The number of users satisfied with the IT capabilities of third-party logistics providers (3PLs) is up 7% after four years of decline according to a new survey. The study, 2007 Third-Party Logistics, is the twelfth in a series of studies on the state of logistics outsourcing and the first to show a rising level of satisfaction.

2007 Third-Party Logistics a web-based survey of 1,568 logistics executives from 61 countries shows that the gap is now shrinking between IT expectation and IT performance. Satisfaction hit an all-time low of 35% in 2006; this has now increased to 42% in 2007, while the expectation percentage remained the same at 92%; resulting in a shrinking of the IT expectation/performance gap. However, 3PL providers should not become complacent; IT performance and insufficient IT capability continues to be one of the top three performance issues recorded.

As in 2006, visibility tools (91%) and web-enabled communications (88%) are the top two technologies that 3PL users would like to add to their current capabilities, yet there has been a limited increase in usage. RFID remains the technology with the highest future expectations and this year's survey recorded a marginal increase from 12% (2006) to 14% (2007) in the use of 3PL-provided RFID technology. However, this percentage is far lower than the 56% of 3PL users who expect more from this technology in coming years.

"IT skills are key to the success of third-party logistics providers, yet there is a significant gap between the services required and those provided. To maintain a competitive edge, 3PL providers must take action," said Erik Van Dort, Global Distribution Leader at Capgemini. "Many 3PL providers recognize the value of standardized IT processes and the impact on adoption rates. However, it is difficult to improve performance without a formal agreement. IT is still the least favorable option for inclusion in a contract, despite effective contracting practices being named as one of the most important factor for success with 3PLs, second only to personal relationships at an operational level.

Additional trends in the outsourcing of third-party logistics identified in the study include collaboration; developments in emerging markets; and industry-specific trends. Key findings include:

1. Disconnect between the desire and the ability to work collaboratively. The model most often followed for collaborative practices does not usually work. To be effective, collaboration must go beyond vague expressions of partnership and aligned interests. The collaboration process should not only involve 3PLs and their customers, but the customers trading partners, suppliers and other key stakeholders--a dialogue that should be facilitated by 3PLs. Beyond relationships, strong processes and use of technology are essential for continued success, most evident in business processes such as inventory management.

2. China remains a top expansion destination but proximity increasingly influences choice. Preferred outsourcing destinations increasingly reflect locality; for example, European respondents are much more interested in expanding in Eastern Europe. Overall, satisfaction with the performance of 3PL providers in emerging markets is lower than customer satisfaction measured across all markets. Interestingly IT is rated as more important in emerging markets than in mature markets. However, there are clear differences between the two biggest emerging markets India and China. In India, the biggest challenge is the poor infrastructure with 33% experiencing issues; this is followed by the inability to deliver against promises (23%). In China, the latter is considered the biggest problem (25%), followed by legislation (22%). Moreover India is not following the classic Asian strategy for growth. Unlike China, a global exporter of manufactured goods; India dominates in global process outsourcing while manufacturing is more oriented towards the domestic market. This is clearly reflected in the rankings: China is currently the third-largest export country and is set to overtake the US soon, closing in fast on the number one country (Germany); whereas India is ranked 28th. The study also shows that China is increasingly being seen as a new sales territory.

3. Outsourcing logistics market is growing but there has been little change in industry trends and processes. The study shows little change in the logistics activities outsourced; the most frequently outsourced services include domestic and international transportation (83% and 79%, respectively), warehousing (69%), customs clearance and brokerage (67%), and forwarding (51%). While customer-related and strategic roles continue to be the least frequently outsourced. Selection processes also remain largely the same; as in 2006 the two most prevalent 3PL selection factors were the price of 3PL services (87%) and quality of tactical, operational logistics services (87%).

"Though the overall picture is similar to last year, it has become clear that collaboration between customers and 3PL providers is a key driver for success," said Sven Hoemmken, Global Head of Marketing Services, DHL Global Customer Solutions. "It is critical for all parties to take a more active role in 3PL relationships, but customers evidently want 3PL providers to carry more of the risks. Ultimately it is their responsibility to keep supply chain management simple and priced right for the customer".

Yet as John Langley from Georgia Institute of Technology explains, "The greatest shared challenge is that of forming and growing successful collaborative relationships between users and providers of logistics services. Without making sure that individual organizational objectives are aligned with what it takes for a successful relationship, and then what it takes for a successful supply chain, the result is not likely to be very pretty".

"The global increase in outsourcing leads to an increased need for 3PLs to utilize IT in moving products and services around the globe," said Rod Strata, industry principal, travel and transportation, SAP America. "These logistics providers have an opportunity in that their customers look to them as advisors in enabling end-to-end business process visibility, particularly in countries in which the customers have limited experience. We can expect an increased demand for innovative technology solutions that will help 3PLs to meet their customers needs".

A total of 1,568 logistics executives from 61 countries participated in the web-based survey. The majority was located in four major geographies of interest: North America, Europe, Asia Pacific and Latin America. The findings were then supplemented with the results from in-depth discussions with participants in three workshops on three continents. Survey recipients were asked to think of a 3PL as a company that provides multiple logistics services for its clients and customers; 82% of recipients were classified as users of 3PL services.
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