Results & Findings of the 17th Annual 2013 Third-Party Logistics Study

Key Findings
Welcome to the 17th Annual 3rd Party Logistics Study.

This report identifies trends and explores how both 3PLs and shippers are working together to improve and enhance their businesses and supply chains. This year’s report explores the following topics:

• Current State of the Market: Explores trends in shippers’ use of outsourced logistics services and the dynamics of 3PL-shipper relationship.

• Supply Chain Innovation: A look at the drivers of supply chain innovation and extent to which 3PLs and shippers are collaborating to drive meaningful innovation.

• Supply Chain Disruption: Investigates the issues faced by 3PLs and their customers to develop strategies and operational capabilities to mitigate or eliminate sources of supply chain disruption.

• Talent: Identifies the role talent plays in realizing innovation goals, managing supply chain disruption, and ensuring CEO succession.

• The IT Gap: Examines what drives shippers’ expectations of 3PLs’ technical capabilities and where 3PLs can focus their investments.

• Strategic Assessment: A brief look at three topics that arose from the research:

1. X-shoring, a term coined by the study team to describe shifting locational strategies for sales and sourcing.
2. Global Trade Management and the complexities and challenges it poses for shippers.
3. Big Data issues in supply chain management and 3PLs’ potential role in helping shippers extract value.

Current State of the Market
This year’s research has found that both shippers (86%) and 3PL providers (94%) largely view their relationships as successful, with shippers posting some impressive results from outsourcing: Just over half (56%) say their use of 3PLs has led to year-over-year incremental benefits.

Far more shippers (65%) are increasing their use of 3PL services than returning to insourcing (22%) some 3PL services. Shippers report spending an average 12% of revenues on logistics, and an average 39% of that figure is spent on outsourced logistics services. Outsourcing accounts for 54% of shippers’ transportation spend and 39% of warehouse operations spend.

As found in past Annual 3PL Study surveys, transactional, operational, and repetitive activities such as transportation, warehousing, and freight forwarding tend to be the most frequently outsourced.

The pace of progress toward the advanced end of the maturity model for 3PLs-shipper relationships seems to have slowed. Trust levels, technical challenges, and risks required to create these highly evolved relationships, as well as the continuing impact of the recent recession, are certainly factors in this development.

Supply Chain Innovation
Until recently, 3PLs could demonstrate innovation by introducing process improvements, adding technology, improving execution, or offering new services. But shippers no longer see these as truly innovative, instead seeking disruptive innovation: a new product or service idea that when implemented significantly disrupts a market and/or value chain by simplifying, automating, generating value, or reducing costs.

Many 3PL-shipper relationships are not set up to support innovation. They are tactical rather than strategic, offer insufficient visibility and are limited by metrics, contract terms, and risk mitigation strategies. Most 3PL respondents (89%) believe they are ready to innovate, but just 53% of shippers agree.

The research revealed that it takes truly collaborative and strategic relationships among all partners to develop the types of disruptive innovations needed to solve the vexing challenges facing today’s supply chains. Current industry consensus is that 3PLs and shippers can facilitate supply chain innovation by leveraging organizational and technology-focused capabilities.

Organizational drivers include fostering collaboration through structure, relationship governance, and embedding innovation into the organization. Technology drivers include advanced IT and mobile solutions, big data and analytics, and social media.

Supply Chain Disruption
Extended supply chains, reduced inventories, and shortened product lifecycles are just some of the factors making disruption of supply chain operations more likely and more costly than ever.

Economic losses from supply chain disruptions increased 465% between 2009 and 2011. Shippers report adverse weather as the biggest source of supply chain disruption, followed by extreme volatility in commodity, labor, or energy prices/supply.

Many 3PL and shipper respondents say their organizations are placing a greater focus on supply chain risk and mitigation, but not all are using a full complement of effective tools. Many shippers and 3PLs fall short on their supply chain disruption risk mitigation efforts, most often because of a lack of understanding of available mitigation tools.

Companies that have successfully implemented effective supply chain mitigation plans often apply new thinking to traditional mitigation strategies, such as diversifying rather than consolidating suppliers.

Clear-eyed assessment of the current state of the network is the first step to understanding the risk, followed by a well-considered plan of attack to both alleviate the biggest sources of vulnerability and respond when disruptions do occur.

Talent
The right talent is essential to driving innovation and managing potential supply chain disruptors. In last year’s 2012 16th Annual 3PL Study, shippers and 3PLs agreed that having the right people and leadership in place would be the number one driver of their companies’ success over the next five years.

Top tools used by 3PLs and shippers to mitigate supply chain disruptions include employee training, talent management, and internal and external certifications, and many plan to invest accordingly. Talent is also essential to support the growing demand for logistics innovation. Both 3PLs and shippers have been investing in their IT talent strategies in recent months.

The IT Gap
The long-standing gap between the importance shippers assign to 3PLs’ IT capabilities and their satisfaction with 3PLs’ current IT capabilities – which we call the IT Gap – has stabilized at roughly a 40-point delta.

The reason may be an ongoing disconnect between how the two groups view 3PL IT investments: 3PLs are more likely to describe their IT investments as aggressive compared to shippers. Shippers say their relationships with 3PLs’ IT organizations are project-focused (46%), tactical (29%) or contentious (14%).

Shippers want 3PLs to offer comprehensive and easily integrated solutions, and just over half of 3PLs anticipate making large IT investments. But 3PLs cannot make the right IT choices until they have a clear picture of their customers’ supply chains.

A collaborative approach between partners will further improve shipper satisfaction with 3PLs’ IT capabilities, drive increased innovation, and improve 3PL-shipper relationships.

Strategic Assessment
The following is a brief look at some timely subjects being considered for further exploration in next year’s Annual 3PL Study.

X-Shoring We introduce the term “X-shoring” to address shippers’ moves toward rebalancing supply chains to be more flexible and adaptable, suggesting that shifting global economic conditions may frequently change preferred sourcing locations. Making these choices requires better data and improved decision-making strategies. Such insights will enhance shippers’ ability to employ world-class supply chain management to drive profitability.

Global Trade Management Most companies believe global trade management is essential as they rely more heavily on global trade for growth in a weak economy. However, issues such as shifting trade lanes and new free trade agreements are making global trade more complex.

Big Data Growing data volumes (sometimes called Big Data) generated from increased monitoring of more aspects of supply chain operations with greater frequency and granularity has emerged as a disruptive innovation opportunity for shippers and 3PLs. Converting this data into business value is the heart of the challenge and a driver for expanding 3PL relationships.

Editors Note: For more information visit the 2013 Third-Party Logistics Study Website.