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Capgemini Consulting Unveils 17th Annual 3PL Study

Despite challenging business conditions, global revenues for the third-party logistics (3PL) sector continue to rise as 3PL's improve their business presence and create value for their customers, according to a new report from Capgemini Consulting.

In cooperation with Pennsylvania State University, executive recruiting firm Korn/Ferry International and global logistics provider Panalpina, the 2013 "17th Annual Third-Party Logistics (3PL) Study" finds that 65 percent of shipper respondents reported an increase in their use of 3PL services. Shippers—faced with increasing competition and a difficult economic environment—are increasingly turning to logistics providers as a key driver of both supply chain innovation and risk mitigation. The 3PL/shipper relationship continues to evolve and shippers seek to drive real value and competitive differentiation through their choice of 3PL provider. However, 3PL’s still have significant progress to make in being able to fully address the growing demands of the shippers they serve.

“Many of today’s 3PL/shipper relationships are not set up in a way that fosters innovation,” said Dan Albright, Vice President and North American Supply Chain Leader, Capgemini Consulting. “Shippers commonly engage with 3PLs on a very tactical level only, so their 3PL partners lack any real visibility or insight into their organization and its challenges. It takes truly collaborative, strategic relationships among all partners involved to develop the kinds of disruptive innovations it will take to solve the challenges facing today’s supply chains. This will require a considerable change from the way that many 3PL/shipper relationships are structured today.”

Based on responses from over 2,300 shippers and logistics service providers in North America, Europe, Asia-Pacific, Latin America and other regions, the study reveals that shippers are making increasingly complex demands of their 3PL providers as they seek bold new solutions that will create new routes to growth and market differentiation. Until recently, 3PLs could demonstrate innovation by introducing incremental process improvements, adding technology or improving execution. However, shippers increasingly believe that these process improvements are not sufficient to drive their supply chains and that more disruptive innovation is required to make a true difference within the marketplace or value chain, for example facilitating same-day delivery or introducing RFID tagging. Yet many shippers lack confidence in their 3PLs’ ability to operate at the strategic level necessary for disruptive innovation. The majority of the study’s 3PL respondents (89 percent) believe they are ready to innovate but just 53 percent of shippers agree.

Similarly, the report reveals that with today’s complex supply chains more vulnerable than ever before to negative impact from disruptive events, shippers are also becoming increasingly demanding of their 3PLs’ risk mitigation capabilities. A number of factors—including extended supply chains, reduced inventories and shortened product lifecycles—are making supply chain disruption both more likely and more costly. Economic losses from supply chain disruptions increased 465 percent from 2009 to 2011, while at the same time, the number of companies experiencing supply chain disruption grew by 15 percent. The report highlights adverse weather and the threat of a pandemic as the biggest source of supply chain disruption, cited by 69 percent of shipper respondents; and volatility in commodity, labor or energy costs as the second, cited by 59 percent of shipper respondents.

“Drawing on lessons learned from the previous global supply chain disruptions, the majority of 3PL’s and shippers we speak with indicate that employee training and talent management, as well as internal and external certifications, are areas where they plan to invest most heavily over the next two years to combat supply chain disruption,” confirmed Zack Deming, Consultant, Global Logistics & Transportation Services Practice, Korn/Ferry International. “Such planning must be lived and practiced and not simply a manual on a shelf.”

Almost half of 3PL’s (44 percent) say they are placing a greater focus on supply chain risk and mitigation than five years ago. Top strategies that 3PL’s are currently using to mitigate supply chain risk include closer partnerships (69 percent); improved business continuity planning (61 percent); advanced supply chain visibility tools (65 percent); and better employee training (64 percent).

Yet, despite the increased risk of supply chain disruption, many companies are currently underfunding supply chain disruption mitigation planning. And without more advanced strategies in place—such as supply chain mapping and enterprise risk management—the strategies currently in use will not be as effective at minimizing the risk of supply chain disruption. Those shippers that have successfully implemented an effective strategy here highlight a detailed assessment of the state of the network together with a thorough plan to alleviate the biggest sources of vulnerability and outline the response for when disruptions do occur as the best way to create a solid supply chain risk mitigation strategy.

“Increased competition and pricing pressures are driving shippers to seek lower labor and manufacturing costs from further afield; centralized distribution has focused more production and inventory in fewer places; product lifecycles are growing shorter in some segments; and, at the same time, companies are reacting to the challenging economic environment by reducing inventories—all of which is leading to ever more complex global supply chains and, in turn, magnifying the negative impact of supply chain disruption,” said Sven Hoemmken, Global Head of Marketing and Sales, Panalpina. “A sound mitigation strategy is vital for reducing costs and creating a competitive advantage. Developing a resilient supply chain that balances risk with new growth opportunities starts with a rigorous assessment of the current supply chain followed by a considered plan to mitigate against the biggest areas of vulnerability.”

The report also highlights how much value some shippers are driving from their 3PL providers. Shippers report spending an average 12 percent of revenues on logistics, with an average 39 percent of that spent on outsourced logistics services, and both shippers (86 percent) and 3PL’s (94 percent) largely view their relationships as successful. Just over half (56 percent) of shippers even say their use of 3PL provider has directly led to year-on-year incremental benefits. They also report significant savings from logistics cost reductions (15 percent), inventory cost reductions (eight percent) and logistics fixed asset reductions (26 percent).

For a copy of the full study, visit http://bit.ly/QB7YZF.

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