2005 Third-Party Logistics: Results and Findings of The 10th Annual Study

2005
THIRD-PARTY
LOGISTICS
Results and Findings
of the 10th Annual Study
3PL 2005: Results and Findings of the 10th Annual Study
2005 Third-Party Logistics

Results and Findings of the 10th Annual Study
Participants:
C. John Langley Jr., Ph.D., Georgia Institute of Technology
Erik van Dort, Capgemini
Alec Ang, DHL
Scott 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 Accelerated

Solutions Environment (ASE) Meetings.............................................36
About the Participants........................................................................38
Contact Information............................................................................41
Supporting Organization
1
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 of
the third-party logistics (3PL) industry from the perspective of the customers who use
3PL services. Over its 10-year history, each annual study has addressed for an
increasingly broader range of user industries and regions the key issues that have
emerged from time to time relevant to the logistics and 3PL industries.
We would first like to acknowledge the much-appreciated participation of the 3,463

logistics executives over the past 10 years who took the time to complete our annual
survey and to share their 3PL experiences. They are why this study has been able to
provide 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 been
part 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 and
SAP. Without the involvement of key people from these companies and the financial
resources they have provided, this study would not have been able to achieve the
professional respect and attention it receives today.
Looking back over the past 10 years, the overall business environment and the
logistics sector has experienced significant—even tumultuous—change. Here are
some 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 figure
for 2004 was US$1,015 billion.1
❑ Logistics costs as a percent of U.S. gross domestic product declined from 10.4% in
1995 to 8.6% in 2004.2
❑ The U.S. 3PL/contract logistics market grew from an estimated US$31 billion in
1996 to US$85 billion in 2004.3 Additionally, a large number of corporate mergers
and acquisitions involving 3PL providers, many on a global basis, occurred between
1996 and 2005.
❑ According to financial analysts in 1995, the logistics industry could be characterized
by “too many trucks chasing too little freight.”4 In 2005, it is difficult to find any
sector 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 before
the euro was introduced as the official currency in most of Europe. In 1997, Hong
Kong 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 global
in 2005 than they were in 1995. In response to the expanding regional needs of
companies across a broad range of industries, the logistics sector is being asked to
expand its services for customers with global logistics needs. This has created a
growing market for comprehensive, global 3PL services.
2
Over the years, this study has provided significant insight into how customers view and
use outsourced providers of logistics services. The first six years of the study, 1996 to
2001, focused exclusively on the trends in North America. Since 2002, the study also
surveyed users in Western Europe, Asia-Pacific, Latin America, South Africa, and the
Middle East. The following are some of the changes we have seen in the 3PL industry
over the past 10 years:
❑ While for the first six years of the study about 72% of the survey respondents from
North America described themselves as “users” of 3PL services, this percentage
has increased about 80% in the past four years. Significant use of 3PL providers
and services also exists in the other regions studied.
❑ In all the years of the study, we asked logistics executives what factors were
affecting their businesses. Exhibit 1 shows four major factors and changes in those
factor’s rankings. In recent years, respondents have also cited increases in the
importance of “emphasis on improved supply chain management” and “intensifying
government and regulatory policies,” among other factors.
❑ Annually, the most prevalent logistics services outsourced to 3PL providers are
transportation (outbound and inbound) and warehousing. In the past 10 years,
however, many services have increasingly been outsourced, including customs
clearance and brokerage, freight forwarding, Exhibit 1
cross-docking/shipment consolidation, and Factors Perceived by Logistics Executives, 1996-2005
order fulfillment and distribution. Factor 1996 North 2005
America North America All Regions
❑ Throughout the history of this study, 3PL
Pressure to reduce cost 87% 96% 91% -100%
users have given their outsourced 3PL efforts
Pressure to enhance customer service 65 80 74 - 84
high ratings in terms of “success.” As is Globalization 58 80 63 - 90
discussed each year, however, 3PL users still Develop new information technologies 47 82 81 - 96
expect their 3PL providers to improve in a
number of service areas.
❑ Survey findings in recent years indicate that logistics is increasingly an important
area of activity within a company. Results from each of the regions studied
substantiate the fact that logistics represents a strategic, competitive advantage.
One conclusion stands out, though: The 3PL industry is still growing. Among the
priorities currently facing 3PL providers are regional expansion, broadening services to
meet the needs of current and future customers, integrating information technologies,
and developing relationships with customers and other business firms that will
facilitate the growth and expansion that lies ahead.
It has been very exciting to see the 3PL industry develop over the past 10 years. We
expect to see in the years ahead significant changes and enhancements to the © 2005, C. John Langley Jr., Ph.D., and Capgemini U.S. LLC. All rights reserved.
provision and use of outsourced logistics services. 1 16th Annual State of Logistics Report. Oak Brook, IL: Council of Supply Chain
Management 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.
3
Study Objectives and Methodology
During the spring and summer of 2005, C. John Langley Jr., Ph.D., of the Georgia
Exhibit 2
Institute of Technology, with Capgemini, DHL, and SAP, conducted an extensive study
North America
about using 3PL services in North America, Western Europe, Asia-Pacific, Latin
Western Europe
Asia-Pacific America, South Africa, and the Middle East.5,6 This is now the 10th annual research
Latin America study to examine critical trends and issues among key markets and key customers in
South Africa
Middle East the 3PL industry.
Regions Surveyed
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 success
and value from 3PL relationships, and technology enablement.
❑ Provide a strategic assessment of the future of the 3PL industry.
Methodology and Research Approach

This study identifies and tracks key trends and views of the 3PL industry from the
perspective of customers who purchase and use 3PL services. In addition, a number of
respondents who are not using 3PL services provide key information as to why they do
not currently outsource logistics services and what their plans may be in the future. As
is done every year, the 2005 3PL study incorporates appropriate revisions of content
and terminology from past year’s surveys to be current and to respond to recent
changes in the logistics, supply chain, and 3PL/4PL industries.
Survey recipients were asked to think of a “third-party logistics (3PL) provider” as one
that provides multiple logistics services for its clients and customers. Following several
examples of firms that would be typical of such a definition,7 recipients were asked to
think of a “fourth-party logistics (4PL) provider” as one that may include more advanced
logistics outsourcing services than a conventional 3PL normally would provide.8
The study methodology included using e-mail to contact logistics and supply chain
executives across North America, Western Europe, Asia-Pacific, Latin America, South
Africa, 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 willing
to participate in the survey were asked to click an Internet link that would lead them to
an 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 to
facilitate their involvement. The 2005 3PL study used a web-based commercial firm to
4
administer and manage the survey, including e-mailing surveys and invitations to
participate, tabulating results, and preparing reports for analysis.
To better understand the results of the survey and to gain valuable perspective from Exhibit 3
3PL users, the research team also held a workshop session at the Capgemini Survey Response Rates
Accelerated Solutions Environment (ASE) facilities in Boston, MA, USA. Additionally, two Regions Companies Usable Response
focus group conference calls were held with European logistics executives, and a Contacted Responses Rate
workshop was held in Singapore with key logistics executives from Asia-Pacific. The North 3,649 516 14%
America
participating executives helped by reviewing selected research results and by
commenting on various topics related to the use of 3PL services. Details about the ASE Western 1,997 339 17
Europe
and the focus group sessions are in the appendix.
Asia- 881 53 6
Pacific
Regions Covered and Survey Response Rates
In addition to the regions included in last year’s study (i.e., North America, Western Latin 1,060 144 14
America
Europe, Asia-Pacific, and Latin America), the current study surveyed logistics
executives in South Africa and the Middle East (see Exhibit 2).10 South 175 31 18
Africa
Exhibit 3 shows the number of companies contacted in each region, the number of Middle 13 8 62
East
responses received, and the response rate. As in previous years, multiple waves of e-
mails were sent to logistics executives to increase response rates. The research Totals 7,775 1,091 14
team also tried to delete obsolete and duplicate e-mail contacts. As a result, the
overall response rate doubled from last year’s study to 14%. Unfortunately, the total
number of responses in South Africa and the Middle East were not sufficient for
meaningful analysis. These two regions have been targeted for improvement in the
next annual study.11
Industries Studied
The industries predominantly represented by the survey respondents included:12
❑ Automotive
❑ Chemical
5 The authors of the study would like to thank the Latin America Logistics Center
❑ Consumer Products (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-Party
❑ Food and Beverage Logistics Study. In addition to providing contact information for Latin American
logistics executives, Ms. Rey and the LALC graciously translated the entire 3PL
❑ High-Tech and Electronics survey into both Spanish and Portuguese. Also, the study team would like to thank
Gary Allen and Kenneth Edwards, formerly of Capgemini, for their diligent and helpful
❑ Industrial Manufacturing work as members of the project team.
6 The 2005 study includes the Middle East, but as explained elsewhere, the number of
❑ Life Sciences (Pharmaceutical) and Medical responses was not sufficient for meaningful analysis or a true understanding of the
3PL environment in that region.
❑ Retail 7 The firms cited as examples in the survey included DHL, Exel, FedEx, Kuehne &
Nagel, Menlo Logistics, Panalpina, Ryder, Schenker, Schneider Logistics, UPS, and
❑ Telecommunications UTi Worldwide.
8 As explained elsewhere, the industry executives participating in the ASE, focus
groups, and workshop sessions provided valuable insights to help distinguish
between the terms 3PL and 4PL, as well as more advanced services that may be
These industries were selected because they view logistics as strategically available from integrated logistics services providers.
9 To facilitate completion, surveys were translated into French, Portuguese, and
important and because they are viewed as purposefully moving toward integrated Spanish for executives in various parts of the world.
10 South Africa had been included to a limited extent in the 2003 Third-Party Logistics
supply chain management. study.
11 The response rate for Latin America increased significantly from 2004 to 2005. The
research team is most appreciative of the efforts of Maria Rey and the Latin America
Logistics Center (LALC) in helping with this improvement.
12 The study also included a few respondents in the apparel and utility industries.
5
Characteristics of Survey Respondents
The 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 percent
of respondents representing the manufacturing sector were 70% in North America,
65% in Western Europe, 70% in Asia-Pacific, 59% in Latin America, and 67% in
South Africa. The wholesale/distribution/retail sectors were represented by 18% of
the respondents in North America, 22% in Western Europe,13% in Asia-Pacific, 22%
in Latin America, and 22% in South Africa.
Exhibit 4
Regional Scope of Users’ Logistics Responsibilities, 2005* ❑ Users indicated a broad regional scope for their logistics operations.
Regional Scope
For example, the logistics responsibilities of 96% of the respondents
Location
of 3PL North Western Latin
in North America, 98% in Western Europe, 97% in Asia-Pacific, and
User America Europe Asia-Pacific America 95% in Latin America included at least their own region (see Exhibit
North 96% 48% 47% 46% 4). In general, the respondents also had broad responsibilities for
America (98%) (45%) (46%) (43%)
logistics in other major areas of the world. For example, North
Western 26 98 28 23 American respondents had responsibilities in Western Europe (48%),
Europe (22) (99) (28) (26)
Asia-Pacific (47%), and Latin America (46%). The composition of
Asia- 16 19 97 10 regional responsibilities has tended to be somewhat the same for the
Pacific (19) (24) (100) (14)
past three years. The study also indicates that North American 3PL
Latin 16 13 11 95 users tend to have broader regional responsibility than non-users of
America (16) (12) (8) (96)
*Numbers in parentheses represent results from 2004 study. Percentages in each “home” region may
3PL services; non-users more often have strictly local responsibility.
not quite equal 100% because a number of survey respondents may have responsibilities that exclusively
extend beyond their “home” region (e.g., 96% of North American respondents have responsibility that
includes North America, while the remaining 4% have responsibilities that do not include North America).
❑ Respondent firms have a relatively broad range of anticipated sales
revenues for 2005.14 Of the North American respondents, 47% of the
firms have revenues between US$1 billion and US$25 billion; another
11% project revenues over US$25 billion. In contrast, 3PL user firms in
Western Europe tend to be larger; 77% of them expect 2005 sales
revenues to exceed the equivalent of US$1 billion.15
❑ North American 3PL users expect that logistics expenditures will represent approx-
imately 6% of their organizations’ anticipated total sales for 2005. Comparable
figures are 9% for Western Europe, 8% for Asia-Pacific, and 13% for Latin
America. These figures are slightly lower but essentially similar to those reported
in the 2004 study.16
13 Respondents were asked to classify their firms in one of the following categories:
raw materials supplier, manufacturer (components/ingredients, contract
manufacturer), manufacturer (finished product), wholesale/distribution, and retail.
14 Respondents were given the option of responding to financial questions in ❑ Exhibit 5 shows how many 3PL users indicated what factors are “having a
customary monetary units (e.g., US$ or euro). Results were then converted to US$.
15 Data from respondents in Asia-Pacific, Latin America, and South Africa were significant impact on the industry in which your organization competes.” Across the
insufficient for meaningful analysis.
16 For reference, the 16th Annual State of Logistics Report published by the Council regions, “significant pressures to reduce cost” and “emphasis on improved supply
of Supply Chain Management Professionals (Oak Brook, IL: CSCMP, 2005) states
that for 2004, the U.S. business logistics costs were US$1,015 billion and equal chain management” are again in 2005 identified as key business pressures. Of
to 8.6% of the gross domestic product (GDP). This percentage has been between
8% and 9% for the past three years. Although North American organizations in particular interest this year, however, is the extent to which “implementation of new
this 3PL study indicate logistics costs average 6% of sales revenues, the
respondents generally tend to be from industries with higher-value products. This information technologies” is significant.
suggests that total logistics costs as a percent of sales may be slightly lower
than for the overall economy.
6
Generally, the percent of 3PL users citing this as a key business pressure have
increased from 76% in the 2004 study to 81% to 96%, depending on region, in
the 2005 study. The percent of North American users indicating that “intensifying
government and regulatory policies” was of concern rose from 64% in 2004 to
78% in 2005. Last, while the data in Exhibit 5 suggest that issues relating to
transportation/logistics capacity and congestion concern 58% to 77% of the
users, these percentages are generally lower than for other types of business
pressures cited. Exhibit 5
Factors Affecting 3PL User Firms

❑ Respondents also attach
Factor North Western Asia- Latin
great importance to logistics America Europe Pacific America
and supply chain issues. For Significant pressures to reduce cost 96% 99% 100% 91%
example, 75% of the North Emphasis on improved supply chain management 90 92 89 81
American respondents, 82% Implementation of new information technologies 82 90 96 81
from Western Europe, 84% Significant pressures to enhance customer service 80 84 84 74
Globalization 80 90 86 63
from Asia-Pacific, 94% from
Consolidations, mergers, acquisitions, etc. 78 71 71 61
Latin America, and 100% Intensifying government and regulatory policies 78 76 79 74
from South Africa agree that Rapidly accelerating new product introductions 76 79 72 81
“logistics represents a New markets 76 77 67 63
strategic, competitive Security issues 74 60 67 61
advantage for our company.” Transportation/logistics capacity issues 71 63 75 75
Transportation/logistics congestion issues 63 58 75 77
Also, the percent of
(e.g., port congestion)
respondents agreeing with
“our customers are placing
greater emphasis on logistics customer service” was 84% in North America, 81% in
Western Europe, 77% in Asia-Pacific, 78% in Latin America, and 100% in South
Africa. Across the regions, about half of the 3PL users felt their buying behavior
indicated “a willingness to pay for value-added services.” Overall, the percent of
customers agreeing with “using 3PLs is a key to satisfying their company’s
customers” 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 the
North American respondents agreed with that statement in 2003, and that
percentage decreased to 50% in 2004.
Organization of This Report

Following a summary of key findings, the 2005 3PL study results are discussed in five
sections. The first, “Logistics Outsourcing Practices,” describes trends in logistics
among users and non-users of 3PL services. The next four sections deal with areas of
strategic interest to 3PL users: “3PL Service Offerings and Capabilities,” “Management
and Relationship Issues,” “Customer Value Framework,” and “Technology Enablement.”
These discussions encompass results from this year’s study and provide perspectives
on the study’s findings over its 10-year history. The final section in the main body of
the report provides a strategic assessment of the future of the 3PL industry, including
an explanation of the value readers should derive from this study. The appendix details
the ASE session held in Boston, the focus groups with European logistics executives,
and the workshop that was conducted in Singapore.
7
Summary of Key Findings
This study helps provide a better understanding of the marketplace for 3PL services
and the ways providers of such services continue to develop and grow. Considering
that the total annual revenues of U.S.-based 3PL providers in 2004 are approximately
US$85 billion,17 the services offered by 3PL providers continue to consume a significant
portion 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 in

the five regions studied. Between 1996 through 2001, the percentage of 3PL users
remained relatively constant among North American respondents (between 68%
and 73%). In the years 2002 to 2005, however, the percentage of North American
users has shown modest growth and this year is at 80%. Based on the three most
recent years of survey data, the percent of firms using 3PL services in Western
Europe has been 77%. In Asia-Pacific, the use of 3PL providers is high (84% in
2004 and 83% in 2005), but in Latin America, outsourced logistics is less prevalent
than in the other regions (67% in 2004 and 72% in 2005). In South Africa, the 3PL
usage rate was 74%.
❑ 3PL SERVICE OFFERINGS AND CAPABILITIES. This year’s survey shows continued
improvements in overall service levels from suppliers. Moreover, 3PL users continue
to view a collaborative partnership approach with their 3PL providers as key to
improving the user-company 3PL performance. However, unlike in past surveys,
pricing has become the most important attribute in selecting a 3PL provider. This is
different from last year’s study where value-added services was ranked first. In
fact, this year the proficiency of a 3PL provider’s core services was considered
more important than the provider’s ability to deliver value-added services. This shift
from frills to core services is a major change; in past surveys, a 3PL provider’s
delivery of core services was considered a “given.” The “value” that is created by a
3PL relationship is a function of several factors, including benefits derived from
service offerings, price versus perceived benefit, standardized versus customized
service offerings, breadth of service offerings, integration (operational and
technology integration), and geographic coverage.
❑ MANAGEMENT AND RELATIONSHIP ISSUES. This year, 88% of those surveyed
view their relationship with their service provider as successful. Although users are
generally satisfied with their 3PL providers, the providers are continually pressured
to expand their service offerings. For 3PL providers to properly address this
challenge, they must determine their market positioning, business models, and
approach to exceeding customer satisfaction. Pressure to “be all things to all
customers,” to continually grow, and to maintain profitability makes it difficult for
3PL providers to address this challenge.
8
❑ CUSTOMER VALUE FRAMEWORK. Across all the regions studied, 3PL users are
benefiting from their choice to outsource certain logistics services. Logistics cost
reductions were relatively consistent at 10% or 11% across North America, Western
Europe, Asia-Pacific, and Latin America. Order fill rates in each of the regions
suggest improvements occurred as the order fill rates increased in all regions.
Reductions in average order-cycle length of approximately 25% to 30% were seen
in North America, Western Europe, and Asia-Pacific, while the average order-cycle
reduction in Latin America was halved. Inventory turns increased for 3PL users in
North America and Asia-Pacific, and decreased in both Western Europe and Latin
America. In terms of cash-to-cash cycles, the number of days reduction ranged
from 2.8 days in Latin America to 4.5 days in North America. Last, 3PL users
agreed 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 are
not without areas for improvement.
❑ TECHNOLOGY ENABLEMENT. Approximately 90% of respondents agreed that
information technology (IT) capabilities are a necessary element of overall 3PL
provider expertise. Implementing IT ranked third behind cost pressures (97%) and
improving supply chain management (89%) as a leading factor affecting 3PL user
organizations in 2005. While a high percentage of users identify IT as a necessary
element of overall 3PL provider expertise, far fewer (38%) are satisfied with their
providers’ capabilities. In general, 3PL users have yet to think of their 3PL providers
in a newer, more strategic light. Not only do over 70% of the survey respondents
characterize their 3PL provider relationships as tactical in nature, their IT-based
services align with this thinking. The survey suggests that as more firms progress
further into outsourced logistics relationships, the complexity of those relationships
necessitates a combination of effective IT services for a broad spectrum of supply
chain processes.
❑ STRATEGIC ASSESSMENT. Since the inception of this survey, customer evaluation
of outsourcing success has ranged between 82% and 90%. In the last four years,
satisfaction rates have consistently been around 90%. Along with high satisfaction
rates, users have stated continued benefits over the last six years. Plus, the 3PL
industry has continued to achieve annual growth rates greater than 10% over the
last decade, while also experiencing a tremendous amount of mergers and
acquisitions. Customer expectations have continually increased from year to year
while 3PL providers are pressured into ongoing development of new capabilities.
Although many 3PL providers satisfy user requirements around basic services, such
as transportation or warehousing, users continue to identify ongoing development
of capabilities as a key issue. The stated need for advanced supply chain services
and for organizations that can serve as “integrators” has validated a “strategic
service” model in meeting—and servicing—the needs of 3PL users. The continual 17 Source: Armstrong & Associates, Inc., www.3plogistics.com. Estimated total contract
logistics market revenues were US$56.6 billion for 2000, US$65.3 billion for 2001,
gap between user expectations and what 3PL providers deliver is a clear signal that 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 Chain
3PL providers and users need to “re-invent” themselves to be more capable Management Professionals, June, 2005) states that for 2004, U.S. business logistics
costs were US$1,015 billion and equal to 8.6% of the U.S. GDP.
business partners to one another.
9
Logistics Outsourcing Practices
Overall Trends
The 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 through
2001, the percentage of 3PL users remained relatively constant among North American
respondents (between 68% and 73%). Between 2002 and 2005, the percentage of
North American users showed modest growth coupled with some stability.
In the three most recent years of survey data, the percentage of firms using 3PL
services in Western Europe has been between 76% and 79%. In Asia-Pacific, 3PL use
Exhibit 6
for the past two years has been 84% in 2004 and 83% in 2005. Based on two years of
North America 3PL usage data from Latin America, outsourced logistics services here are less
Western Europe
prevalent than in the other regions. Last, the single year of information from South
Asia-Pacific
Africa shows a 3PL usage rate of 74% in this region.
Latin America
South Africa
3PL User Percentages, 1996 - 2005* We have further insight into the overall
use of 3PL providers. As shown in
100% 94
Exhibit 7, from 64% to 82% of the
respondents use one to five 3PL
84 83
78 78 79 79 80 providers. Smaller percentages of
80% 76 77
71
73
71
73
71 72 74 respondents use larger numbers of
68 67
3PL providers, in some instances more
58 than 50 providers.
60%
Exhibit 8 confirms that “cost” and

40%
“service” are the two most prevalent
Percent of Respondents
factors responsible for using a 3PL

20% provider. Across the board, the
percentages of users indicating cost to
be a factor are between 65% and
0%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 74%. Those indicating service to be a
*Although these percentages are comparable from year to year, and respondents are asked to identify themselves as users or non-users of 3PL services, factor ranged between 51% and
3PL users may be more likely to respond to this study. This may be particularly true in Asia-Pacific.
64%.The third most prevalent factor
for using a 3PL provider was so that
the user company could “focus on corporate core competencies” (percentages ranged
from 29% in North America to 43% in Asia-Pacific).
Respondents were asked what percent of total logistics expenditures are directed to
outsourcing (see Exhibit 9 on page 12) currently (2005) and in the near future (2008 to
2010). A few observations about their responses are:
10
Exhibit 7
❑ The 3PL users in Western Europe, Asia-Pacific, and South Africa tend to spend North America
greater portions of their logistics budgets on outsourcing than their Western Europe
counterparts in North America and Latin America. Asia-Pacific
Latin America
❑ One way to look at the future plans for outsourcing is to calculate the expected Number of 3PL Providers Used
three- to five-year growth rate of outsourcing expenditures as a percent of 82
overall logistics expenditures. These percentages are: North America, 16%; 80%
73
Western Europe, 18%; Asia-Pacific, 12%; Latin America, 14%; and South Africa, 70% 67
64
11%. While these percentages suggest that the growth rate in 2005 for North 60%
America is the highest at 16%, over the past few years these growth rates
50%
have not provided any consistent pattern of increase or decrease.
40%
❑ Between 2002 and 2005, with the exception of Asia-Pacific,19 the percentage 30%
of total logistics expenditures directed to outsourcing has not significantly 20% 17 16
12 10 14 15
grown. This is an important observation, considering that users in all regions 8 8
10% 6 6
have reported each year that they have plans to increase this percentage in 2
0
0%
“three to five years from now.”
ive
ten
y
y
fift
fift
of
to
n
to
et
ha
Six
en
On
The percentage of total logistics expenditures represented by transportation,
et
ev
or
El
warehousing, inventory carrying, and administration and information management
M
costs are about the same across North America, Western Europe, Asia-Pacific, and
Latin America (see Exhibit 10 on page 12).
Exhibit 8
Logistics Activities Outsourced Factors Responsible for Decision to Use 3PL Provider
The activities most frequently outsourced to
Factor North Western Asia- Latin
3PL providers are outbound transportation America Europe Pacific America
(North America, 78%; Western Europe, 88%; Cost 72% 74% 71% 65%
Asia-Pacific, 96%; and Latin America, 84%), Service 61 55 51 64
warehousing (North America, 63%; Western Focus on corporate core competencies 29 40 43 38
Europe, 72%; Asia-Pacific, 88%; and Latin Industry experience 27 16 20 26
Unique services available from 3PL provider 24 14 17 10
America, 55%), customs clearance and
Asset reduction 22 30 31 30
brokerage, inbound transportation, and freight Access to capable information technologies 16 10 20 9
forwarding (see Exhibit 11 on page 13). Seasonality or surges in logistics activity 16 21 9 20
Interestingly, the use of outbound transportation Corporate philosophies encourage outsourcing 12 10 17 16
by North American respondents increased by Need for “change agent” 3 4 3 3
about 10 percentage points, while the use of Labor problems 2 7 6 7
warehousing services decreased by about the
same amount. The percentages for the other regions remained about the same from
2004 to 2005.
A new question for 2005 asked respondents about how much they outsourced
transportation management services to 3PL providers. The percentages were: North
America, 49%; Western Europe, 79%; Asia-Pacific, 82%; and Latin America, 53%.
19 During the three years that Asia-Pacific has been included in this study, the “current
use” percentages were reported as 50% in 2003, 63% in 2004, and 69% in 2005.
11
Exhibit 9 Several logistics activities appear to be outsourced to 3PL providers more in Western
Europe, Asia-Pacific, and Latin America than in North America. These activities include
2005
procurement of logistics, reverse logistics and waste disposal, and fleet management.
2008 - 2010
Historically, North American 3PL users have outsourced freight bill
Current vs. Projected Logistics Expenditures Directed to Outsourcing
auditing/payment activities to a much greater extent than users in the
80% 77 other regions. This year with no exception.
69 70
67
63
Among the additional observations that can be made from the data in
Percent of Expenditures Directed to Outsourcing
57 59
60%
51 52 Exhibit 11 are the following:
44
40% ❑ Generally, 3PL users in Western Europe, Asia-Pacific, and Latin
America tend to outsource logistics activities to a greater extent than
users in North America. One obvious exception is freight bill
20%
auditing/payment; previous years’ studies have noted the much
lower incidence of outsourcing of this activity in Western Europe than
0% in North America.
North Western Asia- Latin South
America Europe Pacific America Africa ❑ Again in 2005, the activities most frequently outsourced are those
that are more operational in nature. Conversely, those that are less
frequently outsourced tend to be customer-related, involve the use of
information technology, and are more strategic in nature.
According to Karim Alhusseini of Eaton Corporation and an ASE participant, the “future
expectations of a 3PL provider are to do more than the labor intensive and tactical
activities, but to expand into consulting/implementation services that integrate the 3PL
Exhibit 10
systems and tools with our applications for turnkey solutions.” His opinion is that
North America execution processes are far easier to outsource, and that users need to rely on
Western Europe capable providers of 3PL services to ensure sufficient depth of talent in key areas of
Asia-Pacific
service offerings.
Latin America
South Africa
Integration of 3PL Services
Components of Total Logistics Expenditures
In recent years, this study has addressed how much 3PL services are
60 “tied together” or “integrated” by 3PL providers. This is a critical issue,
60% 55 55 54
51 particularly when a “strategic” relationship exists between 3PL providers
and customers. The percentage of respondents indicating “some” or
40% “significant” integration of 3PL services was 75% in North America, 66%
29 28 in Western Europe, 64% in Asia-Pacific, 80% in Latin America, and 70%
25 23
20% 17 16 in South Africa. When asked what future expectations 3PL users had
10 11 9 11 10 9 8 12 10 regarding this issue, most of the respondents (90% to 100%) in four of
the regions expected “some” or “significant” integration of 3PL services.
0%
As in last year’s study, 87% of the North American respondents had a
ag at &
Co ying
ing
n
tio
em ion
sts
an rm n
future desire for their 3PL suppliers to provide integrated services.

us
M fo ratio
rta
t
arr
en
ho
o
yC
sp
are
st
ini
n
or
W
Tra
n
nt
m
I
ve
Ad
In
12
A strategic issue is how customers feel Exhibit 11

3PL providers should position themselves Outsourced Logistics Services
in terms of the depth and breadth of their
Logistics Activity North Western Asia- Latin
service. When asked whether “third-party America Europe Pacific America
suppliers should provide a broad, compre- Outbound Transportation 78% 88% 96% 84%
hensive set of service offerings,” most of Warehousing 63 72 88 55
the 3PL users strongly agreed (84% to Customs Clearance and Brokerage 63 49 67 55
90%). Approximately half of these users Inbound Transportation 58 66 68 68
agree “our company is moving to Freight Forwarding 56 53 49 45
Transportation Management 49 79 82 53
rationalize or reduce the number of third
Freight Bill Auditing/Payment 45 10 18 11
parties we use.” As suggested as well in
Cross-Docking/Shipment Consolidation 39 50 58 43
the 2004 study, this observation may be Order Fulfillment and Distribution 29 31 52 19
based on a trend among 3PL users to take Consulting Services 23 22 27 23
steps to improve and streamline their Procurement of Logistics 23 31 42 47
procurement practices in relation to Carrier Selection 19 16 24 19
externally provided, integrated Product Marking/Labeling/Packaging 18 27 27 19
Product Returns and Repair 18 25 30 9
logistics services.
Inventory Management 17 23 36 13
Reverse Logistics and Waste Disposal 16 31 24 25
Views of Non-Users Product Assembly/Installation/Manufacturing 16 16 18 0
Depending on the region, 20% to 30% of Information Technology 15 21 18 19
the respondents classify themselves as Rate Negotiation 14 9 12 8
“non-users” of 3PL services. Thus, several Fleet Management 13 26 36 19
LLP/4PL Services 11 13 18 8
questions tried to determine why these
Materials Management 10 10 6 9
companies chose not to outsource logistics Inventory Ownership 8 6 6 9
services (see Exhibit 12 on page 14). The Order Entry/Processing/Customer Service 7 8 15 8
most prevalent reason is because “logistics Customer and Supplier Compliance 5 4 0 2
is viewed as a core competency” (this Factoring (Trade Financing) 2 3 6 6
response was given by 35% of the non-
users from North America, 44% from Western Europe, and 40%
from Latin America). These percentages have increased significantly
from those reported in the 2004 study. The reluctance to outsource
activities and processes that are “core” is understandable, providing
those non-users have sufficient logistics expertise, experience an
acceptable return on investment from insourcing, and find that the
internal provision of logistics activities fits strategically with the
mission of their organizations.
13
Exhibit 12 For some non-users, “logistics is too important to outsource” (23% of the non-users
from North America, 33% from Western Europe, and 27% from Latin America). Other
North America
Western Europe
reasons why companies chose not to use 3PL services include the feelings that “costs
Latin America would not be reduced,” “control [over
Non-User Respondents:
logistics activities] would diminish,” more
Rationale for Not Using 3PL Services* logistics expertise existed within the
organization, and “service levels would not
50% 44
41
be realized.” Again in 2005, these results
40
40% 35 36 generally support the contention that
33 33
30 31
30% 27 27 27 logistics executives in North America may
23 24 22 23 23 23
20% 17
have higher expectations of potential 3PL
13 15
11 suppliers than do their peers in Western
10% 8 9
Europe and Latin America. Interestingly,
0% while only 8% and 9% of non-users in
uc ot
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rea ld
ur ph
ea ul
pe co
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North America and Western Europe,

ed
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t b els
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logistics services,” a much larger 27% of
Se
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the non-users from Latin America

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

indicated the same thing. Looking back to
Exhibit 6, this may help explain why the percentage of 3PL users from Latin America is
the lowest of the regions studied.
Regardless of the reasons why a company might not choose to outsource logistics
services, good logistics management suggests that the idea of using a 3PL provider
be considered. When doing so, the organization may find that the 3PL alternative has
some significant advantages over current operations. Alternatively, evaluating the
Exhibit 13
outsourcing option may reinforce the company’s decision to continue pursuing an
North America approach that includes insourcing logistics. In either case, considering the use of 3PL
Western Europe services should provide valuable knowledge and perspectives for improving logistics
Asia-Pacific
in general.
Latin America
All Regions
Ranking of Key 3PL Selection Attributes

Most 5
Important
3.8
4 3.4 3.4 3.5 3.5 3.4 3.7 3.4
3.7
3.3
3.1
2.7 2.8 2.7
3 2.7 2.7 2.7 2.8 2.5 2.7 2.6 2.5 2.5 2.6
2.2
2
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14
3PL Service Offerings and Capabilities

This year’s survey shows continued improvements in overall service levels from
suppliers. Moreover, 3PL users continue to view a collaborative partnership approach
with their 3PL providers as key to improving the user-company 3PL performance.
However, unlike in past surveys, pricing has become the most important attribute in
selecting a 3PL provider. This is different from last year’s study, where value-added
services was ranked first. In fact, the proficiency of a 3PL provider’s core services was
considered this year more important than the provider’s ability to deliver value-added
services. This shift from frills to core services is a major change; in past surveys, a 3PL
provider’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 Offerings
Although the overall satisfaction of 3PL providers and their related service offerings
and capabilities continues to increase, we see a change in how 3PL providers are
selected and judged. To assist with this challenge, we introduced a question four years
ago 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, strategic
consulting, 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, albeit
only slightly; last year it was second, the previous year it was third. This change can be
interpreted to mean that core “product” offerings, or capabilities, are being
commoditized and users are exerting pressure on pricing. This change is also indicative
that users typically view the role of the 3PL provider as tactical in nature. Another
important difference with this year’s results was in Asia-Pacific; respondents rated
“product” higher than “price” and “service.” This result could be because 3PL
providers are still building out their core product offerings in Asia-Pacific (i.e., the
industry is not as mature in that region). All of these factors confirm that core product
offerings are being commoditized, driving 3PL providers to focus on product portfolio
management 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 consolidation
among major 3PL providers. There is a perception that these consolidations have
weakened core services. This deterioration may have caused 3PL users to focus more
on 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 of
services they have grown accustomed to in their home markets cannot be taken for
granted—even when they use the same 3PL provider as in their home base. Very
often, they find a marked difference in service levels from the same 3PL provider in
different parts of the world. Users attribute this difference to the difficulties providers
have in consolidating different 3PL providers that have been acquired.
There is now a belief that different 3PL providers have different strengths and
weaknesses in different parts of their organization. Karim Alhusseini from Eaton
Corporation reiterated this point during an ASE session: “[3PL users] desire to go from
multiple 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 execution
strengths and weaknesses.”
Exhibit 14 What was once classified as “core” service in the 3PL user’s view has evolved from
basic inbound/outbound transportation and warehousing services. Now, core services
North America
can include traditional value-added services. As a result, user expectations regarding
Western Europe
Asia-Pacific
the delivery of core services has changed. By implication, this means that 3PL
Latin America providers need to go back to basics, especially major 3PL providers who have
South Africa undergone major mergers and acquisitions. These
providers need to focus on consistently delivering core
3PL Provider Accomplishments
services throughout their organization and regardless of
90%
where in the world these services are rendered.
80%
70% 67 67 The third observation is that one of the key challenges is
58
61 the ability of the 3PL provider to master modularizing key
60% 56 56 56 56
51
53 52 solution components, which would let it quickly and cost
50% 44 effectively replicate its key competencies in different
42 42
39
40% 37 36 markets across the globe. The degree it can quickly define,
33 33 33 33 33
29 31 design, and replicate key modular solutions impacts the
30% 27
27
23 22 economies of scale, which in turn drives down the unit
20% 18
16 cost of specific solutions for its customers.
10%
0%
3PL Supply Chain Accomplishments
The survey revealed that 3PL providers were able to help
ion n
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em pl
lut ai
se upp
lut p
s
gy
s
t
ion
hn ed
so ly ch
ice
ov p
so sup
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their users in the following areas (see Exhibit 14):

pr su
ex an
tec g ne
ain d s
al me
im ting
ain al
ion pp
ch nce
on in
ch glob
rat u
hic ing
ati id
ain lita
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❑
va
Facilitate supply chain improvement.

m ov
rap id
ng
ad
ch Faci
int in
or Pr
og ov
❑
d
idi
Provide information technology.

ng
i
ge Pr
ov
ov
idi
❑
Pr
Provide global supply chain solutions.

Pr
ov
inf
Pr
❑ Provide supply chain integration.

❑ Facilitate regional expansion.
❑ Provide advanced supply chain services.
16
Interestingly, the responses to these areas are similar to last year’s study. The good
news is that a majority of respondents in each region this year felt their 3PL providers
were 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 geographical
expansion.” The available data suggest that fewer Latin American and South African
respondents agreed with these statements. That said, the responses also highlight
three areas for improvement by 3PL providers: “global supply chain solutions,” “supply
chain integration solutions,” and “advanced supply chain services.” Of particular note is
that the percentage of North America users agreeing that their 3PL providers offer
advanced supply chain services increased from 20% in 2004 to 31% in 2005.
Looking Forward – The Future of 3PL Providers

Respondents agree that the 3PL providers that have a comprehensive array of services
can perform a more strategic partnership role, compared with those 3PL providers that
have 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 to
perform 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, 3PL
providers must deliver value for their core services. After that, 3PL providers need to
understand the businesses of the industries that they intend to focus on when being a
4PL player. An ability to understand the peculiar needs of the industry, together with
their understanding of supply chain management, will strongly position heretofore 3PL
providers as 4PL providers.
However, 3PL users generally do not see this happening in the short term. Their main
reservation is that 3PL providers have not provided convincing evidence that they can
deliver value beyond the core services they currently focus on. Participants in the ASE
and focus groups offer an alternate view: Should 3PL providers begin to build strong
capability in the area of supply chain management, they might move up the value
chain to become 4PL providers or Lead Logistics Providers (LLP). In short, for users to
believe that a 3PL provider has made it to 4PL player status, the 3PL provider must
first prove that it has successfully integrated its global capabilities. Once this has been
achieved, users will be able to believe that further development beyond core services
will be more likely from the newly anointed 4PL provider.
20 This is similar to findings from earlier studies. In other sections of this report, we
explain that from a user’s perspective, IT capabilities have significant room for
improvement.
17
Management and Relationship Issues
As in previous years, 88% of those surveyed this year view the relationship with their
3PL providers as successful (65% “somewhat successful” and 23% “extremely
successful”). The results for North America and Europe match last year’s results, while
Asia-Pacific and Latin America showed improvement. This is indicative of 3PL
providers’ continual investment in client relationships, especially in developing regions.
Despite users’ satisfaction with 3PL providers, the providers are being pressured to
enhance their relationships—while expanding their service offerings. For 3PL providers
to properly address this challenge, they must determine their market positioning,
business models, and approach to exceeding customer satisfaction. Pressure to “be all
things to all customers,” as well as continually growing and maintaining profitability,
make it difficult for 3PL providers to address this challenge.
Exhibit 15 In the focus group sessions, one

of the discussions touched upon
Expectation Setting Relative to Relationship Management
successful relationships between
Customer Expectations of 3PL Providers 3PL Provider Expectations of Customers
3PL providers and users being
• Superior service and execution (proven results • Mutually beneficial, long-term relationship
and performance) with company predicated on setting
expectations (see Exhibit 15).
• Trust, openness, and information sharing • Trust, openness, and information sharing Mike Studley from Reebok said
• Solution innovation and relationship reinvention • Dedicating the right resources at the right levels, during an ASE session that “to
including executives develop a long- term sustainable
• Ongoing executive level support
• Clearly defined service level agreements relationship with service
• Service offering aligned with customer strategy providers, companies must
and deep industry knowledge • Fiduciary responsibility and overall fairness invest in the relationship and
relative to pricing
work in a collaborative fashion. It
needs to be mutually beneficial
for providers and customers.”
The participants agreed that 3PL providers cannot be all things to all people; they need
to clearly define their customer satisfaction strategy. The attendees also agreed that
this strategy differs by industry, client size, and tactical or strategic relationship
expectations. We conclude that opportunities exist for 3PL providers to get closer to
their customers through collaboration, investment in the relationship, deeper industry
knowledge, and proper expectation setting. This, in turn, should have a direct
correlation on overall customer satisfaction.
Key to a successful relationship between providers and users is whether customer

expectations are properly aligned with the appropriate 3PL business model and
relationship structure. This year’s study showed that 71% of the respondents view their
3PL as a “tactical service provider,” 23% as a “logistics strategist,” and 28% view
them as a “supply chain integrator” (see Exhibit 16). These results match those of the
last three years. And yet, users expect their 3PL provider’s capabilities and advanced
services to continually expand.
18
Three conclusions can be drawn from these results. First, 3PL providers are not Exhibit 16
expanding their capabilities quickly enough to satisfy customer expectations. Second,
North America
3PL users have not aligned expectations with the appropriate relationship structures. Western Europe
Third, users have a preference to utilize 3PL providers in a tactical capacity. Asia-Pacific
Latin America
These conclusions were reached in our European focus group sessions as well. One All Regions
participant highlighted this disconnect by saying that most of his company’s 3PL Provider Roles
relationships were still tactical. Therefore, for 3PL providers to make a shift toward a 90%
strategic role, they need to invest in the expansion of services, client relationship, and 79
80%
ease of integration. However, this participant continued, most 3PL providers, even those 71
in a strategic position, tend to act too operationally and tactically, almost from a 70% 67 67
contractor point of view. 60%

53
50%
Additional concerns regarding the desire to shift toward a strategic role were
40%
expressed in the ASE and focus group sessions. For instance, “3PL providers need to 32
30 30
28 28
be better at expectation management, executive presence, education, and cultural 30%
23 24 23 24
20
change,” said Susan Norris, Vice President of Supply Chain, from Bacou-Dalloz. 20%
10%
On a positive note, Niek Visarius from Rockwell Automation highlighted some positive
0%
changes. “We started in a tactical approach, outsourcing our operations with very strict
rat in
ide e
gis s
ate tic
ov ic
teg ha
or
r
t
Pr Ser v
service level agreements. Over the last one and a half years, there has been a shift
Str ogis
In ly C
toward a strategic relationship. We recently started to discuss our five-year planning
L
al
pp
tic
Su
c
activities with our provider so they can collaborate with us on how to architect the best
Ta
supply 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 advanced
relationship models must incorporate risk-and-reward pricing mechanisms to offset the
higher cost of satisfying service level expectations.
Relationship Processes
When asked whether “using 3PL providers is a key to satisfying our company’s
customers,” 56% of the respondents said “yes.” Seventy percent feel they have a
“collaborative” relationship with their 3PL providers. These findings are similar to last
year’s results. They also suggest that customers view their 3PL relationship as non-
strategic, and that there are continued pressures on maintaining ongoing collaborative
relationships with their 3PL providers.
In time, we believe successful 3PL relationships will establish appropriate roles and
responsibilities for both the 3PL providers and their customers. While sometimes the
use of a 3PL provider is interpreted simply as “turning over all logistics activities” to
the outsourced provider, respondents over the last three years suggest that a joint
client-and-provider management structure is a highly effective way to manage 3PL
relationships. Raymond McGuire from Kellwood New England reiterated this in our ASE
session by saying, “The 3PL should be viewed as an extension of the logistics
department in your business and be treated in the same way as any other internal
operation of your business.”
19
Respondents are essentially expressing their desire as customers to have sufficient
Exhibit 17 power over operations until a track record of performance, or “trust” factor, is built.
Although most customers (appropriately) retain control over strategy formulation and
North America
Western Europe direction setting for their logistics, this shared approach to managing operations
Asia-Pacific continues to be an innovative response to the challenge of successfully managing 3PL
Latin America provider-client relationships.
All Regions
Types of Deal Structures 3PL “Deal Structures”

70% In past studies, users indicated willingness to share both
60% gains and losses from alternative relationship structures.
50% This was again true this year; 58%21 of the respondents
42
use alternative deal structures with their service providers.
40%
33 32 33
28 28 28 30 28
30%
25 The total respondents using or considering alternative deal

20 21 19
20% 17 17 structures is a slight increase from last year’s results.
10% 6 6
9
5 6
9 9
6 However, North American and European responses have
3 4 4 3 4
0%
2
0 dropped between 10% and 15% from last year while
s
Asian-Pacific and Latin American responses increased

nt nt
ari st
ari e
ari d
Va lder
Plu
Sh venu
Sh ewar
Sh Co
Ve Joi
e
ng
ng
ng
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ur
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ho
approximately 50%. The drop in the matured outsourcing

/R
Re
Co
are
sk
markets is indicative of the difficulties and challenges with

Sh
Ri
designing and managing these types of alternative pricing

structures. Adrian Gonzalez from ARC Advisory Group commented during the ASE about
the 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 out
depending on the changing needs of clients, thereby pressuring how agreements
are 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 approaches
to 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.
21 Based on 42% of the survey respondents who stated they were either considering
or were already using alternative deal structures.
20
The difficulties with most value-based arrangements come down to two processes:
measurement and savings distribution. Most of these arrangements are complex to
manage, requiring data accuracy and appropriate personnel to administer the
processes and associated baseline data. Second, once savings are identified, declaring
the savings and distributing the dollars between supply chain partners is difficult.
Recent regulatory programs like Sarbanes-Oxley and increased global sourcing
initiatives have added to these challenges.
These difficulties were echoed in one focus group session. In short, it’s very difficult to
measure and track the actual benefits in 3PL deal structures. Then, once a method has
been established and results accrued, the big discussion for both parties regards
sharing the benefits or the costs. Unfortunately, both companies typically have difficulty
in 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 to
accommodate 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 the
supply chain. In previous years, we depicted this business model migration from
Logistics Service Providers to 3PL providers, to LLP, and finally to 4PL providers. To
simplify terminology and avoid some of the confusion within the industry and across
regions, the focus groups segmented these business models into a two-tiered
relationship structure (see Exhibit 18).
Exhibit 18
Two-Tiered Relationship Structure
Relationship Relationship Traditional Service
Attributes Structure Outsourcing Terms Attributes
• Partnership Joint •Fourth-Party • Broad supply chain expertise

Venture Logistics Provider • Deep industry domain and consultative skills
• Value Based (4PL) • Advanced technology capability
• Risk Sharing • Business process outsourcing, beyond logistics
• Few Partners •Lead Logistics • Project management and provider coordination
• Long Term (5+ years) Provider (LLP) • 3PL technology integration
• Common Core Values Strategic • Innovation and continual improvement
• Alignment and Trust •Supply Chain
• “Coopetition” Manager (SCM)
• Contractual •Third-Party Logistics • Traditional logistics services

• Fixed and Provider (3PL) • Modular product offerings
Variable • Focused cost reduction and service
• Transaction Tactical improvement
Oriented •Logistics Service • Operating excellence
• Short Term Provider (LSP) • Niche services
(1 to 5 years)
21
Exhibit 19 While 3PL customers are beginning to understand the definitions and relative benefits
2002 Responses of these relationship structures, this year’s responses highlight a general dissatisfaction
2003 Responses and confusion with the terminology. When we asked if the respondents understood the
2004 Responses
differences between “3PL” and “4PL” providers, over 78% responded “yes” or
2005 Responses
“somewhat.” This number decreased 10 percentage points from last year.
Types of Companies Best Suited to Offer 4PL Servicesa
When we asked if the 4PL terminology is “confusing” and “ambiguous,”
90%
76% responded “yes” or “somewhat.” Respondents seem to be grasping
80%
71 the benefits of moving from a 3PL to a 4PL (43% of the respondents
69
70% replied “yes” or “somewhat” to whether they see the potential benefits of
60% 57 that move). However, only 36% of the North American respondents see the
50% 47 potential benefits of this shift toward a 4PL, while 46% to 53% of the
41 respondents in the other regions see the potential benefits.
40% 38
30% 27 25
22 23 24 In short, users are just beginning to understand the differences and related
20% 16 17 16 benefits of the various relationship models. Unfortunately, and at the same
13
10%
9 time, companies are becoming pessimistic about adopting the “strategic”
b c type of relationship models because of the general confusion of terms, lack
0%
of proven case studies, and complexities involved. This point was made
xe th
ide L
ide y
Fir ased
ts
ov log
ov 3P
an
L E Wi
cs
rs
rs
s
m
during a focus group session. Michael Lontke from Kraft said, “Before
Pr hno
ult
-B
Pr ing
3P s
eb
er irm
ns
ist
starting with new terms like the 4PL terminology, we should look into the
W
Te
Co
Ex
rm F
Fo ew
business model, services deployed, and overall governance.”

N
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 Survey respondents were asked to rate the suitability of five types of companies to
for the first time in the 2004 survey.
offer these advanced business models. Last year, to capture some of the new
companies or business models (e.g., 4PL) being developed, we added a new type of
business: “new firms staffed with former 3PL executives.” The companies best suited
to offer 4PL services were existing 3PL providers and new firms with former 3PL
executives (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 the
suitability of “consultants” dropped from 25% in 2004 to 16% this year.
Despite the general confusion over terminology and the value of the various logistics
outsourcing models, and despite these models being new (17% of those surveyed
currently use or “somewhat” use a 4PL model), enough evidence shows that these
“strategic” logistics outsourcing business models will continue to prosper. This year we
added a couple questions regarding broad business process outsourcing (BPO) and
users’ willingness to outsource comprehensive supply chain functions to a 3PL provider.
Nearly 40% of the respondents already have or are “somewhat interested” in having
broad BPO or entire functions outsourced to 3PL providers. While there are deteriorating
views about terminology, the pressure to continually improve and respond to industry
challenges is driving users to evaluate the advanced outsourcing relationships.
22
Impact of Globalization
The globalization of traditional businesses is a major factor affecting logistics and
supply chain management. In particular, globalization involves these considerations:
market expansion, new sources of supply, advanced security processes, continual
improvement initiatives, and redesigning logistics and supply chains for greater
efficiency 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 the
challenges of global supply chain integration. This suggests, as we continue to stretch
this study’s regional coverage, that 3PL providers need to address user demands for
global supply chain solutions.
A number of factors significantly affect the industries in which 3PL users compete (see
Exhibit 5, page 7). Globalization was respondents’ fourth concern with 81% of them
categorizing this as a “high” concern, and coming after “significant pressures to
reduce cost,” “emphasis on improved supply chain management,” and “implemen-
tation of new technologies.” “Significant pressure to enhance customer service,” “new
product introductions,” “intensifying regulations,” and “new markets” follow as factors
affecting the respondents’ globalization efforts. A few interesting changes from last
year’s responses:
❑ Increased importance on implementing new technologies (moving from 69% in

2004 to 84% in 2005).
❑ Increased importance on government and regulatory policies (moving from 68% in
2004 to 76% in 2005).
❑ Two new questions regarding capacity constraints showed that the lack of
transportation (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 are
more aware of the benefits and pitfalls of outsourcing. Likewise, 3PL providers
continue to improve their capabilities and are slowly addressing the gaps between
customer expectations and actual performance. These factors will continue to shape
the industry and advance the relationship models toward more complex and more
creative structures that offer higher upside benefits for both users and providers of
3PL services.
23
Customer Value Framework
Successful relationships between 3PL providers and users require a sharing of vision,
Exhibit 20
information, and strategies. Those relationships that emerge as successful over the long
North America term are those that prove to be agile and flexible, and that address end-to-end
Western Europe solutions. Longer term, the creation of value in the 3PL provider/user relationship will
Asia-Pacific
lead to satisfaction and ultimately behavioral change. The latter may occur in the form of
Latin America
South Africa
future decisions to purchase additional services from a 3PL provider or the 3PL sector.
Customer Evaluation of Outsourcing Success* Exhibit 20 summarizes responses to the

100% question “to what extent have your outsourced
93
90 88 89 89 90 89 90 88 89 3PL efforts been successful?” North American
86 85 85
83 82 81 3PL users continue to have successful
79 78
80% 76 77
72 outsourced 3PL efforts (90% reported
outsourcing success in 200522). This experience
60% is similar to the North American success ratings
for the past several years. Generally similar
evaluations by 3PL users were seen in Western
40% Europe (88%) and Asia-Pacific (89%). As with
last year, the average success ratings for Latin
20%
American 3PL users was much lower—the
average rating for 2005 was 77%. Last, the
smaller number of users from South Africa
0% reported an average success rating of 93%.
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
*Figures indicate the percentage of 3PL users by region who rate
Discussions with logistics executives confirmed the validity of a number of critical
their relationship with their 3PL providers as either “very successful”
or “extremeley successful.” success factors that lead to the creation of customer value through the use of 3PL
services. 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-user
relationships, the success of a relationship also is dependent on skillfully managing
several important dimensions involving objectives, communications, corporate compati-
bility, and measurement strategies, to name a few. Also, the “value” that is created by
a 3PL relationship is a function of several other factors including benefits derived from
service offerings, price versus perceived benefit, standardized versus customized
service offerings, breadth of service offerings, integration (operational and techno-
logical integration), and geographic coverage. Based on discussions with logistics
executives, value in the 3PL provider-user relationship can be achieved only if both
parties work together to design, implement, and execute in key areas such as those
listed above.
24
Measuring Success and Opportunities for Improvement

We asked users for metrics that would help us better understand the benefits they
have 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 North
America, Western Europe, Asia-Pacific, and Latin America. While these percentages
are generally lower than those reported in 2004, they are similar to the percentages Exhibit 21
reported in the few years before 2004.
Quantifiable Measures of 3PL Success
❑ Notable among the fixed logistics cost-reduction
Cost/Benefit North Western Asia- Latin
percentages is that the North American figure of 8% America Europe Pacific America
represents a decline from 16% reported in 2004. Also, the Logistics cost 11% 10% 11% 10%
14% reported for Latin America is significantly less than reduction
the 41% reported last year. Fixed logistics
asset reduction 8% 20% 33% 14%
❑ Order fill rate in each of the regions suggests
improvements occurred as the order fill rates increased in Order fill rate (%) From From From From
all regions. 91.6 to 93.9 86.6 to 92.7 91.5 to 95.8 77.5 to 83.9
Average order-cycle From From From From
❑ Reductions in average order-cycle length of approximately length change (days) 9.3 to 7.0 6.3 to 4.3 6.3 to 4.1 16.0 to 8.0
25% to 30% were seen in North America, Western Europe,
and Asia-Pacific, while the average order-cycle reduction in Inventory turns* 7.1 to 8.2 10.0 to 9.3 28.3 to 29.7 14.5 to 14.3
Latin America was halved.
Cash-to-cash cycle From From From From
❑ Inventory turns increased for 3PL users in North America reduction (days) 41.4 to 36.9 37.1 to 33.3 31.0 to 26.2 33.7 to 30.9
and Asia-Pacific. Conversely, the same metric decreased in Service level improve-
both Western Europe and Latin America. While certainly ment (percent “yes”) 62% 67% 64% 77%
reasons exist why inventory turnover may decrease, it
*Two regions showed increases in inventory turnover and two showed
would seem the more likely result would be an increase or improvement in this decreases. While there surely are circumstances that would validate
these occurrences, this question will be given significant scrutiny
metric. Further investigation of these results will be part of the 2006 3PL study.23 as part of the planning process for the 2006 3PL study.
❑ Cash-to-cash cycles were seen to decrease as a result of 3PL use. The number of
days 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 American
executives in agreement, 62%; Western European, 67%; Asian-Pacific, 64%; and
Latin American, 77%. These results are consistent with the findings from the ASE
and the focus group sessions.
Although the commentary so far suggests that 3PL users are benefiting from their
choice to outsource certain logistics services, and they are experiencing successful
relationships with their 3PL providers, additional study results indicate these user-
provider relationships are not without areas for improvement. Exhibit 22 on the next
page identifies a number of areas for improvement, along with the percentage of 3PL 22 Degree of success is measured on a five-point scale ranging from “extremely
successful” to “extremely unsuccessful.” A response of “extremely” or “somewhat”
users indicating they have had “continuing problems” with each of these areas. successful indicates a successful outsourcing effort.
23 One possible source of these differences is that some respondents had a different
interpretation of how to measure inventory turnover. The most common definition of
inventory turnover is average sales in a time period divided by the value of average
Across all four regions, the most prevalent problem areas include “lack of continuous, inventory level during that same time period. For the 2006 3PL study, we will review
this question to make sure that the results are as valid as possible.
ongoing improvements and achievements in offerings” and “cost reductions have not
been realized.” Among 3PL users in North America, Western Europe, and Latin America,
25
the most prevalent area for improvement is “service level commitments not realized.”
Interestingly, while the data indicate that North American users experience “cost creep
and price increases once the relationship has commenced,” this problem does not
appear to be as prevalent in the other regions.
Exhibit 22
Areas for 3PL Provider Improvement Although Exhibit 22
Areas for Improvement North Western Asia- Latin reflects the feelings
America Europe Pacific America of the respondents,
Service level commitments not realized 56% 58% 43% 63% these problem areas
Cost “creep” and price increases once relationship has commenced 49 35 43 23 may not be “critical”
Lack of ongoing improvements and achievements in offerings 46 51 70 53
nor necessarily
Cost reductions have not been realized 42 41 47 50
Lack of strategic management and/or consultative/knowledge-based skills 35 41 43 45 difficult to resolve.
Time and effort spent on logistics not reduced 35 33 27 38 Also, while the
Unsatisfactory transition during implementation stage 28 28 23 25 findings do reflect
Lack of global capabilities 24 22 33 18 the experiences of
Inability to form meaningful and trusting relationships 19 25 27 18 the 3PL users in the
various regions, the
areas for improvement may be relatively minor in contrast to other experiences that
individual users may have had with alternative approaches to managing their logistics.
An interesting question is how this study can report relatively high success ratings
while 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 that
may help to explain why this may be perfectly reasonable:
❑ Because “success” is a relative phenomenon, use of the term may be in relation to

the experience of the user before the current 3PL provider relationship. The prior
situation may have involved a different 3PL provider or perhaps an insourcing24 of
logistics activities. In both cases, a high success rating may suggest significant
improvement over whatever the previous alternative may have been.
❑ The determination of success is based on specific criteria, while the areas for
improvement cover a broader base of concerns that may be relevant to a 3PL
provider/user relationship.
❑ Generally, “success” does not exclude the existence of problems or areas of
opportunity. Even though these two may appear to be in conflict, it may very well be
that no real conflict exists between success and the existence of areas where
improvement is needed.
A comment by Adrian Gonzalez of ARC Advisory Group provides insight into this
apparent conflict. He has “worked with clients that continually state that some of their
best 3PL providers are also their worst.”
24 Insourcing refers to the internal or proprietary provision of logistics services by a

business organization.
26
Technology Enablement Exhibit 23

North America
This year’s study addresses the increasing importance of information technology (IT) Western Europe
within its own section of the report. Approximately 90% of respondents agreed that IT Asia-Pacific
Latin America
capabilities are a necessary element of overall 3PL provider expertise. However,
far fewer are satisfied with their providers’ capabilities. In general, 3PL users 3PL Technology Expectations and Perceptions
have yet to think of their 3PL providers in a newer, more strategic light. Not only 100% 94
do over 70% of the survey respondents characterize their 3PL provider 90%
89 87 89
relationships as tactical in nature, their IT-based services align with this 80 79 81 78
80%
thinking. The survey suggests that as more firms progress further into
70%
outsourced logistics relationships, the complexity of those relationships
necessitates a combination of effective IT services for a broad spectrum of 60%
supply chain processes. 50%
42 42
40
40% 34
As in prior years of conducting this study, IT once again is a hot topic for 31 32 33 33
30%
analysis and discussion. In the macro view, we can see that IT’s role in the
design, delivery, and ongoing enhancement of 3PL services will continue to 20%
grow in importance and visibility. The implementation of IT ranked third behind 10%
only cost pressures (97%) and improving supply chain management (89%) as a 0%
vid re
leading factor affecting 3PL user organizations in 2005.
rsh or
nt is
itie L
bil P
ro es a
ers
de rs f
e
ip
va e”
pa h 3
ag
ad war
lea de
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IT d w
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3P abi
ive ft
All is not rosy, however, with 3PL users when it comes to the IT capabilities of
tit so
for cap
r’s sfie
Lp
pe ight
their 3PL providers. This year, about 90% of the respondents agreed that IT
ide ati
3P
r y IT
om “r
ov S
on
capabilities are a necessary element of overall 3PL provider expertise (see
r c he
ajo t
ly
ssa
m ing
Re
Exhibit 23). However, far fewer are currently satisfied with their providers’ pr
ce
v
Ha
ne
capabilities. In fact, only about 38% were satisfied with their 3PL providers’ IT
capabilities. Further, the responses in this area have been moving in the wrong
direction over the last two years. User satisfaction scores in North America
dropped from 75% in 2003 to 45% in 2004, to 40% in 2005. Western Europe’s results
are not as dramatic, but they indicate the same general trend—from 56% in 2003 to
45% 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 expectations
that the users have for 3PL providers increasing disproportionately year-over-year?
❑ Are there particular areas within IT where 3PL providers do exceptionally well? Are
there other areas where 3PL providers do exceptionally poorly?
❑ What are the primary requirements to address the satisfaction deficiencies in IT? Is
it infrastructure investments or is it a personnel competency and training issue?
27
Exhibit 24 Seeing the overall low marks that 3PL providers have earned in terms of IT satisfaction
links to another survey result that shows that only a minority of 3PL users rely on their
North America
Western Europe 3PL providers for IT leadership. In this regard, the regional data is mixed year-over-
Asia-Pacific year, but categorically, IT leadership results are low (33% overall). In North America,
Latin 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 moved
Sources of Information Technology
up, from 21% to 31%, and from 10% to 32%, respectively. In the
80% aggregate, only one in three survey respondents looks to their 3PL
provider as a source for IT leadership.
60%
Sources of Technology
49
43
As 3PL providers are not yet considered IT thought leaders in logistics
41
40% 35
38 management, respondents were next surveyed to determine from
34
where they source their IT. In years past, a high percentage of
27
19 21 respondents indicated that they turned to internal company sources for

20% 16 17
15 such IT capabilities. With the exception of North America, all regions
11
7 8 6 4 around the world now indicate that their supply chain IT solutions are a
3 3 3
0% combination of solutions sourced from 3PL providers, internally, or from
3PL Technology Consultant Internal All IT providers and consultants, or all four (see Exhibit 24).
Provider Provider Sources
What these data suggest is that as more and more firms progress further into
outsourced logistics relationships, the complexity of these relationships necessitates
Exhibit 25 a combination of technology solutions from across the supply chain landscape. In
North America
some regions of the world, many 3PL relationships are established as a means of
Western Europe enabling a 3PL user to enter new markets. In these cases, there is no “existing” or
Asia-Pacific legacy IT investment on the books of the user to have to perform due diligence
Latin America
Currently Used IT-Based Services

91
90% 86
80 82
80% 78 78 76
75 74 74
70 72
70% 66 64 65 64 66
60% 56 58
53
50
50% 46
39
40%
33 31 33
30% 28
21
20% 19 17 18 17 17 14 15 13
11 11 10 11 10
10% 7 7
5
0%
ark ion/
kin n
nn ain
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ut ion
em ion
ste nt
lea rdin rt/
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Sy eme
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s C a po
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s M tat
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ce
e e
an r O
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Ex ort
m or w Im
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tic or
ag
t( o
ly
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28
assessments upon. The key question in such an instance becomes one of speed and 25 In the 2005 study, we segmented out transportation execution from
transportation planning to better identify what dimensions of the transportation
agility, rather than cost and control. When the technological investments by definition management process had been entrusted to the 3PL providers’ applications
vis-à-vis the users’ applications.
must be made (because of net-new facilities), the determination of software
ownership and operation becomes part of the overall solution design process. As
many 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 to
ascertain whether the future results in North America will also cross over from
internally sourced to a more shared model.
IT-Based Services
The 2005 survey identifies what IT-based services respondents were using, as well as
the services they believe will be requirements in the future. Exhibit 25 summarizes the
results by region, and once again the top five services are consistent with the 2004
and 2003 results. In 2005, the top five IT-based services that users look for from 3PL
providers 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 3PL
providers to further develop their solution breadth and advanced offerings, they have Exhibit 26
yet to think of their 3PL providers in a newer, more strategic light. Not only do over
North America
70% of the survey respondents characterize their 3PL provider relationships as tactical
Western Europe
in nature, their IT-based services align with this thinking.
Asia-Pacific
Latin America
Future Requirements of IT-Based Services
90%
80%
70%
60% 55 53
50% 45
41 43
40% 35 35
31
30% 28 27
25 25 24 24 24
21 21 23 22
19 18 20 18
20% 16 16 18 16
14 15 14 13 13
11 11 11
10% 7 6 8 7 7 9 6 6 6
0%
ark ion/
nn ain
rac tio y
ing n
ut ion
em ion
ste nt
lea rdin rt/

tio ed
en /
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em ng
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)
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t
Pla Ch
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As en q
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29
The aforementioned top five services are key tactical enablers, whereas applications
such as supply chain planning, supplier management, and customer order
management can be characterized as being far more strategic in nature. For a 3PL
user to opt (as a matter of strategy) to use their 3PL provider’s IT offerings in these
areas, they would also need to bring the 3PL provider’s scope and role within the
supply chain further upstream as well. One participant in the European focus group
pointed out that 3PL providers are keen on selling their own technology as part of the
solution, but what 3PL users really need is a neutral technology that connects all
parties involved, not just 3PL provider to 3PL user. The only area where this has begun
to occur is in transportation planning, where there is a natural tie-in to the downstream
transportation execution process.
In future surveys, we expect that the adoption of these more strategic IT services will
increase 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 is
increasingly strategic in scope.
Looking Forward; IT’s Place in the Future

On the previous page, Exhibit 26 summarizes the future requirements of IT-based 3PL
services. Overall, the top IT priority is radio frequency identification (RFID; North
America, 41%; Western Europe, 55%; Asia-Pacific, 53%; and Latin America, 45%).
While these numbers are somewhat lower than the 2004 results, they did not decrease
enough to suggest that the 2004 results were merely a reaction to hype. The focus on
RFID in 2005 is still 15 percentage points higher than the second most highlighted
technology focus area: Internet-based transportation/logistics markets (across all
regions studied: 48% versus 32%, respectively).
As the adoption and rollout of RFID technologies becomes more commonplace, 3PL
users 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 advanced
logistics solutions offerings.
The other two areas of note in the data are the stated levels of future interest in
customer order management and supplier management systems, particularly in Asia-
Pacific and Latin America. As more mature firms in North America and Europe move
their production operations to low-cost countries, these new geographic locales will
increasingly look to IT tools to aid in their management of increasing volumes and
complexity. Supplier management systems for better managing inbound flows, and
customer order management systems for better managing outbound flows, are clear
future candidates for adoption in the outsourced solution portfolio. Historically, these
systems 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 business
processes will bring with them a subsequent shift in the types of technologies for
which 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 the
positive results and continual advances within the industry. While there have been
improvements and overall satisfaction, some challenges continue from year to year.
This report’s conclusions come in four sections: summary of key successes, industry
challenges, future industry trends, and the value readers should get from this report.
Key Successes
The 3PL industry continues to go through an evolutionary change. Not only are 3PL
providers and their capabilities changing, but the expectations that user firms have of
their 3PL providers and their services are also changing. In fact, the 3PL industry itself
is moving forward and showing signs of progress toward maturity. The industry has
had many successes over the last 10 years:
❑ Value Satisfaction. Since the inception of this survey, customer evaluation of
outsourcing success has ranged between 82% and 90%. The last four years,
satisfaction rates have consistently been around 90%. Along with high satisfaction
rates, users have stated continued benefits over the last six years, for example,
logistics cost reductions of 10%, asset reductions of 16%, order-cycle time
reductions of three days, and inventory reductions of 8% (based on six-year
averages from 2000 through 2005).
❑ Sustained Growth. The 3PL industry continues achieving annual growth rates
greater than 10% over the last decade, while experiencing a tremendous amount
of mergers and acquisitions. Current logistics expenditures directed toward
outsourcing have increased from 31% in 2001 to 49% in 2005. Five-year
projected expenditures directed toward outsourcing ranged from 49% to 60% over
the same period, which equates to a 25% to 50% planned increase by existing
users of 3PL services.
❑ Industry Awareness and Usage. Back in 1996, not many people had heard of or
understood the term 3PL. Familiarity with the terms and understanding the services
and capabilities of 3PL providers has dramatically increased over the last decade.
Survey responses over this time show an increased usage of 3PL provider services
from 71% to 80%.
❑ Service and Capability Advancements. Services, such as transportation and
warehouse management, are now viewed as a basic offering, whereas 10 years
ago it was an emerging capability. Technology advancements have accelerated
service offering development by 3PL providers. Customer expectations have
continually increased from year to year. At the same time, the need for profitability
is pressuring 3PL providers to develop new capabilities while effectively managing
their basic services. Now, 3PL providers are viewed as logistics technology experts,
and they possess the ability to continually innovate and develop advanced services
like consulting, manufacturing, reverse logistics, sequencing/mixing centers, and
shared networks.
31
Industry Challenges
While the 3PL industry has seen success and continues to prosper, gaps continue to
exist in several areas:
❑ Disappointment with the 3PL provider’s abilities to develop advanced

services. Although many 3PL providers satisfy user requirements around basic
services, such as transportation or warehousing, ongoing development of
capabilities is still a key issue. Users continually state they are initially satisfied with
3PL provider performance, but the providers fail to advance their capabilities
around their users’ evolving needs. These user needs include globalization,
inventory/asset-based services, contract manufacturing, strategic
management/consulting, broad business process outsourcing, technology
innovation, and leveraged solutions. A critical success factor in meeting these
needs is for 3PL providers to get closer to users, thereby better understanding the
users’ industry challenges, and better anticipating the users’ evolving needs and
demands. Such an approach requires additional investment and skill-set changes
by 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 what
3PL providers deliver is a clear signal that 3PL providers and users need to
“reinvent” themselves to be more capable business partners to one another. The
success of future 3PL relationships will depend on the ability of both parties to take
their individual and collective capabilities “to a new level”; they will have to
effectively reinvent themselves to be more responsive to changing logistics and
supply chain environments. The industry is experiencing a convergence of service
providers as capabilities and services are enhanced. Distributors providing 3PL
services, contract manufacturers offering outsourced solutions, and consulting
companies selling supply chain solutions are all signs that 3PL providers are
encountering new competitors. The pressure for 3PL providers to continually
improve operations and develop innovative solutions to new or existing problems is
pressuring them to rethink their operating models, skill-set development, and
solution development methods.
❑ Increasing importance of repeatable and leveraged solutions. Users continually
expect 3PL providers to leverage their solutions, including the technology behind
these solutions, across customers. Providers continue to struggle with standardizing
offerings to lower their total cost of ownership, especially for some of the basic
services like transportation and warehousing. Although the need for successful
functional execution is great, a strategic shift has occurred: The need for capable
strategic management services and deep industry knowledge, coupled with the
availability of low-cost standard solutions, is now a high priority for both 3PL users
and providers.
32
❑ Emerging role of supply chain integration. The stated need for advanced supply
chain services and for organizations that can serve as “integrators” has validated
the “strategic service” model in meeting the needs of—and servicing—3PL users.
Specifically, providers that can bring multiple service capabilities relating to the use
of logistics information, operational knowledge, user-provider relationships, and
supply chain integration are of critical importance. The industry is flooded with
various terms and marketing pitches around strategic service models, creating
confusion and frustration among users. For example, the terms 4PL, SCM, and LLP
can mean the same thing depending on individual definitions. Initially, the use of
strategic services has been limited to supply chains that are complex, large, and
rapidly changing, as well as limited to user organizations that are themselves large,
complex, and global. Recently, we have seen an increased demand in these
strategic services from mid- and small-sized companies because they do not have
the capacity or capability to adequately manage these activities themselves.
❑ Global evolution of 3PL usage. Principal among the strategic directions for the
future is the need for 3PL providers to offer globally capable services; that is,
providers that can integrate processes and information across vast regional
boundaries. Although many 3PL providers market their “global” abilities, 3PL users
indicate significant improvement is needed before most of these claims are
realistic. 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 service
capabilities in the marketplace because of specialization and market maturity that
organizations need to rely on neutral and experienced outsiders who live this stuff
for best-fit recommendations and solutions,” said Karim Alhusseini from
Eaton Corporation.
❑ “The real challenge with relationships is around building and maintaining trust and
accountability versus the technology used to manage the process,” said Leon
Shivamber from Harris Corporation.
❑ “I hate when a 3PL provider comes in and offers me a bunch of excuses. We want
open and honest communication, and true partnership and collaboration,” said Ray
McGuire from Kellwood New England.
33
Future Industry Trends
Overall, the task of understanding the success of 3PL relationships is challenging. The
results of the 2005 3PL study once again have identified a number of areas in which
3PL 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 want
something bigger/better. Being in a service industry, perhaps 3PL providers are trying
to offer improvements (advanced services) on an ad hoc or customer-by-customer
basis. A more traditional approach evident at many manufacturing enterprises is to
have a separate research and development department, rather than try time after time
to 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), grouped
into technology, relationship, capabilities, and economic categories. Some of these
trends 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 chain
and broad-based business process outsourcing (back office, finance, call center,
and manufacturing).
❑ Continued activity in updating, enhancing, and improving/extending the overall 3PL
provider-user relationship.
❑ Expansion of global markets and 3PL providers’ abilities to provide necessary
services.
❑ Increased adoption of shared service networks and “coopetition” strategies (collab-
oration of traditional competitors).
❑ Improved usage of 3PL providers of product portfolio and channel management
strategies.
Last, keep in mind that significant challenges will always exist when measuring and
quantifying the value created by a 3PL provider for its clients. Even if the types of
benefits 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 field
in the 3PL arena continues to rise, both 3PL providers and 3PL users should be better
able to accurately identify and quantify value.
34
Value of This Exhibit 27

Report 10-Year Future Industry Predictions
Although this report 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
principally emphasizes
Technology Service-Oriented
Weightless
views about the 3PL Software
Architecture (SOA)
Adoption Trailers &
Provider Tractors “Teleportation”
industry from a user Merger &
Acquisition RFID RFID - GPS
(now viable) Dynamic Tracking
perspective, we have
written it to be of value Relationship
Pay-for-Performance
to a broad range of True Collaborative
Outsourcing Models
Models Commonplace
Subject Matter & Consultant
interests in the logistics Skills (versus tactical labor)
and supply chain

arenas. The relevance of Capabilities Productized Offerings
Supply Chain via Service-Oriented
3PL Provider Management Architectures Broad Business Process
this study applies to Merger & Advanced Services Outsourcing Services
Acquisition Commonplace Commonplace
users, non-users,
service providers,
Economic Value of Yuan Levels Labor Rates Equalized $200 per Barrel
management to Offshore Level of Oil
Increased Interest Next Low-Cost Country
consultants, and Rates Market Disruption Increases Offshore
Movement
educators from a
number of vantage
points:
❑ 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 and
sustainability of truly collaborative relationships between 3PL providers and their
customers. While the study certainly identifies ways in which all parties can improve
these relationships, long-term success in the marketplace requires that more effective
logistics and supply chain solutions be developed.
Finally, firms in all industries must see the 3PL option as one that can provide value
creation 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 will
increasingly be at the focal points of strategy formulation, operational excellence, and
IT 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, and
rewarding. In consideration of this decade-long study, we will continue making
significant changes to this report next year…and beyond.
35
Appendix: 3PL User Focus Groups and Capgemini
Accelerated Solutions Environment (ASE) Meetings
In addition to the conclusions drawn from the statistical data and responses gathered
from the Web surveys, the study team also gathered insight into emerging trends and
received assistance in interpreting survey response data through 3PL client workshops
and user focus group sessions that involve 3PL users around the world.
3PL Client Workshops

This year, two client workshops were conducted. The first focused on interpreting
results gathered in North America; the second, on operations in Asia-Pacific. The North
American workshop leveraged Capgemini’s Accelerated Solutions Environment (ASE),
bringing together over 20 participants representing 3PL users, study sponsors, and
market analysts. As of this writing, the Asia-Pacific workshop attendees had not been
finalized. 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 of
this report, providing additional insight and understanding to survey responses.
North American ASE Participants

Karim 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
36
What is the ASE?

In today’s business climate, innovation and collaboration may be the only competitive
advantages that really matter. The Accelerated Solutions Environment is one of
Capgemini’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 the
company, 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 the
business—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 accelerate
business decision-making and the creation of innovative solutions—anywhere and
everywhere in the world.
3PL User Focus Group Sessions

User focus group sessions were used in Europe with similar objectives as the client
workshops. Six clients participated, representing multiple industry segments across
two focus group conference-call sessions. To improve our interpretation of the study
results, we conducted client workshops in Europe similar to the North American events
held 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 and
representatives for their participation in the client workshops and focus group sessions.
The enthusiasm, insight, and interpretation of the results by all the participants were
greatly appreciated in helping with this 10th annual 3PL survey and report.
European Focus Group Session Participants

Tom 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
37
About the Participants
C. John Langley Jr.

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

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

Erik van Dort, Vice President and Global Sector Leader, Distribution, holds global
responsibility for Capgemini’s business with logistic service providers. He is coordi-
nating both sales and delivery of all international business in freight distribution and
transport. At Capgemini, Mr. van Dort has consulted on projects for government
(municipal and central) as well as private companies (e.g., road transport, pharmacy
wholesale, engineering, chemical industry, textiles, electricity production, ports, and
shipping lines). Mr. van Dort holds a Master’s Degree, Business Studies, from the
Erasmus University in Rotterdam. He joined Capgemini in 1984.
38
Peter D. Moore
Peter 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 logistics
services, and consulting. He and his team of professionals provide strategic and
tactical consulting in logistics and RFID technology. With his deep operational
knowledge in all aspects of supply chain, Mr. Moore is completing a Ph.D. in
management of complex global organizations.
Capgemini
Capgemini, one of the world’s foremost providers of Consulting, Technology, and
Outsourcing services, has a unique way of working with its clients, called the
Collaborative Business Experience. Backed by over three decades of industry and
service experience, the Collaborative Business Experience is designed to help our
clients achieve better, faster, more sustainable results through seamless access to our
network of world-leading technology partners and collaboration-focused methods and
tools. Through commitment to mutual success and the achievement of tangible value,
we help businesses implement growth strategies, leverage technology, and thrive
through the power of collaboration. Capgemini employs approximately 60,000 people
worldwide and reported 2004 global revenues of 6.3 billion euros. For more
information, please visit www.capgemini.com.
Alec Ang
Alec Ang is the Supply Chain Logistics Director for DHL Asia-Pacific Global Customer
Solutions. He has over 10 years of experience in the industry, including working with
clients such as Sun Microsystems, Hewlett-Packard, Cisco, and Philips Medical
Systems. 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 transformations
impact business financials. He has experience in setting up activity-based costing
models that help companies measure business profitability and track process
improvements. Mr. Ang has a BBA, MBA, and CPA. He is in the process of completing
an executive masters program at Georgia Tech in the field of international supply
chain management.
DHL
With annual revenues of over 24 billion euros in 2004, DHL is the global market leader
of the international express and logistics industry, specializing in providing innovative
and customized solutions from a single source. DHL offers expertise in express, air and
ocean freight, and overland transport and logistics, combined with worldwide coverage
and an in-depth understanding of local markets. DHL’s international network links more
than 220 countries and territories worldwide, and employs over 170,000 people
worldwide. DHL is 100% owned by Deutsche Post World Net. For more information,
please visit www.DHL.com.
39
Scott R. Sykes
Scott 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 15
years of supply chain experience ranging from enterprise software to logistics
operations and strategic consulting. He specializes in logistics services and software
solution design, and he leads SAP’s efforts in the third-party logistics and supply chain
outsourcing marketplace in North America. Mr. Sykes has worked on global supply
chain projects throughout North America, Latin America, and Europe across a diverse
number of industries. Before joining SAP, Mr. Sykes held supply chain leadership
positions with Oracle Corporation and Accenture. He has an MBA in Logistics and
Transportation from The University of Tennessee, and a Bachelor’s Degree in Economics
from The University of North Carolina at Chapel Hill.
SAP
SAP is the world’s largest provider of collaborative business solutions for all types of
industries and for every major market. With 12 million users, 91,500 installations, and
more than 1,500 partners, SAP is the world’s largest enterprise software company and
the world’s third-largest independent software supplier. SAP has a rich history of
innovation and growth that has made it a true industry leader, employing more than
32,000 people in more than 50 countries. For more information, please visit
www.sap.com.
40
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 Management
Georgia Institute of Technology
765 Ferst Drive, N.W.
Atlanta, GA 30332-0205
Phone: (404) 894-6523
Fax: (413) 556-3570
John.Langley@isye.gatech.edu
Peter D. Moore Erik van Dort Donato Caporale

Vice President Global Sector Leader, Distribution Capgemini Australia Pty Limited
Logistics, Fulfillment & RFID Leader Capgemini Level 2
Capgemini US, LLC Papendorpseweg 100 477 Collins Street
600 Memorial Drive, Suite 100 3528 BJ Utrecht Melbourne VIC 3000
Cambridge, MA 02139 (or P.O. Box 2575, 3500 GN Utrecht) Australia
Phone: (617) 768-5435 The Netherlands Phone: (61) 3.9613.3976
Cell: (781) 789-5775 Phone: (31) 30.689.7119 Fax: (61) 3.9613.3333
Peter.Moore@capgemini.com Fax: (31) 30.689.9527 Cell: (61) 4.1838.3138
Cell: (31) 651.42.97.32 Donato.Caporale@capgemini.com
Erik.van.Dort@capgemini.com
Alec Ang
Supply Chain Logistics Director
Global Customer Solutions Asia-Pacific
DHL Asia Pacific Regional Office—Singapore
600 North Bridge Road
#23-01 Parkview Square
Singapore 188778
DID: (65) 6.216.6808
Tel: (65) 6.216.6216
Fax: (65) 6.216.6871
Email: Alec.Ang@dhl.com
Scott R. Sykes Till Dengel

Principal SAP AG
SAP America, Inc. Solution Manager, Logistics Service Providers
1157 Elrond Drive Neurottstrasse 16
Charlotte, NC 28269 69190 Walldorf
Phone: (704) 766-0147 Germany
Fax: (704) 766-0148 Phone: (49) 6227.7.68642
Cell: (704) 491-7442 Mobile: (49) 171.3085040
Scott.Sykes@sap.com Till.Dengel@sap.com
41
From the ASE: 10 Years of 3PL and Beyond

2005 Third-Party Logistics: Results and Findings of The 10th Annual Study

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2005 Third-Party Logistics: Results and Findings of The 10th Annual Study

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2005

2005 Third-Party Logistics

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

Appendix: 3PL User Focus Groups and Capgemini Accelerated

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

We would first like to acknowledge the much-appreciated participation of the 3,463

Methodology and Research Approach

Factors Affecting 3PL User Firms

Organization of This Report

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

❑ LOGISTICS OUTSOURCING PRACTICES. The use of 3PL services is significant in

Exhibit 8 confirms that “cost” and

factors responsible for using a 3PL

future desire for their 3PL suppliers to provide integrated services.

A strategic issue is how customers feel Exhibit 11

North America and Western Europe,

respectively, indicated that “corporate

philosophy” excludes use of outsourced

the non-users from Latin America

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

Ranking of Key 3PL Selection Attributes

3PL Service Offerings and Capabilities

The “value” created in a 3PL provider-user relationship is a function of several factors,

❑ Price. Attributes: Fees paid for 3PL services.

In aggregate, users rated “price” as the most important attribute, followed by

their users in the following areas (see Exhibit 14):

Facilitate supply chain improvement.

Provide information technology.

Provide global supply chain solutions.

❑ Provide supply chain integration.

Looking Forward – The Future of 3PL Providers

❑ Ability to manage activities of multiple 3PL providers.

Exhibit 15 In the focus group sessions, one

Key to a successful relationship between providers and users is whether customer

contractor point of view. 60%

As 3PL providers continue to expand their capabilities to match client expectations,

Types of Deal Structures 3PL “Deal Structures”

25 The total respondents using or considering alternative deal

Asian-Pacific and Latin American responses increased

approximately 50%. The drop in the matured outsourcing

markets is indicative of the difficulties and challenges with

designing and managing these types of alternative pricing

❑ Significant drop in risk/reward sharing programs (33% in 2004 to 19% in 2005).

• Partnership Joint •Fourth-Party • Broad supply chain expertise

• Contractual •Third-Party Logistics • Traditional logistics services

business model, services deployed, and overall governance.”

❑ Increased importance on implementing new technologies (moving from 69% in

Customer Evaluation of Outsourcing Success* Exhibit 20 summarizes responses to the

❑ Well-understood goals and objectives of the relationship.

Measuring Success and Opportunities for Improvement

❑ Because “success” is a relative phenomenon, use of the term may be in relation to

24 Insourcing refers to the internal or proprietary provision of logistics services by a

Technology Enablement Exhibit 23

capabilities are a necessary element of overall 3PL provider expertise (see

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