Paris: The 2010 Third-Party Logistics Study is based on almost 1,900 responses from both shippers and logistics service providers in regions including North America, Europe, Asia-Pacific and Latin America, and also provides an in-depth look at the life sciences and fast-moving consumer goods (FMCG) industries. It reveals continued progress and improvement in the shipper-3PL relationship, with 89 percent of shipper respondents overall viewing their 3PL relationships as generally successful and 68 percent indicating that 3PLs help provide them with new and innovative ways to improve operations. However, the report’s findings show that shippers continue their tendency to outsource transactional, operational and repetitive activities and less so those that are strategic, customer-facing and IT-intensive despite a large proportion of 3PLs offering more advanced services.
”Many shippers regard logistics and supply chain management as key components of their overall business success. Increased use of outsourcing and high satisfaction levels suggest that 3PLs can certainly take some credit for helping shippers to weather the economic storm,” said Dr. C. John Langley Jr., professor of supply chain management, Georgia Institute of Technology. “Despite a challenging environment, 3PLs have an opportunity to continue to mature and grow by offering an increasing number of value-added services for shippers.”
Challenges in Comprehensive Cost-Reporting
One of the critical capabilities most highly valued by shippers in their 3PL provider is accurate reporting and analysis of total landed cost (TLC) – the sum of all costs associated with making and delivering products to the point where they produce revenue. The benefits of solid TLC calculations include more agility and confidence in decision making, better insight into the financial performance of products and partners and improved supply chain visibility. However, despite the relatively high number of shipper respondents reporting an extensive use of TLC (45 percent), the precision and level of detail of those calculations differ widely.
Calculating the TLC of materials and finished goods is not always an easy task. Difficulty in defining all the factors contributing to total cost, and then obtaining all the necessary data, can be challenging. Too often, businesses rely on only partial data or inaccurate estimates that can lead to incorrect results, with 58 percent of 3PLs reporting a hesitance from shippers to share information with them. That might be the reason why, despite the high value of TLC calculations, just 23 percent of 3PL respondents reported providing extensive TLC analysis to their customers. This level of interaction requires a high level of trust, and considerable discussion is required among 3PLs and their customers to better understand the factors, roles and KPIs to be used in a shared end-to-end calculation effort.
"TLC enables companies to capture both the obvious and hidden costs associated with product movement, revealing the true cost of sourcing and logistics decisions,” said Dennis Wereldsma, global transportation sector lead, Capgemini. “Transforming from basic to more sophisticated TLC application requires C-level leadership, process change and systems transformation. However, while TLC is highly important, because of the complexities, TLC adoption must be approached as an evolutionary, rather than revolutionary process.”
Spotlight: 3PL in the Life Sciences Industry
Within the Life Sciences industry, careful and expedient handling is often critical for product safety and because of this, control and visibility is essential. Logistics challenges here include product integrity and compliance requirements, an inherently complex trading partner ecosystem and demanding customer service and cost requirements. 54 percent of life sciences shippers surveyed felt the complexity of the supply chain model represents a significant challenge, but 87 percent felt 3PLs could add significant value here by linking together the various different parties involved. In addition, 62 percent of shippers within the Life Sciences industry cite ensuring product quality as a significant challenge and rank quality procedures highly (70 percent) as a service they want 3PLs to provide. Shipment visibility, quality and compliance procedures, stringent inventory control, temperature control capabilities and security are important steps to ensure product integrity, prevent counterfeiting and ensure safe delivery, and momentum is moving towards the use of RFID tags here. Indeed, around half of shipper and 3PL respondents agree that there is a strong business case for RFID in Life Sciences.
Spotlight: 3PL in the Fast-Moving Consumer Goods (FMCG) Industry
Large volumes and low margins mean FMCG companies must respond quickly to deliver in-demand, on-trend products to increasingly demanding shoppers. After cost reduction, FMCG companies’ biggest priorities for logistics include perfect order fulfillment (87 percent), rapidly sensing and responding to changes in consumer demand (83 percent) and shortening new product time-to-market and supply chain integration (81 percent). Also, as sustainability grows in importance for consumers, shippers’ interest in strategies such as improving shipment density and load utilization has also increased. Shippers within the FMCG industry value the role 3PLs play here, as well as with reducing costs and dealing with supply chain disruption, although are less likely to see 3PLs playing a key role in shortening new product time-to-market and supply chain integration. FMCG shippers’ efforts to reduce logistics costs include warehouse and transportation sharing. Two-thirds of those engaging in these strategies have recognized cost savings but this has been limited, with 58 percent of respondents recognizing less than 5 percent cost savings.
“The differences in the priorities reported by shippers in the Life Sciences and FMCG industries show how important it is for 3PL providers to provide industry specific solutions and to work closely with their customers to really understand their needs and provide the best possible service, ultimately helping contribute to their overall business success,” said Sven Hoemmken, global head of sales, Panalpina.