Accenture survey also shows growth in China for third-party logistics providers
New York November 14, 2003 More U.S. manufacturers are using third-party logistics providers (3PLs) as part of their extended supply chain than ever before, according to the latest research conducted by consulting firm Accenture and Northeastern University. The percentage of large manufacturers using 3PL services increased from 65 percent in 2002 to 83 percent in 2003.
Eighty-five percent of survey respondents reported that the use of 3PL services had a positive or very positive impact on logistics service levels. This figure increased 18 percentage points from 2002. Additionally, 77 percent of users reported that the use of 3PL services had a positive or very positive impact on logistics costs, up from 70 percent in 2002.
The research consisted of two surveys, one of which captured data from 66 executives of the largest American manufacturing companies. It was the fourth such survey sponsored by Accenture and the eleventh conducted by Northeastern since 1991. The other is a companion survey that polled and received responses from 20 CEOs of the top global providers of 3PL services.
"The 1990s was the era of re-engineering, and most companies focused on improving core competencies, such as manufacturing processes," said Accenture Associate Partner Brooks Bentz. "During the first decade of this century, manufacturers are continuing to support this focus by outsourcing logistics activities and other non-core competencies. In large part, they view outsourcing as an effective way for improving supply chain performance and reducing costs in segments of the operation not historically viewed as 'mainstream.'"
Accenture said that because many 3PL companies offer integrated supply chain services, such service offerings were the subject of a number of questions in the survey of manufacturers. Fifty-seven percent of manufacturers reported use of their primary 3PL provider by their major customers, and 49 percent reported use of their primary 3PL provider by their major vendors. When asked how important these relationships were in promoting integration of the company's supply chain, more than two-thirds of the respondents said it was important or very important.
"Clearly, 3PL users see significant benefits in sharing their primary 3PL providers with their major vendors and customers, and this constitutes a major market opportunity for 3PL providers to promote supply chain integration across company lines," said Professor Robert Lieb of the College of Business Administration at Northeastern University, and co-author of the surveys.
Another topic where both surveys coincided was China. While more than half of 3PL service providers offer limited 3PL services in China, this number is projected to grow as China increases in importance as a center for global manufacturing, sourcing and sales. For example, revenue generated in China only averaged 2 percent of the 3PLs' revenue base in 2002, but the CEOs surveyed projected that figure to increase to an average of 4 percent by 2005. Four companies expect to generate in excess of 10 percent of their total revenues in China by 2005.
From a manufacturing executive's point of view, about half of those surveyed said their companies manufacture or sell in China with plans to continue to grow such activities. Accenture said that relatively few of those companies currently use 3PL services in China, and many respondents noted that 3PL services are not widely available in the Chinese marketplace. Under such circumstances, the consulting firm speculated that the 3PLs' intentions for growth in the region seem well placed to meet manufacturers' needs.
Other important findings in the survey of large manufacturers include:
- Service improvements: Manufacturers indicated the specific 3PL service that yielded the greatest logistics services improvement was warehouse management services (22 percent), followed by rate negotiations (16 percent), shipment consolidation (14 percent), freight payment services (10 percent), and direct transportation services (10 percent).
- Cost benefits: Nearly 30 percent of the respondents indicated that warehouse management services had yielded the greatest cost benefits, followed by rate negotiations (16 percent), shipment consolidation (14 percent), freight payment services (10 percent), and direct transportation services (10 percent).
- Increased budget share: On average, the 3PL users surveyed gave approximately 30 percent of their logistics operating budget to 3PLs last year, and said that percentage will increase to 40 percent in three years.
According to the CEOs of 3PLs surveyed:
- Market dynamics: The most important market dynamics in the 3PL industry are the continuing downward pressure on pricing, growing customer interest in outsourcing a broader array of logistics services, and increased pressure to internationalize company service offerings.
- Market opportunities: The most important opportunities were identified as expansion of integrated supply chain services, continued globalization, and further IT supply chain integration.
- Industry problems: The most pressing problems facing management in the 3PL industry are inadequate profitability, the ability to find and keep qualified employees, and difficulty delivering on promised to customers.
- 3PL industry growth projections: Despite the economic slowdown of the past several years, 3PL CEOs are still quite optimistic about the future with respect to company growth, but less so than last year. They are also considerably more conservative with respect to industry growth prospects over the same period. The average company revenue growth projection for next year was 16 percent, with the projected three-year company revenue growth average being 15 percent. In terms of industry growth projections, the CEOs projected the one-year growth rate for the industry to be 8 percent, while the three-year industry growth rate was projected to be 10 percent.
Lieb, of the College of Business Administration at Northeastern University, has been gathering data about, and conducting research on, the use of third-party logistics services since 1991. Accenture said they began sponsoring the research in 2000, and Bentz worked with him on the 2003 surveys.
In the manufacturing survey, a questionnaire was mailed to the chief logistics executive of the 500 largest American manufacturing companies, and 66 executives responded.
In the 3PL industry CEO survey, a questionnaire was mailed to CEOs of 20 of the top global providers of 3PL services, and all 20 of the CEOs participated.