industry that was mentioned by 29% of the respondents (31%
last year). The second most frequently mentioned development was the improvement of the IT
solutions being offered by 3PL providers, which was noted by 21% of the respondents (26% in
2003), with specific reference being given to RFID developments and broader web-based
solutions being offered by providers. Among the other developments noted by multiple
respondents were the expansion of 4PL services, a variety of specific service improvements, and
more competitive pricing practices by 3PL providers.
SUMMARY AND IMPLICATIONS
More than two-thirds of the users identified in the 2004 survey have used 3PL services
for more than five years, and this long-term experience provides a wealth of information for
others considering the use of 3PL services.
The average user identified in our 2004 survey paid approximately 40% of the company’s
logistics operating budget to 3PL providers last year, and projected that figure to reach 46% to
3PL three years within three years. Both the current and projected numbers are the highest
recorded in those two categories in our annual surveys.
While cost considerations tend to dominate the initial decision to use 3PL services, the
data generated in the 2004 survey clearly show that service considerations are given greater
11
weight in the contract renewal process. Those renewal decisions are typically made at the
corporate level by a committee composed of representatives of supply chain-related disciplines.
The logistics services used with the greatest frequency during the past year were direct
transportation services, customs brokerage, freight payment services, freight forwarding,
warehouse management, and shipment consolidation. Although there was some change in their
order, the same services ranked as the top six usage categories reported in the 2003 survey.
Increasingly, the 3PL users identified in our annual surveys report that their major
vendors and customers are also served by their primary 3PL service provider. Clearly one would
expect this development to facilitate further supply chain integration.
The percentage of respondents who reported positive impacts of 3PL services declined
from 2003 to 2004, albeit moderately, in each cost and service category that was examined.
Taken at face value, those numbers should not cause much concern in the provider community.
However, when coupled with the fact that the percentage of users who indicated that use of 3PL
services had a negative impact on their companies increased in each of those categories, there
may be cause for concern. While there has been considerable fluctuation in the data generated the
in impact section of our surveys during the past several years, the 2004 data may signal problems
that need to be aggressively addressed by the provider community.
In contrast to that data, 42% of the users indicated that the value delivered by their 3PL
providers has “continued to increase” over time, and another 46% said that the value “stayed
relatively constant over time.” Only 12% indicated that the value had “decreased over time.”
These numbers would seem to provide a strong endorsement of the value delivered in many long-
term 3PL relationships.
Two-thirds of the companies identified as 3PL users in the 2004 survey are either
currently committed to the use of RFID technology in their logistics operations, or are actively
considering its use. However, at this stage executives at those companies do not seem to have
solidified their ideas concerning the types of support that they might want/need from 3PL
providers to support their RFID initiatives.
Large American manufacturers continue to expand their use of 3PL services in the global
arena, with 80% indicating they use 3PL services outside the United States. Not surprisingly, the
most rapid growth reported in 3PL services in international markets has come in China and
Eastern Europe. These developments reflect not only the strong growth of the Chinese economy,
but also the recent expansion of the European Union to include ten Eastern and Southern
European countries in that trading bloc.
12
The data generated in the 2004 user survey have a variety of implications. They include
the following:
The use of 3PL services by Fortune 500 Manufacturers appears very likely to continue to
grow over the next several years, as those companies give a steadily increasing
percentage of their logistics operating budgets to 3PL providers. Much of the growth is
going to occur outside the United States. Long-term 3PL service users have historically
relied upon their existing providers to support their international expansion efforts. But as
those manufacturers aggressively move into new geographies such as China, India, or
Eastern and Southern Europe they might want to reassess those policies, particularly if
their existing providers are new to those markets. Providers who have already established
a significant market presence in those geographies may be better positioned to deliver
value to clients in a much shorter time frame.
Large 3PL service providers are often pressured by their major accounts to move into
new geographies. However, the financial, manpower, and managerial resources necessary
to do so on a significant scale are formidable. Further, once committed to foreign
markets, many providers find it quite difficult to develop the “local” business which is
necessary to make those ventures financially viable.
Nevertheless, in view of the substantial growth prospects in China, India, and the
expanded EU, large 3PL providers should be seriously considering alternative entry
strategies for those markets, identifying potential alliance partners and acquisition targets
in those geographies, and defining the service packages which might be offered if those
markets are entered.
China and India will continue to grow in importance to large American manufacturers as
centers for global manufacturing, sourcing, and sales. Similarly, the expansion of the EU
provides real market opportunities for many of those companies. To date, the 3PL
industry infrastructure in those geographies appears to be adequate. However, at
substantially higher levels of volume, the 3PL industry infrastructure, and that of the
transportation and warehousing networks of those areas will be challenged. Users and
providers would be well advised to focus considerable attention upon contingency
planning before such problems arise.
The data generated in this year’s survey clearly showed that the 3PL contract renewal
process is very heavily weighted with service considerations. Clearly, 3PL providers need
to avoid the mistake of overselling service capabilities as new contracts are signed.
Otherwise, it is unlikely that the relationship between user and provider will survive.
13
The magnitude of the reported negative impact of using 3PL services upon manufacturing
employees is cause for concern. Is this simply a function of deeper cuts in the full-time
employment base of longer-term users, or is there more to it? Users and providers should
consider the potential use of regular employee surveys and/or focus groups to not only
determine the extent of this problem, but also to seek ways of lessening its impact.
Additionally, users should be aware that a number of 3PL contracts provide for the
possible migration of qualified employees from the manufacturing company to the 3PL
provider.
Similar concerns arise due to the fact that nearly one-third of the users indicated their use
of 3PL services has had a negative impact on systems integration. Why is that the case?
In many instances, use of 3PL services reduces direct contact between various functional
groups within the manufacturing company, and between that company and their vendors
and customers. Under those circumstances, it is extremely important for the provider to
facilitate systems integration between the internal and external supply chain partners. In a
significant number of cases, that does not appear to be happening and this should an
important concern for providers. Increased attention must be given to effective
communications both within the client organization and along its external supply chain.
Selling 3PL services along the supply chain to those partners may provide the
opportunity to improve this situation.
The fact that nearly two-thirds of the 3PL users identified in this survey are either
committed to using RFID technology in their logistics operations, or seriously
considering its use, is quite significant to both users and providers in the 3PL industry.
Users must give more thought to how 3PL providers might be used to support RFID
initiatives over time, and 3PL providers must be committed to developing the related
technical expertise to do so. At the same time, providers also need to assess the potential
financial implications of serving RFID-enabled customers.
14
References
Armbruster, William, “Heading East: The EU’s Expansion Creates Opportunities for Logistics Providers,” The
Journal of Commerce, May-June, 2003, 20-21.
Foster, Thomas A., (2004), “The Trends Changing the Face of Logistics Outsourcing Worldwide,” Global Logistics
and Supply Chain Strategies, 8(6), 32-34, 36-38, 40.
Lieb, Robert and Brooks Bentz (2003), “The Use of Third-Party Logistics Services by Large American
Manufacturers: The 2003 Survey,” Transportation Journal, 43 (3), 24-33.
Lieb, Robert and John Miller (2002), “The Use of Third-Party Logistics Service by Large American
Manufacturers: The 2002 Survey,” International Journal of Logistics: Research and Applications, 5(1), 1-12.
15
Table 1. User Perception of the Most Important Criteria Used to Determine if 3PL
Contracts are Renewed
Factor Number of Number of Number of Total Weighted
users ranking users ranking users ranking Points
#1 #2 #3
Service 28 6 8 104
considerations
Cost 10 12 16 70
considerations
IT capabilities 4 8 20
Reliability 2 2 10
16
Table 2. The Most Frequently Used 3PL Services, 2004 and Three Previous Years
Logistics Service % citing use % citing use % citing use % citing use
2001 2002 2003 2004
Freight payment 53% 63% 72% 54%
Shipment consolidation 49% 49% 66% 42%
Direct transportation service 61% 56% 62% 67%
Customs brokerage 41% 67% 62% 58%
Warehouse management 59% 42% 60% 46%
Freight forwarding 45% 59% 53% 46%
Carrier selection 43% 51% 51% 38%
Tracking/tracing 33% 44% 51% 42%
Measurement of carrier 47% 29%
performance
Rate negotiation 37% 47% 38% 29%
Relabelling/repackaging 25% 23% 38% 25%
Order fulfillment 33% 33% 34% 33%
Product returns 25% 23% 30% 29%
Reverse logistics 26% 33%
Operation of IT systems 20% 16% 21% 13%
Merge in transit 19% 17%
Fleet management/operations 20% 23% 19% 17%
Order processing 8% 9% 17% 17%
Customer spare parts 10% 9% 17% 25%
Selection of software 8% 9% 15% 4%
Contract manufacturing 10% 12% 13% 8%
Assembly/installation 10% 5% 11% 8%
Consulting services 25% 21% 9% 25%
Purchase of materials 4% 7% 8% 13%
After sales service 6% -
Product testing 2% 4%
17
Table 3. Impact of the Use of 3PL Services on Various Corporate Issues, 2004
Issue Very Negative No impact Positive Very positive
negative
Employee 5% 35% 35% 25%
morale
Logistics 10% 20% 50% 20%
costs
Systems 25% 30% 35% 10%
development/
support
Logistics 10% 20% 65% 5%
service levels
18
Table 4. Use of 3PL Services Outside the United States
Geography % of Companies Using 3PL Services in that
Geography
Canada 42%
Mexico 47%
Latin America 53%
Western Europe 63%
Eastern Europe 58%
Asia (excluding China) 58%
China 63%
India 21%
Table 5. How Respondents Would Modify Their Companies’ Use of 3PL Services
if Given Complete Responsibility for the Decision
Nature of % indicating % indicating % indicating % indicating % indicating
Modification 2000 2001 2002 2003 2004
Eliminate use 5% 2% 10%
Moderately 14% 12% 14% 13% 10%
decrease use
Stay the same 11% 14% 26% 34% 30%
Moderately 50% 60% 42% 45% 45%
increase use
Substantially 25% 14% 14% 6% 5%
increase use
19
20
21
Related docs
