3pl and 4pl

30 MARCH 2004 PAGE 1

“CHARACTERISTICS,

STRATEGIES AND

TRENDS FOR 3PL/4PL

IN AUSTRALIA”

ALPHA Research Consortium

30 March, 2004

CHARACTERISTICS, STRATEGIES AND TRENDS FOR 3PL/4PL IN AUSTRALIA


Program Contact Details

Professor John Gattorna Co-chair, ALPHA Research Consortium

Sydney Business School, Supply Chain Research Centrea [email protected]

Professor Willem Selen Co-chair, ALPHA Research Consortium

Macquarie Graduate School of Management [email protected]

Robert Ogulin Program Manager

Sydney Business School, Supply Chain Research Centrea [email protected]

a A Graduate School of the University of Wollongong



Table of Contents

PROGRAM CONTACT DETAILS 2

TABLE OF CONTENTS 3

FIGURES 5

TABLES 6

ACKNOWLEDGEMENTS 7

GLOSSARY OF TERMS 8

1 EXECUTIVE SUMMARY 11

1.1 Research Outline 11

1.2 Key Outcomes 12

1.3 Conclusions and Possible Next Steps 13

2 CONTEXT AND MARKET DEFINITIONS 14

2.1 Research Context 14

2.2 Methodology Overview 15

2.3 Definitions and Terminology 15

3 CHARACTERISTICS, STRATEGIES AND TRENDS FOR 3PL/4PL IN AUSTRALIA 20

3.1 Significance of Logistics Outsourcing to Australia 20

3.2 Scope of Logistics Outsourcing 22

3.3 Strategic Alliances, Partnerships and Collaboration 25

3.4 Cross-Company Integration and Collaboration 31

3.5 Client (Shipper) Alignment 33

3.6 Geography and Physical Infrastructure 35

3.7 Recruiting, Developing and Retaining People 37

3.8 Government Involvement 38

3.9 Supply Chain Case Study – BlueScope Steel 40



4 APPENDICES 49

4.1 Methodology 49

4.2 Top Australian Logistics Service Providers 60

4.3 Shipper and LSP Summary Survey Results 65

5 REFERENCES 81



Figures

Figure 1: Evolution from In-house Logistics to Various Outsourcing Models 14 Figure 2: Research Methodology 15 Figure 3: Supply Chain Management Performance /Capability Continuum 16 Figure 4: Freight Logistics Activities in Australia, 2002 21 Figure 5: Shipper Satisfaction with LSP Performance 23 Figure 6: Types and Extent of Outsourced Activities 24 Figure 7: Cost of Logistics Activities Relative to GDP, USA 25 Figure 8: Reasons Given by Shippers for Selecting LSPs 27 Figure 9: Uncertainty about Service Quality, as Perceived by Shippers & LSPs 28 Figure 10: Department Mgrs Involved in Decision to use Contract Logistics Companies 29 Figure 11: Extent of Outsourced IT: Shipper and LSP Perceptions 31 Figure 12 Importance of Customer Service Orientation for Selecting LSPs 34 Figure 13: Importance of LSPs’ Contribution to “Increase….Service” 34 Figure 14: Importance of Suppliers’ Geographical Distance 36 Figure 15: Shipper and LSP Emphasis Over the Next Two Years 38 Figure 16: Queensland COLORBOND® Steel Logistics Flow Paths 41 Figure 17: Gattorna’s ‘Strategic Alignment Model” 43 Figure 18: A Typical Array of Behavioural Segments Found in Many Industries 44 Figure 19: “Strawman” Customer Segmentation, BlueScope Steel 45 Figure 20: Generic Supply Chains 46 Figure 21: “Strawman” Strategy Response BlueScope Steel 47 Figure 22: ALPHA Research Consortium Team Structure 49 Figure23: Research Timeline 50 Figure 24: Research Procedure Flowchart 51 Figure 25: Industries Represented by Respondents of Shipper Survey 54 Figure 26: Layered View of Supply Chain Management Systems 56 Figure 27: Supply Chain Software Vendor Revenue Share Forecast, 2003 57



Tables

Table 1: Taxonomy of Supply Chain Outsourcing Solutions 15 Table 2: Leading Supply Chain Software Providers 56 Table 3: Top Australian Logistics Service Providers 60



Acknowledgements

In early 2003, the Logistics Association of Australia (LAA), sought expressions of interest to conduct research into “Characteristics, Strategies and Trends of 3PL/4PL in Australia”. The LAA felt that there was insufficient information in the Public Domain relating to the development of Third Party Logistics providers and new business models such as 4PL.

The ALPHA Research Consortium under the leadership of Sydney Business School (a Graduate School of the University of Wollongong) and Macquarie Graduate School of Management was selected to conduct the study. Since then a number of organisations have provided significant support and an even larger number of individuals have worked hard to produce the research findings that are contained in this report.

The leadership of the ALPHA Research Consortium would like to thank members and sponsors (in alphabetical order) who contributed financial support and management time:

• BlueScope Steel Ltd (formerly BHP Steel Ltd)

• DHL

• Linfox Australia Ltd

• Logistics Bureau

• Lucis Pty Ltd

• Manugistics

Of the sponsors listed above, special thanks go to Peter Robertson, Vice President Operations Planning, BlueScope Steel, who was instrumental in securing the seed funding for the research venture.

ALPHA thanks: Sydney Business School and Macquarie Graduate School of Management for providing the infrastructure and access to excellent academic resources; and Cranfield School of Management, for sharing previous research on this topic; Program Manager Robert Ogulin, Sydney Business School, Supply Chain Research Centre; Associate Professor John Rodwell, Research Adviser, MGSM; and the team of researchers from Sydney Business School: Mayra Campos, Angel Friscione, Beatriz Friscione, Anastasia Konstantelos; and Macquarie Graduate School of Management: Manni Bojnordi, and Kate Hughes.

Finally, special thanks to those busy executives who freely gave their time to participate in the initial interviews and complete the surveys; without their willing participation we would not have had had data to work with.



Glossary of Terms

3PL Third Party Logistics: an external party that performs all or part of the corporate logistics activities on behalf of the Shipper, such as transportation, warehousing, inventory management, etc.

4PLTM a Fourth Party Logistics: a new business model, integrating resources, capabilities, and technology of the lead enterprise(s), and other organisations with complementary capabilities, to design, build, and run comprehensive supply chain solutions.

APS Advanced Planning and Scheduling: a tactical and operational planning tool that includes demand planning, inventory management, production planning and scheduling, and transportation planning modules.

Alignment The concept of Strategic Alignment as applied to the design and organisation of supply chains. ‘Alignment’ means ensuring that all internal capabilities, processes and technology are aligned with end-customers’ service expectations at the appropriate cost-to-serve. Alignment principles also apply to Shipper-LSP-outsourcing relationships.

Capability A set of functional, managerial, process, and technological skills that are combined to achieve supply chain alignment.

Client The client in this research refers to that party in the supply chain that has outsourced all or part of their logistics functions to a particular LSP. In other words the client is the LSP’s customer (Shipper).

Collaboration Synchronisation of different parts of supply chains, and generally involves trusting relationships between customers, suppliers, 3PLs, and internal business units.

Customer The customer (or end-customer) in this research refers to that party in the supply chain that is the recipient of the products and services from the Shipper via an LSP.

DC Distribution Centre: a facility that receives inventories from various supplying sources, and re-distributes to other selling or customer locations.

DSS Decision Support System: usually a sophisticated network optimisation model with in-built algorithms that support the decision-making process in complex situations.

EDI Electronic Data Interchange: a method of electronic interchange for business-to-business transactions developed along specific electronic format standards.

ERP Enterprise Resource Planning: an integrated software system that coordinates different modules to perform all

a 4PLTM is a registered trademark of Accenture



standard business data processing functions (such as financial management, accounting, forecasting, warehouse management, etc.) across the entire business.

FMCG Fast Moving Consumer Goods: refers to a company that manufactures and/or distributes consumer goods with stock-turns generally greater than 20 per annum.

In-house Logistics Any logistics activity owned, managed and executed by an organisation’s own in-house resources; sometimes referred to as in-sourcing.

LLP Lead Logistics Provider: a service provider that combines and utilises advanced capabilities to optimise logistics and supply chain activities across multiple (subordinate) LSPs.

Logistics Management The process of planning, implementing and controlling the cost-efficient flow and storage of raw materials, work-in- progress inventory, finished goods, and related information, from point-of-origin to point-of-consumption, for the purpose of meeting agreed customer service levels.1

LSP Logistics Service Provider: any organisation that provides a range of logistics service capabilities to participating members of industry supply chains. This is a generic term that will be used throughout this report when referring to any type of outsourcing provider (3PLs; LLPs; etc.), unless specifically stated otherwise.

JSC Joint Services Company: a co-owned, co-managed service company which is one of the new breed of supply chain execution models. It normally involves a small number of equity partners who agree pre-determined incentives and rewards, based on performance. It is infused with an ‘innovative’ culture and usually has significant financial engineering content to fund initial set-up and ongoing operations.

MNC Multinational Corporations: this term generally refers to trans-national companies that operate manufacturing and logistics facilities around the world, but are headquartered mainly in the USA, or Europe.

MRP Materials Requirements Planning: a set of logically related procedures, decision rules, and records (or inputs), that are designed to translate a Master Production Schedule (MPS) into time-phased net requirements.2

Operational Excellence The first and most fundamental level of supply chain performance, requiring capabilities that specifically focus on cost efficiencies. Refer to Figure 3.

Optimisation Business process and network infrastructure configurations designed to deliver products and/or services to customers for minimum cost at pre-determined service levels.

Outsourcing Transferring a firm’s logistics functions and associated capabilities to specialised external services providers.

Partnership Any formal or informal relationship between two or more organisations for the purpose of gaining mutual economic benefit.

Production Planning The process of planning and scheduling production based on matching available capacity with demand forecasts.



RFID Radio Frequency Identification: a relatively new technology to electronically track products through logistics networks.

Shipper The ‘owner’ of products and services being moved through logistics networks, and corresponding supply chains; may be manufacturer, distributor, retailer, etc.

Supply Chain(s) A sequence of activities related to transformation of raw materials into saleable products. These activities are typically performed by multiple firms in a ‘chain’ or network; the interfaces between entities along supply chains is particularly critical.

Supply Chain Management “Supply Chain Management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third party service providers, and customers. In essence, Supply Chain Management integrates supply and demand management within and across companies.”3

VNCa Virtual Network Consortia: a type of execution model with embedded alignment that is similar in many respects to the 4PL and Joint Services Company (JSC) business models, but without the strict equity arrangements binding stakeholder members. In the VNC model, stakeholders are arrayed in loose alliances that allow them to either join or leave the consortia as appropriate. In most other respects this model is similar to the 4PL and JSC models in that a new business model acts beyond traditional boundaries and organises companies as a dynamic capability network to offer a unique service proposition to their customers. All three focus on acquiring the specific capabilities needed at a particular point in time, to provide a particular supply chain solution, at speed and at scale

WMS Warehouse Management System: a software system designed to assist in the task of managing inventory in a warehouse, and includes stock location, bar-coding, inventory control, materials-handling, productivity measurement, etc.4 .

a Virtual Network Consortia (VNC), is a term first coined by the ALPHA Research Consortium, (2004).



1 Executive Summary

1.1 Research Outline

Logistics Service Providers (LSPsa), mainly in the form of Third Party Logistics Providers (3PLs), have become an integral part of many corporate supply chains. As competitive pressures increase, LSPs are becoming more integrated with their Shipper customers. This is being achieved by creating strategic alliances and partnerships with other complementary service providers that enhance the overall value propositions on offer. Lead Logistics Providers (LLPs) have also emerged, offering integrative services that go beyond basic transportation and warehousing functions. In addition, new business models in supply chain management are also being tried in various configurations; these include Fourth Party Logistics providers (4PLs), and Joint Services Companies (JSC), where the entire set of supply chain processes is outsourced to a separate management entity. We are also seeing a modification of the strict configuration of the above two models emerge as corporations organise into less rigid networks to gain access to capabilities, without long-term equity commitments. We have named this category of new business models Virtual Network Consortia (VNC).

To confirm industry developments and bring clarity to the discussion of different business models in logistics and supply chains, the Logistics Association of Australia (LAA), commissioned the ALPHA Research Consortium to conduct a 6-month study into the “Characteristics, Strategies and Trends for 3PL/4PL in Australia”, commencing August 2003. The study had several aims: to establish a robust foundation for discussion amongst supply chain stakeholders; to provide input to companies’ and government policies; and to enable industry to deploy innovative supply chain business models in the future.

The ALPHA Research Consortium was led by Professor John Gattorna, Supply Chain Research Centre, Sydney Business School, in collaboration with Professor Willem Selen, Macquarie Graduate School of Management, and Professor Martin Christopher, Cranfield School of Management, and sponsored by industry (BlueScope Steel, DHL International, Linfox, and Manugistics), and consulting partners (Logistics Bureau, and Lucis).

The following chapters summarise the outcomes of this research, beginning in Section 2.3 by addressing the question of outsourcing definitions and terminology. Section 3 contains the main body of the research findings, and starts with qualification and quantification of industry characteristics and trends in Australia. A combination of secondary research, best practice analysis, and primary surveys provide new insights and forward-looking conclusions in Sections 3.2 to 3.8. A number of Appendices provide further supporting materials, including: a supply chain Case Study – BlueScope Steel; supply chain Software Providers in Australia; the major LSPs operating in Australia; a summary of Shipper and LSP Survey results; and supporting References.

a Because of the many different terms used to describe service providers in the logistics industry, and the different meanings attached to these terms, ALPHA has chosen to use one generic descriptor throughout this Report when referring to any type of single outsourcing provider. The term selected is: Logistics Service Provider (LSP); see Glossary.



1.2 Key Outcomes

The key outcomes of this research are summarised in the following six (6) themes:a

1. Strategic Alliances, Partnerships and Collaboration

The creation of a partnership/alliance between companies typically reflects the intention to pursue a common objective by improving process coordination through collaboration, better understanding of the partner’s business, greater information sharing, coordinated investments, and joint planning. In the Shipper survey, 90% of Shippersb were “satisfied” or “very satisfied” with LSP services, indicating a match of the needs of Shippers’ outsourcing requirements by their LSPs. However, further analysis of data, revealed differing priorities and business approaches between Shippers and LSPs.

• LSPs have significantly increased the range of services offered to Shippers in Australia over the last decade.

• Commodity-type contractual arrangements between Shippers and LSPs often restrict the development of new LSP capabilities.

• Shipper-LSP partnerships have to be based on factors other than price alone. • Leadership is required from within the ranks of Shippers and LSPs, to

introduce innovative new practices throughout supply chains.

2. Cross-company Integration and Collaboration

Information technology (IT), has an integral role in the success of a company and its supply chain network. An effective technological environment enables additional value-added services, such as: full visibility; and tracking of products through the supply chain.

• IT remains the key enabler for achieving benefits in outsourcing, however there is disagreement about exactly what capabilities are needed.

• Lack of IT capabilities (or lack of access to IT capabilities), are quoted as the main reasons for not achieving full supply chain benefits.

• Technology is enabling end-to-end supply chain visibility across a variety of platforms.

3. Client (Shipper) Alignment

The original measures of value creation were cost reduction, and improved operational efficiency. However, successful outsourcing relies more on an understanding of end-customers’ and clients’ (Shippers’), business requirements.

• The main performance criteria in a Shipper-LSP relationship is achieving high levels of satisfaction as perceived by the end-customer.

• Mis-alignment between Shipper and LSP (observed on several dimensions) results in lower customer service and lost revenue opportunities.

• Formal contracts are no guarantee of achieving superior supply chain performance in today’s dynamic environment.

a These six themes will be further explained in Section 4.1 b Survey Question: “Overall, how satisfied are you with the performance of your Logistics Service Provider?” Responses: 4 point Likert-scale: Very Satisfied, Satisfied, Dissatisfied, Very Dissatisfied.



4. Geography and Physical Infrastructure

Until recently, the ‘tyranny of distance’ seemed to describe a specific geographic reality for companies operating on the Australian continent. Survey results indicate physical distance (away from customers and suppliers), is now of less concern than other issues.

• Multinationals are leveraging their global skills into the Australian landscape. • The geographical disadvantages of Australia are being overcome by better

information technology and improved infrastructure.

5. Recruiting, Developing and Retaining People

The recruitment and development of high calibre personnel is perhaps the biggest issue facing LSPs as they grow rapidly over the next decade. Some of these people will come from Shippers that have outsourced their business, but this will be far from enough. What will be needed is significant investment by LSPs, in a multi-tiered education program that will deliver the required numbers of human resources at the appropriate capability levels. Based on the results of the ALPHA survey both Shippers and LSPs appear to have missed this important point.

• Lack of high calibre management and appropriately skilled employees remains a blind spot for the logistics industry in Australia.

6. Government Involvement

In recent years, the expansion of companies interstate has heightened awareness of the differences in State legislation across Australia, and how these differences contribute to complexity and therefore cost in supply chains. Overlaid upon this issue are Federal Government laws that affect movement of product in and out of Australia, in order to optimise resource allocation and logistics investment. Discrepancies in government policies and legislation, and disparate taxation structures must be addressed sooner rather than later.

• Any comparative disadvantages Australian logistics currently enjoys via superior infrastructure could diminish as more Asian countries improve their own infrastructure and introduce new streamlined policies and procedures for cross-border logistics.

• Security will permeate every aspect of logistics and supply chain management in the future. This could be viewed as an impediment or an opportunity in the management of supply chains.

1.3 Conclusions and Possible Next Steps

This report highlights a number of areas for future development in the logistics industry in Australia, along the six dimensions outlined above. The specific supply chain Case Study undertaken through a series of interviews (and the accompanying workshop involving BlueScope Steel, Linfox and DHL), confirms that the information collected in this research is relevant to the development of supply chain performance improvement.

This research is part of an ongoing program, and ALPHA hopes that the benefits for all participants and stakeholders in this work will strengthen over time as these findings, and their implications, are applied more broadly.



2 Context and Market Definitions

2.1 Research Context

Ever increasing competition in today’s global markets, introduction of new products with shorter lifecycles, faster dissemination and proliferation of information, and heightened expectations of customers have forced enterprises to invest in, and focus attention on, entire supply chains. Today, some companies are extending their reach outside of traditional supply chain boundaries to engage in activities that go beyond their own sphere of control. To do this, they organise competitive networks of enterprises to develop and access supply chain capabilities for those organisations that are part of such value-adding networks.

The scope of this research report covers aspects ranging from in-house logistics, with a focus on productivity, cost-savings and functional excellence, to various outsourcing business models. Figure 1 illustrates how this evolution has progressed over the last 30 years.

Source: Adapted from Gattorna (1998)5 Figure 1: Evolution from In-house Logistics to Various Outsourcing Models

4PL 1990s-2000

Outsourcing 1980s-1990s

Insourcing1970s-1980s

VNC 2000s +

Client Internal Logistics Operation

Client LSPs

Client

Client

Client

TECHNOLOGY

FINANCIAL ENGINEERING

LSPs

BUSINESS PROCESS MANGEMENT

CONSULTANCY

4PL

Client

Client

ClientLoose alliance of entities/stakeholders that bring all required capabilities to the table

Stakeholders can join and leave thethe consortium as appropriate(plug-and-play)

Op. Expertise

BankLSP

Consultancy

TechnologyPrincipal

Re-engineering

Incentives

Principal

4PL 1990s-2000

Outsourcing 1980s-1990s

Insourcing1970s-1980s

VNC 2000s +

Client Internal Logistics Operation

Client LSPs

Client

Client

Client

TECHNOLOGY

FINANCIAL ENGINEERING

LSPs

BUSINESS PROCESS MANGEMENT

CONSULTANCY

4PL

Client

Client

ClientLoose alliance of entities/stakeholders that bring all required capabilities to the table

Stakeholders can join and leave thethe consortium as appropriate(plug-and-play)

Op. Expertise

BankLSP

Consultancy

TechnologyPrincipal

Re-engineering

Incentives

Principal



This research aims to provide input for private and public enterprises alike, and to enable the logistics industry to implement innovative supply chain business models to help make Australia Inc. more competitive in the Asian region, and globally.

2.2 Methodology Overview

The various phases of the research project are outlined in Figure 2. A more detailed description of the research methodology can be found in Section 4.2.

Figure 2: Research Methodology

2.3 Definitions and Terminologya

In the marketplace there is confusion over the definitions of LSPs, 3PLs, LLPs and 4PLs. This is illustrated by: 3PLs advertising as 4PLs, and some companies promoting themselves as 5PLs! In a global study conducted by Cap Gemini Ernst & Young (CGE&Y) in 20036, 75% of respondents found the term 4PL confusing (a 10% decrease compared to the previous study, in 20027). This section summarises current outsourcing terms in order to satisfy the LAA’s original research specification.

Logistics and supply chain outsourcing solutions are unique business responses that relate directly to the evolution of the supply chain. Current outsourcing terminology in the industry has changed rapidly as logistics outsourcing has moved from a functional, commodity-based (and often narrowly defined) contractual agreement for one or more functional areas, into more comprehensive logistics services provision. This stage-like

a Refer to Glossary for clear definitions of all these terms

Del

iver

able

s

3. Analysis and R eport

G eneration

2. F ie ld W ork and Inform ation

G athering

1. R esearch P reparation and

Foundation

• C onfirm objectives based on specifications of tender

• Establish team• Secondary research using

academ ic artic les, industry websites and papers

• C larify approaches, too ls & structures for fie ld research

• D evelop industry point-of-v iew

• O perationalise research questions

• G ather accurate strategic & operational inform ation from leading 3PL/4PL m anagers- C onvergent Interv iews- Surveys

• R ecord and codify data• C ase-based S tudy

- Interv iews - W orkshop

• C onfirm or refute hypotheses & integrate fie ld research findings

• Analyse qualitative & quantitative data using statis tical analysis

• ‘Best P ractice’ com parisons• Produce report incorporating

secondary research, survey results, workshop, & interv iews

• P resent finding to LAA • P resent findings to others &

m edia, as agreed• Prom ote awareness of study

Obj

ectiv

es

• C hoose survey instrum ents• List of hypotheses & issues

to be studied w ith in target segm ents

• Sum m arise literature rev iew and secondary research to shape fie ld research

• Sum m ary of executive interv iews and surveys

• P ilot survey instrum ents to test valid ity and re liability, incorporate feedback, adjust survey, & distribute

• D ocum ented workshop outcom es

• D ata tables

• C onclusions and im plications for industry and supply cha ins

• Full report w ith graphics and executive sum m ary

• Further research perspectives• P resentations

Phas

es



development of outsourcing solutions has culminated in the current array of logistics business models in the marketplace.

The benefits gained from different outsourcing solutions do not have to be incremental; companies improving their supply chain capabilities have the opportunity to create a ‘performance gap’ between themselves and their competitors. The first step is to implement procedures to help improve and sustain “operational excellence”. Next, companies can build capabilities for ‘supply chain integration and collaboration’ that result in new value-adding offerings for customers and business partners. After achieving proficiency in cross-company supply chain activities, ‘virtual supply chains’ and new business models can be developed: allowing further revenue and profit generating opportunities.8 Such evolutionary development in supply chain management and logistics outsourcing is depicted in Figure 3.

Source: Adapted from Gattorna (2003)9

Figure 3: Supply Chain Management Performance/Capability Continuum

Logistics Service Provider (LSP)

Table 1 overleaf contains a Taxonomy of Supply Chain Outsourcing Solutions, with strict definitions provided for each specific type of service provider, categorised as either an LSP or New Business Model. More detailed definitions of these three variants are provided below.

1. Prime Asset Provider

Prime Asset Providers offer functional capabilities through one-to-one contracts with their clients. These were often the initial choice for companies outsourcing discrete functions such as transportation, warehousing, packaging solutions, and inventory control. This was the forerunner of the 3PL provider.

Perf

orm

ance

Product Development; Procurement; Materials Handling;

Transportation (inbound/outbound);Manufacturing

Breadth and Depth of Supply Chain Capability

1. OperationalExcellence

2. Supply Chain Integration and Collaboration

3. Virtual Supply Chains

function process collaboration synchronisation

cost

eff e

c tiv

ene s

sva

lue

Pe

rfo

rma

nc

e

Ga

p

Pe

rfo

rma

nc

e

Gap

Networks of Businesses New Business Models: 4PL;MSCO; JSC; VNC *

Strategic SourcingSupply Chain PlanningCollaborative DesignManagement of LSPs

Key *4PL : Fourth Party LogisticsMSCO : Managed Supply

Chain OperationsJSC : Joint Services Co.VNC : Virtual Network

Consortium



Type Key Characteristics Mode 1. Prime Asset Provider Transportation asset provider, any mode

Warehouse, cross-dock, property facility

Manufacturing (outsourcing)

Packaging products

Single Mode Provider

2. Third Party Logistics Provider (3PL)

Integrated warehousing and distribution

IT infrastructure integration and support

Localized data tracking

Asset owner and asset buyer

WMS systems

Combination of Functions

Logi

stic

s Se

rvic

e Pr

ovid

er (L

SP)

3. LeadLogistics Provider (LLP)

Experienced logisticians

Combines & utilises advanced capabilities to optimise logistics & supply chain activities

Manage across multiple (subordinate) 3PLs

Decision support

Continuous improvement

Several 3PLs Managed by one

Super-3PL

4. Fourth Party Logistics Provider (4PL)

Supply chain visionary

Supply chain planner and optimizer

Deal shaper and maker

Supply chain re-engineer

Project management

Service, system, and information integrator

Continuous innovation

Technology as the prime capability

New Business Model

5. Joint Services Company (JSC)

Co-owned, co-managed

Small number of equity partners

Agreed incentives and rewards, performance based

‘Innovative culture

Significant financial engineering to fund initial set-up and ongoing operation

New Business Model

New

Bus

ines

s M

odel

s: 4

PL; J

SC; V

NC

(Net

wor

ks o

f Bus

ines

ses)

6. Virtual Network Consortium (VNC)

Dynamic capability network

Type of execution model with embedded alignment similar to 4PL & JSC, but without strict equity arrangements

Stakeholders arrayed in loose alliances; can join/leave as appropriate

Provides particular supply chain solution at speed and at scale

Highly connected processes across companies

Shared investment- shared incentives

New Business Model

Source: Adapted from Gattorna (2003)

Table 1: Taxonomy for Supply Chain Outsourcing Solutions



2. Third Party Logistics Provider (3PL)

3PLs tend to be contractual Logistics Service Providers with a focus on maximising their own assets, with a specific operational focus on logistics and supply chain issues. There is usually a lack of experienced supply chain managers to work with customers, and this coupled with low investment in R&D, information technology, and project management, has restricted the pace of their development. According to Gattorna,10 3PLs can be defined in terms of “…some combination of the following attributes: owns/leases a vehicle fleet, and may also use a substantial contract fleet; owns/leases and operates a warehouse; employs a large number of blue-collar workers; provides a large range of value-added services around labour or capital intensive tasks; involves a combination of fixed-income and benefits-sharing relationships at or below the level of Supply Chain Director; can manage international movements; has IT mostly in the form of ‘point solutions’ for Warehouse Management Systems (WMS), and routing and scheduling. An often-expressed complaint about 3PLs by their clients is the significant amount of time they (the Client company) still have to spend managing their outsourced logistics tasks.” 11

3. Lead Logistics Provider (LLP)

One of the primary roles of 3PLs in the marketplace is managing and outsourcing transportation for Shippers. This industry is highly fragmented, although over the past few years there have been large international consolidations.12 The larger 3PLs enjoy greater economies of scale, which enables them to successfully negotiate contacts across regions, as well as meeting the needs of shipping companies that are working to reduce their number of vendors.13 A recent change in this sector of the logistics industry has been the development of LLPs, that function as ‘supply chain masters’ for shipping companies; acting as a single point of contact while managing a network of 3PLs. Two predicted consequences of the use of LLPs by Shippers are: increased business for larger 3PLs that meet Shipper demands; and the smaller 3PLs struggling with reduced margins, forced technological compliance, and possibly termination.14

LLPs are primarily the same as 3PL providers, with extra visibility tools, optimisation modelling for decision support purposes, and terms of trade that reward them with a fee linked to some mathematical modelling of costs and corresponding benefits.

New Business Models

This category includes: Fourth Party Logistics Provider (4PL); Joint Services Company (JSC); and Virtual Network Consortia (VNC).

4. Fourth Party Logistics Provider (4PL)

A 4PL is a business model defined as: “… an integrator that assembles the resources, capabilities and technology of its own organisation and other organisations to design, build and run comprehensive supply chain solutions, and which have the cultural sensitivity, political and communication skills, and the commercial acumen, not only to find value, but to create motivating and sustainable deals that offer incentives to all the parties involved.” 15

4PLs generally develop around a problem or capability deficiency. The solution provided is a unique combination of capabilities that transform the Client (or Clients’) business. The primary strength of a 4PL is the management of a variety of services,



and the delivery of complex solutions on behalf of Clients, who themselves may be part of the joint venture/management company. 4PLs can develop around an e-marketplace as well as across industries, providing multi-client synergies. The Client relationship is based on a detailed contractual agreement with a customised solution to a specific supply chain issue(s), and for best results involves equity-based commercial arrangements.

5. Joint Services Company (JSC)

The JSC is a new type of execution model designed for large-scale transformations. These transformations usually involve two or more companies working in a strategic partnership, along with several minor complementary partners to cover all capability requirements. The JSC is effectively a separate co-owned, co-managed service company, infused with an innovative culture, where all parties are incentivised according to pre-agree formulae. Another feature is the prominence of financial engineering aspects in funding the set-up and on-going operation of the entity. No such model currently exists in Asia Pacific.

6. Virtual Network Consortia (VNC)

VNC are based on an arrangement between enterprises to deliver a unique value proposition for a particular industry requirement. New business models in supply chain management differ from the sequential relationships found in today’s approaches,16 and the resulting incremental improvements. Strategic new business solutions are the route to competitive advantage, because the supply chain is less linear and more a series of integrated partnerships “…enmeshed in multiple simultaneous transactions.” 17

Companies extend outside their traditional supply chain boundaries and reach beyond their own sphere of control when they are organised into networks. This enables them to develop and access supply chain capabilities not offered by more traditional approaches, resulting in unique value propositions to the end-customer. Such new supply chain business models require companies to move from a functional mind-set to a cross-functional systemic perspective. In these new organisations, companies are no longer viewed as a set of functions, but as a combination of integrated capabilities.

VNC include the capabilities of various suppliers of product, technology, and operational expertise. VNC may also include any service related to a consumer offering, for example: services from financial institutions, insurances, legal advisors and the like. The activities and interactions of companies in the VNC are based on dynamic and flexible organisational structures where the traditional supply chain boundaries begin to blur. Performance management systems must be aligned across supply chains and become deeply imbedded in participating organisations in order to be successful.

Competition is based upon multi-firm supply chains18 where advanced practices transfer responsibility without the constraints of corporate boundaries. Trust and collaboration hold these new supply chain business models together. A horizontal, customer-focused, and collaborative culture needs to be developed and fully embedded. Process performance and reliability of the extended system are measured, and joint investments in improving system(s) are shared, as are the returns. The new supply chain business models (already referred to in this report) go a long way towards meeting the concerns of government regulatory bodies such as the ACCC in Australia, and the Commerce Commission in the UK. In the years ahead we anticipate the logistics industry and government regulatory bodies working closely together to design and implement a new breed of supply chain business models that achieve a quantum improvement in performance, at both the enterprise and the national levels.



3 Characteristics, Strategies and Trends for 3PL/4PL in Australia

3.1 Significance of Logistics Outsourcing to Australia

This section establishes the magnitude of the logistics services industry and evaluates its impact on the Australian economy. Data from other regions of the world is provided for comparison.

Qualification of Data Sources

Quantitative data, specifically relating to logistics activities in Australia, was difficult to source as “…industry associations, individual operators and academics…do not collect comprehensive data on these activities.”19 Information was available on the logistics sector from the Australian Bureau of Statistics (ABS)20 National Accounts a data. However, there is an inherent limitation of ABS data for estimating the contribution of logistics activities to the GDP. ABS classifies businesses into “relevant” industry sectors according to their core business activity, and consequently their revenue contribution is fully allocated to that sector, and not allocated to sectors according to activities. This system results in logistics revenue being allocated to non-logistics sectors when a company’s core business is not classified as logistics. For example, revenue from in-house road transportation operations of a business primarily involved in manufacturing, would be allocated to the relevant manufacturing sector,b resulting in an under-estimation of the contribution of logistics to GDP and employment, and an over-estimation of the contribution of manufacturing. Despite this qualification, ABS data was used as the basis for a multi-step procedure to estimate the contribution of logistics activities to GDP and employment.

Transportation and Freight Value-Add

Classification of logistic activities by ABS is based on the Australian and New Zealand Standard Industrial Classification (ANZSIC). Logistics activities identified by ANZSIC include: transportation and storage (both freight and passenger); postal services; courier services; and waste disposal services.

An international study21 of logistics activities found transportation contributing between 40 to 45% of total logistics costs of a business. Another study22 concluded that transportation typically contributes 41% of total logistics costs. Although lower and higher figures have been reported, for the purpose of this research, 40% will be used as the estimate for the contribution of transportation to Australian logistics.c

aa ABS National Accounts provide a systematic summary of national economic activity. There are three approaches to measurement of GDP - production approach (summing the value-added at each stage of production), income approach (summing incomes generated by production), and expenditure approach (summing final expenditure on goods and services produced). BTRE Report, (2001), Logistics in Australia - A Preliminary Analysis, October, www.btre.gov.au/docs/wp49 contents.htm b In some cases, in-house transportation activities may be allocated to the transport classification if they are undertaken through a separate management unit, (e.g., a subsidiary company). c The highest estimate for transportation, as a proportion of logistics costs, was 60% (Canada), and the lowest estimate was 25% (OECD). However, only one example was given for each extreme estimate. BTRE Report, (2001), Logistics in Australia - A Preliminary Analysis, October, www.btre.gov.au/docs/wp49 contents.htm



In this research ALPHA calculated the freight component of transportation in the logistics sector, by combining the Bureau of Transport and Regional Economics (BTRE)23 figure of AUD24 billion (gross value-added into freight transport), and adopting the 40% factor (indicated above), to arrive at an estimate of AUD57 billion as the total cost of logistics in Australia.a This figure is equivalent to 9.2% of Australia’s GDP for the period of 1999–2000.

The estimate of the proportion of GDP attributable to logistics activities provides only partial information on its economic significance to Australia. The scope of our research also includes activities that go beyond the activities represented by the BTRE definitions. The BTRE’s estimate of gross value-added in logistics does not incorporate inputs provided by other industries. The flow-on effects to these industries however, are substantial. Logistics activities along the supply chain are also enabled by software applications, consulting services, logistics equipment provision and maintenance. In addition, activities and processes that have traditionally been performed by in-house departments are now being outsourced. e.g., IT, planning and scheduling.

BTRE attributes AUD31 billion to in-house logistics operations. The remaining AUD26 billion is from activities performed by the freight logistics industry, which includes firms providing freight services to both private and government customers. Services provided by freight transport logistics account for AUD23 billion, while services provided by non-transport logistics operators total approximately AUD3 billion as shown in Figure 4. This is a broad estimate because it is difficult to determine the scope of increasingly complex freight logistics networks.

Source: DOTARS (2002)24 Figure 4: Freight Logistics Activities in Australia, 2002

a The gross value-added figures in this section are not directly comparable with the revenue figures in the BTRE Report’s Table 4.1. Relationships between value-added and revenue in the BTRE’s Port Impact Studies suggest that the total revenue of AUD16.1 billion for the 36 operators in Table 4.1 represents value-added of around AUD10.1 billion. Removal of the figure for Australia Post (probably included in postal services by the ABS) reduces total revenue to AUD12.4 billion. This figure mainly covers transport and storage, and represents around AUD7.8 billion of value-added - equivalent to 34% of the BTRE’s estimate of AUD22.8 billion for freight transport. BTRE Report, (2001), Logistics in Australia - A Preliminary Analysis, October, www.btre.gov.au/docs/wp49 contents.htm

In-house Operations AUD31 billion

Outsource to Logistics Companies AUD23 billion

Outsource to Non-Transport Logistics Operations AUD3 billion



The results of the BTRE’s analysis indicate that logistics activities comprise a significant proportion of economic activity in Australia. The estimate of around 9% of the Australia’s GDP for logistics in comparable with figures of: 11% for wholesale and retail trade; 12% for manufacturing; and 12% for mining, construction and utilities combined. The importance of this industry is highlighted when compared to other industries, e.g., construction 5.9%; retail 5.2%; education 4.4%; and tourism 4.5%.25

The value of logistics activities is a significant component of national economies, globally.

Comparative data from the USA confirms similar relationships to those found in Australia, albeit 10 times the value. The GDP of the USA was about USD10.21 trillion in 2001. Logistics costs have decreased from USD1.003 trillion in 2000 to USD970 billion in 2001, and account for 9.5% of the GDP. A total of 63% of the logistics costs are related to transportation, 25% to inventory carrying cost; and 8% to warehousing; and the remainder is related to logistics administration. The European logistics market is worth an estimated EUR710 billion, or 8% of Europe’s GDP. Of this, EUR320 billion, or 45% is currently outsourced.26

Employment

A similar (but more approximate), approach can be used to estimate employment in logistics activities in Australia. At the end of 1999-2000, 418,700 people were employed in the transport and storage sector.27 BTRE analysis indicates that gross value-added in logistics was 1.65 times gross value-added in the transport and storage sector in 1999-2000. Applying this ratio to employment in transport and storage provides a very rough estimate of around 690,000 employed on a full-time equivalent basis in logistics.

The estimate of the contribution of logistics to GDP, and employment, is very approximate, as it is based on limited data and indirect calculations. The reliability of this estimate is also affected by the ABS National Accounts data, which become less reliable the more it is disaggregated.

3.2 Scope of Logistics Outsourcing

In this section information from secondary research, and data from survey responses, are combined to give: an overview of the activities being outsourced in Australia; and a summary the type(s) of capabilities involved. Taken together this provides a quantified estimate of the financial benefits of outsourcing.

Type of Activities

In the ALPHA survey, both Shippers and LSPs confirmed the value of outsourcing, and indicated their intent to increase the scale and scope of outsourcing in the foreseeable future. Over two thirds of Shippersa surveyed indicated they are “likely”, or “very likely” to increase the “use” of outsourced logistics services over the next two

a Survey question: “How likely is it that your company is going to increase the use of logistics provider services over the next two years?” Responses: 4 point Likert-scale: Very Likely, Likely, Unlikely, Very Unlikely.



years, while 75% of LSPsa surveyed indicated their intent to improve the “scope” of their services offered to the market. This trend is consistent with reports from other regions of the world e.g., China.28

Logistics outsourcing is here to stay. Outsourcing scale and scope will increase in Australia in the foreseeable future.

LSPs are generally increasing the scope of their offerings at a faster rate than Shippers are taking them up. This is possibly due to the greater exposure they have to outsourcing relationships, which in turn is giving them a better understanding of the potential benefits available. On the other hand, Shippers tend to keep operating as “islands of excellence”, focusing on achieving efficiencies within their organisations. This will yield limited returns over time as already illustrated in Figure 3.

A comparison with a survey conducted in the Singaporean logistics industry29 found that over three-quarters (76.3%) of the users indicated that their firm's commitment to the contract services concept was “moderate” or “extensive”, while the remaining users indicated that their firms' commitment was “limited” or “very limited”. A global logistics study conducted by CGE&Y30 in 2003, found a similar trend, with Shippers responding positively when questioned as to their intention to increase use of LSPs over the next 5 years.

In Europe, businesses outsource USD31 billion of logistics activities to LSPs, contributing 25% of the logistics services market revenue.31 Over the past few years there has been an increasing preference by leading European manufacturing companies to separate sales function(s) from physical fulfilment, creating new opportunities for LSPs.

Source: ALPHA Survey (2003)

Figure 5: Shipper Satisfaction with LSP Performance

In the ALPHA survey, approximately 90% of Shippers,a were “satisfied” or “very satisfied”, with the services provided by LSPs, illustrated in Figure 5. This is a major

a Survey question: “How likely is it that your company is going to increase the scope of logistics services offered to customers over the next two years?” Responses: 4 point Likert-scale: Very Likely, Likely, Unlikely, Very Unlikely.

14.9%

75.7%

Very Satisfied

Satisfied

Dissatisfied

Very Dissatisfied

14.9%

75.7%

Very Satisfied

Satisfied

Dissatisfied

Very Dissatisfied



shift from a decade ago when the majority of Shippers were not satisfied with the performance of their LSPs.32 This shift in perception by Shippers indicates that LSPs have improved their service offerings significantly, and that their performance is now meeting (or exceeding) the expectations of Shippers.

90% of Shippers were “satisfied” or “very satisfied” with LSP services.

In 2003, 90% of USA businesses currently outsourcing some activities, considered the relationship successful; in Europe 77% (4% decrease compared to the previous year’s survey); and 79% in Asia33

Companies outsource activities with the aim of achieving improved logistics performance, and reduction of costs. The focus of outsourcing continues to be physical and transactional functions across transportation, warehousing and inventory management as indicated in Figure 6. Only a few Shippers seem to partner with LSPs to fully integrate their services, and obtain the corresponding benefits.

The response from Shippersb in Australia (ALPHA survey), is very similar to research findings in the USA in 1999, where businesses indicated different levels of outsourcing activities compared to LSPs.34

Product Assembly

Warehousing

nventory Replenishme

Customer Spare Parts

Logistics IT

Product Returns

Fleet Management

Rate Negotiation

Freight Payment

Carrier Selection

Inbound Transportati

Outbound Transportat

Order Fulfilment

Shipment Consolidati

Mea

n

5.0

4.5

4.0

3.5

3.0

2.5

2.0

1.5

Source: ALPHA Survey (2003) Figure 6: Types and Extent of Outsourced Capabilities c

a Survey question: “Overall, how satisfied are you with the performance of your logistics service provider(s)?” Responses: 4 point Likert-scale: Very Satisfied, Satisfied, Dissatisfied, Very Dissatisfied. b Survey Question: “To what extent does your company outsource the following logistics activities?” Responses: 5-point Likert-scale 1, Not at all or Low to 5 Very Extensive or High. c Total number of Shipper survey responses N= 97, Responses range from 1, Not at All or Low to 5 Very Extensive or High. Mean values near 5 indicate “Very Extensive” outsourcing of specified logistics activity.



8 9

10 11 12 13 14 15 16 17

81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 Year

Perc

enta

ge

Logistics % of GDP- USA

Further cost reduction and new revenue opportunities through Value Network Consortia.

Do nothing, use existing models and approaches

Benefits of Outsourcing

International data35 indicates logistics costs (as a percentage of GDP) are steadily declining, as illustrated in Figure 7. In the USA the proportion of logistics cost of GDP fell from 16% to less than 10% over the past 20 years. 36 The outsourcing of logistics activities is one of the drivers of this trend. The CGE&Y37 study in 2003, showed a decline in logistics fixed costs by 16% in North America; and a 5% decrease in Europe largely due to the outsourcing.

Source: Prologis (2004)38 Figure 7: Cost of Logistics Activities Relative to GDP, USA

Figure 7 illustrates the benefits of improved logistics management since 1981. However, in the last decade, the rate of reduction of logistics costs have slowed, demonstrating the reduced benefits flowing from an over-emphasis on operational excellence (refer Figure 3). Further reduction in logistics costs will only be achievable through new approaches to logistics and supply chain management, e.g., by utilising capability-based outsourcing solutions such as 4PLs, JSCs and VNC that will yield benefits in the form of both cost reduction and increased revenues.

3.3 Strategic Alliances, Partnerships and Collaboration

Increasing globalisation, use of new information technologies, and a series of acquisitions, alliances and mergers, are transforming the logistics services industry in Australia. Business models that supported “arms-length” relationships with suppliers, and customers, are being replaced by supply chain collaboration. New companies and business networks have evolved, developing entirely new business models that are based on capabilities geared towards improved customer service, and competitiveness in the marketplace

ALPHA has defines a partnership or alliance as a formal or informal collaborative arrangement between two or more businesses, with the aim of facilitating the achievement of each one’s objective(s). This alliance may involve equity holdings (e.g., 4PLs), or be a loose network arrangement (e.g., VNC). Typically, partnerships between two businesses are influenced by other working relationships such as: arrangements between Shippers; the users of services (e.g., computer company); providers of logistics services (e.g., carriers, integrated logistics providers; local and overseas freight forwarders; packaging firms; and storage/distribution firms); and major consultants or information technology specialists.39



The creation of a partnership/alliance reflects the intention to pursue a common objective by improving coordination of business activities through mechanisms such as collaboration, i.e. better understanding of the partner’s business; greater information sharing; coordinated investments and joint planning. In the ALPHA survey, Shippers rated the responsibility of LSPs to “help them focus on their core business” a (mean 3.8, ranked 6), as a lower priority than LSPs b (mean 4.07, ranked 2). The results of the ALPHA survey compared to figures from the 1990s40 demonstrate an increased range of services offered by LSPs in Australia.

LSPs have significantly increased the range of services offered to Shippers in Australia over the last decade.

Shippers, mostly being the more powerful in their partnership with LSPs, tend to determine the extent of the relationship and the level of information sharing. Typical contractual arrangements between Shippers and LSPs result in an environment that restricts development of the latter’s capabilities. The cost squeeze during negotiations and the lack of room to add-value during the ensuing contract period, contribute to this situation.

Shippersc and LSPsd both use adversarial (means of 4.16, and 4.18 respectively), and collaborative relationships (means of 3.9, and 4.11 respectively), in their logistics relationships. Shippers may apply adversarial approaches for cost and productivity-enhancement. There is evidence from current literature and comments made in the convergent interviews conducted by the ALPHA that the selection of LSPs is initially based on price, however the final negotiations are largely based on non price factors.

Commodity-type contractual arrangements between Shippers and LSPs often restrict the development of new LSP capabilities.

Shippers continue to be driven by cost considerations. This mindset is reflected in the contractual system (and related sanctioning mechanisms), that govern past and existing business relationships between the two parties. Shippers appear to lack sophistication in their selection of LSPs. One way forward is for Shippers to start selecting LSPs on factors other than price, as shown in Figure 8.

Shipper-LSP partnerships have to be based on factors other than price alone.

a Survey Question: “How important are the contributions of your logistics services provider(s) to the benefit categories below?” Responses: 5-point Likert-scale 1, Not Important or Low to 5 Very Important or High. b Survey Question: “To what extent can the logistics services your company offers help improve your customers’ overall logistics performance?” Responses: 5-point Likert-scale 1, Not Important or Low to 5 Very Important or High. c Survey Question: “If you work with more than one logistics services provider, to what extent do the following descriptions apply?” Responses: 5-point Likert-scale 1, Not Important or Low to 5 Very Important or High. d Survey Question: “In working with your customers, to what extent do the following descriptions apply?” Responses: 5-point Likert-scale 1, Not Important or Low to 5 Very Important or High.



Economic Benefit

Improves Market Posi

Committed to Us

Potential Synergy

Support Customer Ser

Strong Reputation

Reliability

Knows our Business

Integrity

Trustworthy

Mea

n

4.6

4.4

4.2

4.0

3.8

3.6

3.4

Source: ALPHA Survey (2003) Figure 8: Reasons Given by Shippers for Selecting LSPs (other than Price)a

LSPsb have the view that Shippersc are hiding behind other factors: “uncertainty about LSP service provision” (Shippers rate this 4.53, and LSPs 2.74 out of 5); “cost of outsourcing” (Shippers: 3.97 and LSPs: 3.26); and “uncertainty about service capability of LSPs” (Shippers: 3.66 and LSPs 2.71); refer Figure 9, overleaf. Shippers have the power balance, and own the business being transacted so they should be leading development activities and setting up the business environment to enable and encourage LSPs to innovate. The ‘lack of capability’ argument was current 10 years ago, but no longer applies because LSPs have improved and now have significantly better capabilities. However, they need an environment to work in which is more conducive to innovation and strategic thinking, and only Shippers can provide, because they own the business. Shippersd have indicated that flexibility is important, however there is no way to legislate creativity - other than by creating the conditions to allow it to flourish, e.g., by determining mutually agreed milestones and equitable distribution of benefits. LSPse ranked flexibility as a reason for outsourcing, “lower” than Shippers. This mis-alignment of priorities and meaning seems to indicate an innovation mis-alignment. Initiatives are needed on both sides to close this gap.

a Total number of Shipper survey responses N= 97, Responses range from 1, Not Important or Low to 5, Very Important or High. Mean values near 5 indicate strong reason(s) for selecting logistics partner(s). b Survey Question: “Rate the importance of the following concerns in relation to outsourced logistics services provision?“ Responses: 5-point Likert-scale 1 (Not Important) to 5 (Very Important). c Survey Question: “Rate the importance of the following concerns in relation to outsourced logistics services provision?“ Responses: 5-point Likert-scale 1 (Not Important) to 5 (Very Important). d Survey Question: “How important to your company were the following reasons for outsourcing activities to a Logistics Service Provider?“ Responses: 5-point Likert-scale 1 (Not Important) to 5 (Very Important). e Survey Question: “How important to your customers were the following reasons for outsourcing logistics activities?“ Responses: 5-point Likert-scale 1 (Not Important) to 5 (Very Important).



.

Source: ALPHA Survey (2003) Figure 9: Uncertainty about Service Quality, as Perceived by Shippers and LSPs

A recent CGE&Y41 study found that LSPs in the USA, are not expanding their capabilities quickly enough to satisfy Shipper expectations; this is contrary to ALPHA results where LSPs have developed new capabilities, although the majority of Shippers are primarily still only outsourcing relatively few functions

One of the biggest challenges facing the logistics industry is the need to establish a united view on issues of mutual interest, and this cannot be done without strong leadership. Businesses must understand that only by working together and through mutual trust can issues affecting the logistics sector be addressed adequately. This is particularly true in industries where the power in the supply chain is unevenly distributed between LSPs and Shippers. A supply chain leader may attempt to improve logistics activities in an industry for competitive reasons, (e.g., Wal-Mart in FMCG), or promote restructuring of fragmented industries via strategies that encourage consolidation of smaller players, (e.g., GM in the automotive industry).

A study in the USA42 has highlighted the question of which party will orchestrate the roles and responsibilities of supply chain members. Shippers were seen as less able to fill the leadership role due to lack of vision and commitment to the advantages delivered through supply chain management.43 The latest CGE&Y (2003)44 survey found that 68% of logistics and supply chain executives in North America (Canada and the USA) feel that “…3PL providers facilitate supply chain improvement”, while the corresponding result for Europe was only 47%.

Leadership is required from within the ranks of Shippers and LSPs, to introduce innovative new practices throughout the supply chain.

Concerns about service quality

perceived by shippers vs LSP

Very ImportantSubstantially Import

ImportantModerately Important

Not Important

Perc

ent

70

60

50

40

30

20

10

0

Shippe

LSP





Not Important

Perc

ent

70

60

50

40

30

20

10

0

Shippe

LSP



Shippersa and LSPsb responded that “lack of cooperation” (means of 2.74, and 2.75 respectively), and “lack of interest to participate in the supply chain” (means of 2.66, and 2.54, respectively) are factors preventing development of the full potential of logistics services. This indicates Shippers are still acting as “islands of excellence”, focusing on optimising their own operations, rather than collaborating with their supply chain partners, including LSPs. Interestingly, the issue of trust was ranked “low” by both groups (ranked 7 out of 9, with a mean 2.41 by Shippers, and ranked 6 out of 10, with mean 2.46 by the LSPs).

ALPHA survey results demonstrated that in selecting LSPs, Shippersc often included other departments in the decision to outsource activities, see Figure 10. Almost 50% (sample size of 97)d of the respondents indicated that the Finance and Operations Managers were involved on the decision to outsource. This may be an indicator of the increased perception of the level of integration involved in logistics functions in the business.

Customer Service

Operations

SalesPurchasing

Inventory

Information Systems

Human Resources

Manufacturing

Finance

Marketing

Num

ber o

f cas

es

50

40

30

20

10

0

.

Source: ALPHA Survey (2003) Figure 10: Department Managers Involved in Decision to Use Contract Logistics Companies

Businesses are realising the need for outsourcing the management of entire logistics processes to a single entity, for greater visibility and optimisation across supply chains. This has led directly to the emergence of Lead Logistics Providers (LLPs) and

a Survey Question: “To what extent do each of these issues prevent your company from achieving the full potential of supply chain management?” Responses: 5-point Likert-scale 1, Not at all or Low to 5 Very Extensive or High. b Survey Question: “How much do each of these issues prevent your company from delivering the full potential of your logistics services?” Response: 5-point Likert-scale 1, Not at all or Low to 5 Very Extensive or High. c Survey Question: “Were managers from other functional area actively involved in the decision to use contract logistics companies?” Responses: Marketing; Finance; Manufacturing; Human Resources; Information Systems; Inventory Planning/Control; Purchasing; Sales; Operations; Customer Services; Other. d Total number of Shipper survey responses N= 97, Responses Yes = 1 (Involved), or No = 0, (Not Involved).



new business models such as 4PLs. There is a shift from asset-based models to new business models that address customer demands with integrated logistics solutions. DHL and Sydney Airport Corporation Limited, announced the launch of a new DHL Sydney Airport Development, designed to enable DHL Express to operate its Sydney facilities as a hub for Australia and Oceania regions. The purpose-built facility will involve an initial investment by DHL in excess of AUD9 million, with significant ongoing investment in the next few years.45

In the United States the increased trend towards mergers and acquisitions and alliances between various companies is resulting in greater synergies. Yellow’s acquisition of Roadway, known as Yellow-Roadway Corporation, is the largest US- based transportation service provider. The new combined entity holds nearly 60% market share in selected markets.46

Examples of partnerships/alliances in Australian logistics include: Australian airExpress, a joint venture between Qantas Airways and Australia Post; a strategic alliance between Grainco Australia and AusBulk; a partnership between Bluegum Group (electronics manufacturer) and Danzas AEI; a joint venture between four State-based operators (Russell TLC Services, Westchem, Chemwest, and Scott’s Transport Industries) to provide a national service for dangerous goods; and a partnership between TDG Logistics and Qenos.47

In China, a joint venture between Japan’s i-Logistics and China’s Shandong International Transportation Corporation, will open a large newly completed refrigerated warehouse in the hinterland of China’s Qingdao Port.48 The warehouse will act as an integrated logistics hub, primarily handling trade in consumables between China and Japan.49 In Asia, the economic climate favours large LSPs, and some multinationals are buying up mid-sized service providers or establishing joint ventures with indigenous LSPs.

When asked about their “future emphasis to improve overall logistics performance”, both Shippersa and LSPsb indicated a reduction of product/service cost as “important”, but for Shippers it was “very important”. Shippers ranked the importance of cost as 2 out of 8, with a mean of 4.16; LSPs ranked the same issue 7 out of 8, with a mean of 3.58. This indicates that more Shippers continue to see the future as cost-driven, whereas LSPs are looking for value-add solutions.

Most logistics service companies recognise the necessity of building strategic alliances or partnerships to remain competitive in the marketplace, e.g., the alliance between Qantas Airways and Australia Post,50 formed to provide Australia Post with dedicated, cost-effective, overnight national line-haulage utilising Qantas passenger aircraft belly space. Shippers seem to be looking for LSPs that can provide all their service requirements (‘one-stop-shopping’), rather than co-ordinating multiple LSPs themselves, hence the notion of an LLP. As a general trend, Shippers want to reduce the number of LSPs they have to deal with across all geographic boundaries. Survey results in the USA reveal that the percentage of companies utilising more than one contract logistics company decreased from 70% in 1995 to 40% in 1998.51 A similar trend is expected in Australia over the next few years. ALPHA survey found that Shippers and LSPs have contrasting views about ceding responsibility to a single LLP to coordinate other LSPs. In particular, Shippersc rate this “low importance” (rank 8 of

a Survey Question: “Indicate your company’s emphasis over the next two years to improve overall logistics performance:” Responses: 5-point Likert-scale 1 (Insufficiently - Low) to 6 (Very Well – High). b Survey Question: “Indicate your company’s emphasis over the next two years to improve overall logistics performance:” Responses: 5-point Likert-scale 1 (Insufficiently - Low) to 6 (Very Well – High). (Both Shippers and LSPs were asked the same question.) c Survey Question: “If you work with more than one Logistics Service Provider, to what extent do the following apply?” Responses: 5-point Likert-scale 1 (Not Important or Low) to 5 (Very Important or High).



8, with a mean of 2.05), whereas LSPsa rated this as “medium to high” importance, (with a rank 5 of 9, and 3.53).

Some of the recent acquisitions and strategic alliances formed within the Australian sector seem to support the argument that LSPs are responding to the challenge of combining capabilities ‘under one roof’, albeit using a range of different models, e.g., LLPs, 4PLs, JSCs, and VNC.

3.4 Cross-Company Integration and Collaboration

Information systems and technology are an integral part of supply chains, and essential to their effective management. Indeed, supply chains cannot function properly without the visibility that good IT provides. An effective technological environment also enables additional value-added services to be offered to Shippers, should these be required. Results from the ALPHA survey indicated Shippersb and LSPsc ranked the importance of LSPs contributing to Shippers’ “access to up-to-date techniques” lower than factors such as; contribution to reliable and consistent service; reduced costs; flexibility; etc. Shippers ranked “access to up-to-date techniques” as 10 (out of 12, mean of 3.22), which is a lower ranking than LSPs gave this factor (ranked 7 out of 12, mean 3.84). This difference is illustrated graphically in Figure 11.


Figure 11: Extent of Outsourced IT: Shipper and LSP Perceptions

a Survey Question: “In working with your customers, to what extent do the following descriptions apply?” Responses: 5-point Likert-scale 1 (Not Important or Low) to 5 (Very Important or High). b Survey Question: “How important are the contributions of your Logistics Service Provider(s) to the benefit categories below?” Responses: 5-point Likert-scale 1, Not Important or Low to 5 Very Important or High. c Survey Question: “To what extent can the logistics services your company offers help improve your customers’ overall logistics performance?” Responses: 5-point Likert-scale 1, Not Important or Low to 5 Very Important or High.

Extent of outsourced Logistics IT

Shipper vs LSP interpretation

High.........Low

Perc

ent

50

40

30

20

10

0

Shippe

LSP

Extent of outsourced Logistics IT

Shipper vs LSP interpretation

High.........Low

Perc

ent

50

40

30

20

10

0

Shippe

LSP



IT remains the key enabler for achieving benefits in outsourcing, however there is disagreement about exactly what capabilities are needed.

CGE&Y’s 200352 global study in logistics reported Shippers having high expectations of the services offered by LSPs; this has been the case for the last two decades. However, on the specific issue of IT capabilities, Shippers still appear to be dissatisfied with LSPs. It is clear therefore that the future success of LSPs is closely tied to their ability to offer integrated, end-to-end solutions that deliver significant financial and operational performance improvements to Shippers. The problem is that most LSPs (being locked into short-term contracts with low profit margins), do not have the financial resources to develop a whole array of value-added IT capabilities. In Australia, some LSPs are attempting to provide more advanced IT capabilities; as evidenced by the Toll Logistics announcement in March 2000, of the formation of Toll Technologies to support their core operations through development of electronic communications and e-business solutions for customers.53

In the ALPHA survey Shippersa and LSPsb were asked to determine the extent to which they used “logistics information and communication technologies.” Responses for all listed technologies (e.g., EDI, internet, stand-alone) for both parties were between a mean of 2.5 and 3.5 (maximum of 5, for “Heavy Use or High”). However, the standard deviation (range of responses) were + or - 1.5, (indicating that the extremes of the range lay between the values of 1 and 5). The reason for the responses ranging effectively from “low” to “high” is due to the type of question – these systems are alternatives to each other and it would be expected if a company has installed one type of information technology, they would score a high response, and a very low one for others. However, the results indicate a wide range of IT systems being used by both Shippers and LSPs, with no one type of system (stand-alone or integrated), being a strong leader in the industry.

Lack of IT capabilities (or lack of access to IT capabilities), are quoted as the main reasons for not achieving full supply chain benefits.

The ALPHA survey revealed both Shippersc and LSPsd ranked 1, the “issues preventing your company from achieving full potential of supply chain management / delivering the full potential of logistics services.” The mean response for Shippers was 3.48, but for LSPs it was lower at 2.82 (both with a standard deviation of more than 1.2), indicating the LSPs rated this as less of a problem than Shippers.

Cranfield-NorthWestern University survey in 2000,54 demonstrated the importance executives placed on information technology and e-commerce related capabilities.

Technology is enabling end-to-end supply chain visibility across a variety of platforms.

a Survey Question: “To what extent are you using any of the following logistics information and communication technologies listed below?” Responses: 5-point Likert-scale 1, Not Use or Low to 5 Heavy Use or High. b Survey Question: “To what extent are you using any of the logistics information and communication technologies listed below?” Responses: 5-point Likert-scale 1, Not Use or Low to 5 Heavy Use or High. c Survey Question: “How much do each of these issues preventing your company from achieving full potential of supply chain management?” Responses: 5-point Likert-scale 1, Not At All or Low to 5 Very Important or High. d Survey Question: “How much do each of these issues preventing your company from delivering the full potential of your logistics services?” Responses: 5-point Likert-scale 1, Not At All or Low to 5 Very Important or High.



Technology improves end-to-end visibility across the entire supply chain, allowing for proactive management of logistics and supply chain events, to further improve process efficiencies and customer service. In small to medium enterprises (SME’s), the internet is providing relatively inexpensive, yet effective alternatives for information sharing. Unfortunately, these businesses are often unable to afford to buy and implement the more expensive software solutions. This could be one motivator for SMEs to join with larger companies to benefit from improved access to superior IT capabilities. This might be achieved either through an alliance, or membership of one of the new business models described in this report.

Dell55 is a well-known example of a company using technology to power its supply chains, by embedding IT into all appropriate activities. FedEx56 is another example that has raised barriers-to-entry for competitors in the express logistics sector, by utilising IT to facilitate its business processes.

For further information on the different integration technology architectures, software applications and vendors, see Section 4.2.

3.5 Client (Shipper) Alignment

Shippers seek improved and reliable integration of services, greater access to relevant skills and capabilities, better service, with reduced operating costs, and enhanced revenue opportunities. This can only be achieved through better alignment of LSP services with their Shippers’ logistics and supply chain buying behaviours - which are not always evident.

The main performance criteria in a Shipper-LSP relationship is achieving high levels of satisfaction as perceived by the end-customer.

Originally, the conventional measures for value creation as perceived by Shippers were primarily cost reduction and improved operational efficiency. However, successful provision of outsourcing solutions rely on a number of factors including: understanding the type of outsourcing required by the business, and the corresponding type of contract; appropriate processes, procedures, and KPIs; qualified personnel; communication lines; early identification of possible cultural conflicts; and demarcation of responsibilities. Once these factors are defined appropriately for each end-customer the outsourcing relationship will be mutually beneficial.

ALPHA survey results showed Shippersa rated the importance of the support of LSPsb to help them achieve customer service objectives, significantly higher than LSPs rated the same issue (rank 1 with mean 4.49, compared with rank 8, mean 4.05, respectively). This indicates a significant ‘mis-alignment’ on this issue between the two parties. So called ‘collaboration and partnering strategies’ by Shippers all seem to driven by cost reduction motives, sometimes at the expense of end-customer satisfaction. This seems to further confirm ALPHA findings that supply chain partners still do not share a common vision, or act on the same performance metrics and priorities. See Figure 12.

a Survey Question: “To what extent do the statements below reflect your reasons for selecting your logistics partner(s)?” Responses: 5-point Likert-scale 1, Not Important or Low to 5 Very Important or High. b Survey Question: “In your opinion, to what extent do the statements below reflect your customer’s reasons for selecting your company as their logistics partner?” Responses: 5-point Likert-scale 1, Not Important or Low to 5 Very Important or High.







Not Important

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LSP





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Perception that customer service isa selection criteria for LSP

Comparison of perceptions of Shippers vs LSP

High.........

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LSP

Perception that customer service isa selection criteria for LSP

Comparison of perceptions of Shippers vs LSP

High.........

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LSP

Source: ALPHA Survey (2003) Figure 12: Importance of Customer Service Orientation for Selecting LSPs

Shippersa and LSPsb agree that the support of Shippers to achieve customer service objectives is “very important” (means 4.35 and 4.10, respectively). Both ranked this factor as 1 (out of 12), showing alignment in this aspect. However, Shippers placed a much higher emphasis on cost and productivity (rank 2 out of 8 items, and an average mean of 4.14) compared to LSPs (rank 7, and a mean of 3.58) indicating a mis-alignment on other contributions of LSPs to Shippers’ business, see Figure 13.


Figure 13: Importance of LSPs’ Contribution to “Increase reliable and consistent service”

a Survey Question: “How important are the contributions of your Logistics Service Provider(s) to the benefit categories below?” Responses: 5-point Likert-scale 1, Not Important or Low to 5, Very Important or High. b Survey Question: “To what extent can the logistics services your company offers help improve your customers’ overall logistics performance?” Responses: 5-point Likert-scale 1, Not Important or Low to 5, Very Important or High.



Mis-alignment between Shipper and LSP (observed on several dimensions) results in lower customer service and lost revenue opportunities.

ALPHA results revealed the top three partnership and relationship management issues for LSPsa were: integrity, trustworthiness, and reputation. All rated “high”, with average scores of 4.34, 4.29 and 4.26 respectively. The corresponding response by Shippersb ranked these issues lower, although mean scores were similar to the LSPs. It is evident that LSPs are emphasising the characteristics of true partnership, but the Shippers at this stage are not placing the same importance on these qualities, and are not responding along the same dimensions. This indicates that LSPs are either not successfully communicating their desired emphasis to the Shippers, or the uptake by the Shippers is simply slow.

Formal contracts are no guarantee for achieving superior supply chain performance in today’s dynamic environment.

ALPHA survey results indicated that Shippers with no formal contracts are collaborating with LSPs on long-term supply chain performance improvement initiatives. Only true alignment between the parties, and a joint vision, will get Shippers and LSPs to realise benefits attributed to advanced supply chain management as illustrated previously in Figure 3. Shippers often control the access LSPs have to the end-customer and due to their power in the supply chain, tend to set the operational performance standards. LSPs, however, seem to be aiming at more collaborative approaches.

A study of 22 supply chains in the Americas and Europe57 confirm these findings. Shippers were quoted as reluctant players and far more sceptical in regard to the benefits of closer integration, than LSPs. Shippers consistently viewed the cost-saving aspects of supply chain management as more important than the revenue-enhancing benefits. This is the case even though they generally understood the importance of customer-driven supply chains; the need to focus on core competencies; and the importance of leveraging the skills and capabilities of their suppliers.

3.6 Geography and Physical Infrastructure

The geographical disadvantages of Australia are being overcome by better information technology and improved infrastructure.

Previously, the relatively large distances between Australian cities were perceived as an impediment to business. However, ALPHA survey results revealed that both Shippersc and LSPsd regard suppliers’ geographical distance as “low” importance (mean 2.33 and 1.98 respectively), and customers’ geographical distance of even lower importance. Refer Figure 14.

a Survey Question: “In your opinion, to what extent do the statements below reflect your customer’s reasons for selecting your company as their logistics partner?” Responses: 5-point Likert-scale 1, Not Important or Low to 5 Very Important or High. b Survey Question: “To what extent do the statements below reflect your reasons for selecting your logistics partner(s)?” Responses: 5-point Likert-scale 1, Not Important or Low to 5 Very Important or High. c Survey Question: ”How much do each of these issues prevent your company from achieving full potential of supply chain management?” Responses: 5-point Likert-scale 1, Not At All or Low to 5 Very Important or High. d Survey Question: “How much do each of these issues preventing your company from delivering the full potential of your logistics services?” Responses: 5-point Likert-scale 1, Not At All or Low to 5 Very Important or High.



Very much.........Not at all

Aver

age

Scor

e (1

-5)

5

4

3

2

1

0

LSP

Shipper


Figure 14: Importance of Suppliers’ Geographical Distance

Multinationals are leveraging their global capabilities into the Australian landscape.

Another trend that will impact the flow of product in Australia, is that multinational corporations (MNCs) are moving manufacturing offshore to lower cost locations. In the future some MNCs may be capable of fully integrated logistics solutions, and in a position to realise scale and scope efficiencies that national service providers would struggle to achieve. Toll Holdings has acquired some of the strongest logistics companies within Australia over the past decade. Other companies such as Exel Logistics and DHL International appear to be acquiring companies to enter new markets, including Australia, and to provide more services to their customers.58

CEOs surveyed by Cranfield in 2000,59 highlighted a number of significant opportunities for LSPs. While Europe remains an important market for some companies, emphasis is shifting to globalisation. The pace of change associated with globalisation will continue to impact the Australian logistics market. The focus by product and services companies on their core competencies, and the geographical distances in Australia pose real challenges for supply chain activities. However, these also provide new opportunities for LSPs in this region.

Rapid growth in manufacturing in China sets the stage for the emergence of LSPs in strength. However, these companies will have to contend with such limitations as inadequate infrastructure, and regulatory restrictions in the early years.60 Recent logistics developments in South Korea through investments in infrastructure such as the new Incheon International Airport near Seoul, and policy changes by government (e.g., free-trade zones), are setting up the conditions for LSPs to flourish.61

DHL recently opened an air express facility in Thailand to enhance its regional transportation hub system in Asia. This facility joins five with other hubs operated by DHL in Asia Pacific, which together make a significant contribution to the growth and prosperity of the region.62



A shift from a single-nation market focus to a regional view is exemplified in Europe. The extension of the European Union (EU) into Eastern and Central Europe makes Europe one of the largest integrated economic regions in the world. In turn this opens new opportunities for LSPs operating across Europe.63 The Automotive Industry investigated Central Europe as a location for manufacturing (to capitalise on lower labour costs; a well-trained industrial workforce; and relatively inexpensive real estate), even though infrastructure in the region was poor. However, neither productivity nor ROI has met initial expectations.64

In China, most Shippers are relatively unsophisticated in terms of their logistics requirements, but this is changing fast. As the presence of MNCs increase, demand for higher-end services will increase correspondingly. There is also a significant difference in the number of Chinese companies outsourcing compared to multinationals. Currently, 70% of multinationals outsource their logistics services, compared to only 16% of Chinese Shippers.65 On the supply side, the Chinese LSP market is still highly fragmented, with the largest LSPs having less than 2% market share.66 However, in Asia, manufacturers are used to operating in a fragmented market and will work with a number of service companies, while managing their distribution internally.

In Japan, ITOCHU Corporation, established a separate company in October 2000, providing logistics services using the assets of other external LSPs. The project was initiated by Nichirei Corporation, which holds a controlling interest, in conjunction with NTT Data Corporation. This is perhaps the first semblance of a 4PL-type structure in Japan. According to MITI estimates, the annual revenues in Japan’s distribution industry are likely to average YEN6.75 trillion annually, between 2003 and 2008.67 Indeed, major Japanese corporations have tended to treat logistics expertise as a low priority, and now run the danger of being too late to develop the required capabilities as they embrace globalisation. This represents a major opportunity for outsourcing enterprises.

3.7 Recruiting, Developing and Retaining People

Logistics is being recognised as a significant growth sector in most nations, and as a consequence government and higher education institutions are supporting the development of programs and research, e.g., MIT Centre for Transportation and Logistics, and the government of Aragón, Spain, have signed a multi-tier agreement to create an international logistics education and research program.68 Logistics service companies are recognising people and capabilities are the key to success in the industry. In China, the ongoing development of logistics is hampered by the problem of finding experienced local management staff.69

In Australia, freight logistics was recognised as 9% of GDP in 2002,70 and provided a core service for other industries. As part of the Commonwealth Government’s Freight Transport Logistics Industry Action Agenda, “AusLink”, has specified a number of proposals, including: “boosting the industry’s investment in its people, making the industry a more attractive career option for existing and prospective employees, particularly young men and women.”71 Another AusLink proposal is to improve the occupational, health and safety record of the logistics sector.

Lack of high calibre management and appropriately skilled employees remains a blind spot for the logistics industry, in Australia.



ALPHA survey found Shippersa and LSPsb both placed slightly above average emphasis on the “increased training /development of employees,” however, Shippers ranked this at 7(mean 3.22), and LSPs ranked it at 6 (mean 3.7). See Figure 15. Given the challenge personnel facing LSPs in particular, this ranking is surprisingly low.

Source: ALPHA Survey (2003) Figure 15: Shipper and LSP Emphasis Over the Next Two Years to Improve Logistics Performance by Training/Development of Employees

3.8 Government Involvement

Government structure and cross-State legislation is increasing the complexity of supply chains in Australia. This is due to the burden of tracking different policies, legislation, and taxation systems. In order to optimise resource allocation and investments in Australia these issues must be addressed sooner rather than later.

Any comparative disadvantages Australian logistics currently enjoys via superior infrastructure could diminish as more Asian countries improve their own infrastructure and introduce new streamlined policies and procedures for cross-border logistics.

The freight logistics services in Australia are facing an increased road congestion and corresponding transport costs, restrictions at Australian ports, and competition from regional and local businesses; providing or accessing the full range of logistics services.72 In the EU, transport congestion is also one of the biggest issues-the introduction of “silent transport” (freight deliveries at night), will reduce congestion and pollution levels, and in turn liberate capacity and increase asset optimisation. Such initiatives signal the emergence of the 24-hour economy.

a Survey Question: “Indicate your company’s emphasis over the next two years to improve overall logistics performance:” Responses: 5-point Likert-scale 1, Insufficiently - Low to 5 Very Well – High. b Survey Question: “Indicate your company’s emphasis over the next two years to improve overall logistics performance:” Response: 5-point Likert-scale 1, Insufficiently - Low to 5 Very Well – High.

Emphasis to increase training to improve logistics performance

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In the EU, schemes to optimise infrastructure include the introduction of heavy transport management regulations. The Netherlands, Belgium and France are working together to upgrade the current network of narrow, zigzagging canals, and small rivers.73 In Asia, outsourcing is likely to take off when information infrastructure advances and national governments liberalise their policies toward domestic and foreign business.

Security will permeate every aspect of logistics and supply chain management, in the future. This could be viewed as an impediment or an opportunity in the management of supply chains.

Due to increased security concerns, governments around the world are demanding tighter control over freight movement, storage and distribution: in China, Customs and Border Protection Officers (CBP) will be stationed at Shanghai and Shenzhen Ports to specifically inspect shipping containers destined for the USA.74 China’s top legislature, the Standing Committee of the National People’s Congress, passed a law on Port Administration in 2003, to upgrade construction, management and competitiveness of the country’s sea and river ports.75

In the USA, Customs-Trade Partnership against Terrorism (C-TPAT), a joint government-business initiative to build cooperative relationships that strengthen overall supply chain and border security, recognises Customs can only provide the highest level of security through close cooperation with owners of supply chains. A proactive stance by Custom Officials to screen all sea-borne containers before they reach the US will significantly contribute to the C-TPAT’s overall efforts to secure USA borders against dangers introduced through commercial traffic.

The world’s three largest seaport operators have banded together to create an initiative called “Smart and Secure Tradelanes” (SST).76 Hutchison-Whampoa Ltd, PSA Corporation Ltd, and P&O Ports, currently handle over 70% of the world’s container traffic. They are collaborating in a project to deploy automated tracking, detection and security technology for containers from the time they enter foreign freight terminals to arrival at USA ports, complying with the Container Security Initiative (CSI) regulations.77 Technology is key to improved cargo security and management. In February 2003, DHL Danzas Air & Ocean’s freight forwarding and customs brokerage operations were certified as full participants in the US Bureau of Customs and Border Protection’s Trade Partnership Against Terrorism (C-TPAT) program.78 Over the next few years, Customs will push security measures well beyond USA borders, reaching the factory floor in overseas manufacturing locations.79

In Canada, DHL Danzas Air & Ocean is an official partner in the Canada Customs and Revenue Agency’s “Partners in Protection” (PIP) program; a voluntary government-business initiative designed to strengthen security along Canada’s borders; combat terrorism and organised crime; and enhance the flow of trade entering the country.80 Canadian International Freight Forwarders Association (CIFFA), and ViaSafe Inc., announced a new partnership (September 2003), to develop an electronic collaborative approach between supply chain partners and government authorities.81



3.9 Supply Chain Case Study – BlueScope Steel

Introduction

Complementing the study on “Characteristics, Strategies and Trends for 3PL/4PL in Australia”, the ALPHA Research Consortium, in collaboration with BlueScope Steel Ltd (formerly BHP Steel Ltd), and Linfox Australia Ltd, constructed an Australian steel supply chain network in order to exemplify the findings of the overall research.

Qualitative case-based research methods were combined with semi-structured interviews to develop a representation of the relevant supply chains and gather perspectives on outsourcing and some of the research themes, e.g., inter- and intra- company integration and collaboration (between BlueScope Steel, BlueScope Logistics and Linfox); technology; geography and physical infrastructure; and alignment. A workshop was conducted at which the Gattorna “alignment model”82 was used as the over-arching framework. This model was originally developed for use in improving the overall alignment between companies and their respective marketplaces. However, during the last decade, the model has been progressively applied to the specific task of understanding how corporate supply chains can be better aligned with customers, suppliers, and other stakeholders in supply chains, such as Logistics Service Providers (LSPs).

The relevance to the current research is that although the majority of the work in recent years has focused on single companies and the way they supply their customers, the alignment model has proven to be a very useful framework in helping to understand how alignment between a Shipper and LSP can be improved. Going beyond this, it is also obvious that alignment principles can be applied when moving towards an outsourcing model with ‘embedded’ alignment, from the day it commences operations, e.g., 4PLs or VNC.

BlueScope Steel, BlueScope Logistics, and Linfox

BlueScope Steel is a leading manufacturer of steel in Australia and New Zealand, supplying a large percentage of all flat steel products sold in these markets. It is organised into four business units: Industrial Markets; Asian Building and Manufacturing Markets; Australian Building and Manufacturing Markets (AUSBAMM); and Market and Logistics Solutions (this business unit is also responsible for BlueScope Logistics, and BlueScope’s roll-forming business BlueScope Lysaght).

ALPHA focused on the role of BlueScope Logistics in AUSBAMM’s COLORBOND® pre-painted steel supply chains that supply steel stockholder distributors, and manufacturing, building, and construction sectors in Queensland. The transport and logistics needs of these supply chains are primarily managed by BlueScope Logistics, who in turn employ Linfox, and other LSPs, to carry out most of AUSBAMM’s fulfilment task.

Linfox is the Asia Pacific region’s largest privately owned LSP, with operations in eight countries; owning a fleet of over 4,200 vehicles, 250 operation sites, with 1,000,000 square meters of warehousing space under management.83 Linfox is organised into the following business streams: freight forwarding; retail; fast moving consumer goods (FMCG); route to market; and building and construction. Since acquiring Mayne Logistics at the end of 200284, Linfox now provides contracted logistical services to a significant proportion of BlueScope Steel’s business units.



COLORBOND® Pre-Painted Steel Supply Chains

Figure 16 is a simplified representation of the COLORBOND® pre-painted steel logistics flow paths supporting the distribution channels in the Queensland market. ALPHA focused on the supply of unpainted steel out of BlueScope Steel’s Springhill plant, Port Kembla, NSW. This is supplied to BlueScope Steel’s Queensland Service Centre for painting and distribution to, steel stockholders, manufacturers, and the building and construction sectors. There are additional channels through which the steel is further processed before reaching the final consumer/end user, but these were not considered in scope for this case study.

Source: Interviews for Case Study (2004)

Figure 16: Queensland Market COLORBOND® Steel Logistics Flow Paths

Logistics Outsourcing

The outsourced logistics services for COLORBOND® steel supply chains, are relatively simple and include warehousing; internal transportation of product between company sites and business units; and management of transport, and distribution to end-customers.

BlueScope Logistics’ charter in the BlueScope business has changed in recent years. Since the de-merger with BHP Billiton in July 2002, BlueScope Logistics has moved away from their previous role of a largely internally-focused LSP, to more of a management company with selected core competencies, co-ordinating other LSPs to meet the needs of all BlueScope Steel businesses. BlueScope Logistics now focuses on functions such as: contract negotiation; information management; scheduling; safety training and compliance; and LSP performance management, rather than the physical fulfilment task aspects.

BlueScope Logistics has used reverse auctions to conduct contract negotiation with LSPs. This process was often adversarial, but the expectation always was that relationships would become more collaborative during the ongoing execution of the contract. The question this raises is whether or not the expectation of moving from adversarial to collaborative, in this situation, is realistic.

BlueScope Steel – Industrial

Markets

Steelmaking

Port Kembla

BlueScope Steel – Australian Building &

Manufacturing Markets

Cold Rolling

Springhill



State Service Centre

Painting

Queensland

Domestic Roofing & Walling

Other Building Materials

Washers, Dryers

Garden Sheds

Commercial Roofing & Walling

Fencing

Air Conditioning

Garage Doors

End-Customer Segments

BlueScope Direct Customer Segments & Channels

BlueScope Steel Business Units –

Physical Logistics NetworkSuppliers

Raw Materials Supplies

Manufacturing

Roll formers

Large Rollformers

Small Rollformers

Distributors

Large Projects

BlueScope Logistics

• Schedules loads rail or road transfer/distribution between sites and division and to direct customers

• Negotiates & manages contracts with logistics services providers

BlueScope Steel – Industrial

Markets

Steelmaking

Port Kembla



Cold Rolling

Springhill



State Service Centre

Painting

Queensland

Domestic Roofing & Walling

Other Building Materials

Washers, Dryers

Garden Sheds

Commercial Roofing & Walling

Fencing

Air Conditioning

Garage Doors

End-Customer Segments

BlueScope Direct Customer Segments & Channels

BlueScope Steel Business Units –

Physical Logistics NetworkSuppliers

Raw Materials Supplies

Manufacturing

Roll formers

Large Rollformers

Small Rollformers

Distributors

Large Projects

BlueScope Logistics

• Schedules loads rail or road transfer/distribution between sites and division and to direct customers

• Negotiates & manages contracts with logistics services providers



The experience of LSPs such as Linfox and DHL, is that Shippers continue to target cost and productivity improvements. This in turn can interfere with what Shippers say they also want from their LSPs: i.e., innovation. The cost focus by Shippers seems to be stifling innovation, or at best results in only a limited range of LSP service offerings being utilised by the Shipper.

Until recently, new value-added services offered by LSPs (such as network optimisation modelling, and corresponding infrastructure rationalisation), could not be effectively utilised by BlueScope Steel, due mainly to their decentralised organisation structure; where individual sites were responsible for negotiating logistics contracts. Today, the centralisation of contract negotiations has positioned BlueScope Logistics to oversee a larger part of the outsourcing requirements for the business, and hence, pursue opportunities for large-scale optimisation and corresponding value extraction.

BlueScope Logistics is gradually divesting its vehicular assets, and considering outsourcing the management of more of the internal logistics functions related to warehousing; and internal product transfers via rail and road. The future structure and role of BlueScope Logistics is still evolving as their operating model is currently under review.

Cross-Company Integration and Collaboration

The existence of multiple legacy systems in BlueScope Steel’s manufacturing and Logistics groups limits the synchronous flow of information between BlueScope Steel sites, the Logistics group, and contracted LSPs (such as Linfox). This includes information that facilitates the scheduling of transportation requirements. Linfox, BlueScope Steel, and BlueScope Logistics are working together to correct this current lack of visibility.

Visibility in supply chains is also hindered by the unwillingness of some customers to share demand information. This impacts COLORBOND® steel production schedules. For example, services offered by AUSBAMM, such as Vendor Managed Inventory (VMI), work better for stakeholders when collaboration is high. However, customers are unwilling to transfer information that would enable their supplier (and therefore) LSPs to better align manufacturing and distribution according to customer requirements. As a result of the limited collaboration between stakeholders in the various supply chains, the intensity of internal communications is significantly increased as staff grapple to determine the real nature of the customer’s requirements.

BlueScope Steel is considering the implementation of an Enterprise Resource Planning (ERP) system. Whilst ERP systems can assist in resolving some of the problems associated with a lack of integration, Gattorna85 argues that such systems, because of their transactional nature, have limitations. ERPs are not appropriate for all customers, nor do they have the capacity to support and deliver differentiated service levels on their own. Additional application systems and corresponding processes are required to achieve the desired multiple supply chain alignment.

Geography and Physical Infrastructure

BlueScope Logistics schedules the delivery of unpainted steel feed from Port Kembla, to the Queensland paint-line. The distance between Port Kembla and Queensland, was not raised as being a significant problem for supply-lines by either BlueScope Steel or Linfox. Anecdotally, it would appear a combination of information technology, postponement practices and a just-in-time (JIT) type of manufacturing strategy between the sites reduces the impact of issues normally associated with lengthy distances. However, distance does become an issue between LSPs and the



manufacturer, when emergency deliveries are required. These may occur due to a number of reasons: including demand surges; product quality losses at the customer or manufacturer resulting in a run-down of safety stock, work-in-process stock, or finished stock; industrial disputes; and ordering errors.

The priority of emergency deliveries means that the time it takes to travel the distance between Port Kembla and Queensland becomes problematic. Additionally, transport costs to meet priority requests, increase as urgently required product(s) are usually despatched by road, rather than the more cost-effective rail alternative.

Strategic Alignment Model86

The alignment model, illustrated in Figure 17, was developed in response to the need for a multi-disciplinary framework that would integrate the formulation of strategy, with the human factors that characterise demand from outside the firm, and capability inside the firm, to deliver the intended strategy87. The model was developed between 1989 and 1993, and has been successfully applied to supply chains since.

The Strategic Alignment Model brings together four elements that must be aligned to achieve sustained superior performance. These are: the marketplace; strategic response(s); internal capabilities (or culture); and leadership style.

Source: Adapted from Gattorna (1998)88

Figure 17: Gattorna’s “Strategic Alignment Model”

The major insight from overlaying the generalised version of the Alignment Model was that companies must focus attention on how customers wish to be serviced, in both sales and logistics terms. This is called behavioural segmentation, and ensures channel alternatives, logistics flow paths, and facilities, will be designed and operationalised for optimal performance Indeed, it becomes obvious that segmentation of customer needs along behavioural lines provides the ultimate frame of reference for designing the configuration of modern supply chains89.

Unfortunately, most companies, including BlueScope Steel, tend to use institutional rather than buyer behaviour type segmentation regimes. ALPHA’s observation is that once customer ‘dominant buyer behaviours’ in any marketplace are well understood, the most appropriate array of supply chains can be reverse engineered. The pivotal issue of customer buying behaviours is outlined in the discussion below.

Tech

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Customer Buying Behaviours

Gattorna90, has observed that for any category of product or service, customers will tend to exhibit a small but finite range of dominant buying behaviours. For generic dominant buying behaviour segments are presented in Figure 18. They are: Collaborative, Efficiency/Consistency, Demanding/Quick Response, and Innovative Solutions. The particular buying behaviour preference expressed by the customer has implications for the type of relationship that develops between suppliers and customers, and their respective LSPs.

These buying behaviours can change for short periods of time under different market conditions, although customers will always revert to their natural preferences. Understanding these buyer behaviours therefore enables an organisation to focus on aligning services with the buyer values associated with each customer and product combination.

Companies must go beyond the traditional methods of segmentation that are currently in use (e.g., account profitability; strategic value of the customer; customer size; etc.) and segment customers according to buyer behaviour. The more traditional methods are important only as secondary considerations in achieving the primary objective: delivering most the appropriate level of service to customers - no more, no less.

Source: Adapted from Source: Gattorna (2003)91

Figure 18: A Typical Array of Behavioural Segments found in many Industries

Based on the discussions within the workshop it became obvious there were three dominant buying behaviours for COLORBOND® steel product, as illustrated in Figure 19.

Collaborative Efficiency/Consistency

Demanding/Quick Response Innovative Solutions

Mostly predictable

Regular delivery

Mature or augmented products

Primary source of supply

Trusting relationship

Teamwork/partnership

Information sharing

Joint development

Forgiving

Price not an issue

Predictable demand within contractRegular deliveryEfficiency low cost focusMultiple sources of supplyLittle sharing of informationMore adversarialStandard processesPower imposedTransactionalVery price sensitive

Unpredictable demandCommodity relationshipTime priority/urgencyOpportunity focusAd hoc source of supplyLow loyalty, impersonalFewer processesOutcome orientedCommercial deals based on pragmatismPrice aware

Very unpredictable demandHigher riskFlexible delivery responseInnovation focusRapid changeIndividual decisionmakingSolutions orientedManagement of IPIncentives/egoNo price sensitivity

Close working relationships for mutual

gain

Consistent response to largely predictable

demands

Rapid response to unpredictable supply and

demand conditions

Supplier-led development and delivery

of new ideas

Collaborative Efficiency/Consistency

Demanding/Quick Response Innovative Solutions

Mostly predictable

Regular delivery

Mature or augmented products

Primary source of supply

Trusting relationship

Teamwork/partnership

Information sharing

Joint development

Forgiving

Price not an issue

Predictable demand within contractRegular deliveryEfficiency low cost focusMultiple sources of supplyLittle sharing of informationMore adversarialStandard processesPower imposedTransactionalVery price sensitive

Unpredictable demandCommodity relationshipTime priority/urgencyOpportunity focusAd hoc source of supplyLow loyalty, impersonalFewer processesOutcome orientedCommercial deals based on pragmatismPrice aware

Very unpredictable demandHigher riskFlexible delivery responseInnovation focusRapid changeIndividual decisionmakingSolutions orientedManagement of IPIncentives/egoNo price sensitivity

Close working relationships for mutual

gain

Consistent response to largely predictable

demands

Rapid response to unpredictable supply and

demand conditions

Supplier-led development and delivery

of new ideas



BehaviouralCustomer Segment s

Service Priority

• Stable • Long term

l ti hi• High levels of t

• Short lead-time• Flexible• Responsive

i

• Consistenc• Highly

li bl• Regular d li i

“EfficiencConsisten”

“Demanding/ Quick ”

“ Collaborat”Key

A P

I

a

(Non St t i /S llRoll - formers/Distributor) Projects (Big Roll-formers,

Automotive, t )

)

Behavioural Customer Segments

Service Priority

• Stable • Long term relationship • High levels of support

• Short lead-time• Flexible• Responsive service

• Consistency• Highly reliable• Regular deliveries

‘Efficiency/ Consistency’

‘Demanding/ Quick Response’

‘Collaborative/Key Accounts’

A P

I

a

(Non Strategic,Distributors)

Projects (Large & SmallRollformers)

Figure 19: “Strawman” Customer Segmentation, BlueScope Steel

The discussions in the workshop led to the conclusions that ‘projects’ are predominantly in the Demanding/Quick Response segment; ‘large roll-formers’ were predominantly in the Collaborative segment; ‘small roll-formers’ and manufacturers also displayed characteristics of the Collaborative segment; whilst distributors were predominantly in the Consistent/Efficiency segment. The Innovative Solutions behavioural segment is also likely to be present, but is probably relatively small in this industry.

The task of identifying the dominant buying behaviours exhibited by BlueScope Steel’s major customers led to much debate. During the workshop, one team argued that no customer displayed truly collaborative behaviour, as information required for the effective implementation of initiatives such as VMI, was incomplete. This was attributed to the limited knowledge about what information would be most useful for a supplier; an unwillingness by some to share information; and a limited integration to enable the most effective capture and application of information.

There are a number of approaches an organisation can use to identify customer dominant buying behaviours. It is suggested that sales staff could be used to develop an initial list of behaviours and characteristics that describe their customers. These characteristics are then grouped into predominant buying behaviours. Customers are then allocated, by name, to the appropriate group, and subsequently validated through an iterative process, during which definitions are further clarified. Following from the framework provided by the Strategic Alignment Model, corresponding ‘value propositions’ and service strategies are then developed that focus on each segment’s dominant buying behaviour.

Supply Chain Response Strategies

Following the empirical observation that there are four generic types of dominant buyer behaviours for many product categories, it follows that each of these would require corresponding responses; hence the notions of ‘multiple supply chains’ and ‘multiple supply chain alignment’. Figure 20 details the four generic types of supply chains corresponding to each of the dominant buying behaviours of the Strategic Alignment framework: Continuous Replenishment; Lean; Agile and Fully Flexible.



Source: Gattorna (2004)92

Figure 20: Generic Supply Chains

Applying this to COLORBOND® steel supply chains, results in three major supply chains each with it’s own operating characteristics. However, uniqueness is simply a series of different combinations of standard processes, rather than numerous exceptions. For example, trading terms would vary across the three supply chains, and should be matched with appropriate incentives. Indeed, companies with a strong market position such as BlueScope Steel can modify their customers’ behaviour through trading term variations.

This approach to developing supply chains according to customer behaviours, means, that if customers change their buying behaviours for short periods, it is no longer an issue, as long as no previously unobserved segments appear in the supply chain. Value propositions and operational processes on the ground, can be hardwired to cover the observed range of behaviours, and as a result it really doesn’t matter which behavioural segment the customer transfers to - as long as this is tracked and the appropriate response strategy is applied.

With reference to Figure 21, it becomes obvious that AUSBAMM has to find a way to deliver at least three different types of responses to their customers, and because this responsibility is being passed on to their LSPs, both Shipper and LSPs must have the appropriate combination of organisation design, processes, KPIs, and technology, to achieve the required multiple supply chain alignment.

Rel

atio

nshi

p w

ith c

usto

mer

Predictability of demand

“Continuous Replenishment”

“Lean”

Loose

TightHigh Low

Predictable demand, easily managed through tight collaboration with customers. Focus on retention of customer relationships.

Demand predicable, (e.g. from historic off-take), but the loose relationship does not necessitate an extreme service level. Focus on efficiency.

Respond opportunistically & manage yield. Focus on providing creative solutions for premium price.

Unplanned or unforeseen demand, and a sometimes loose relationship with customers - almost always demands an agile response at higher cost-to-serve. Focus on the service-cost equation

“Fully Flexible”

“Agile”Rel

atio

nshi

p w

ith c

usto

mer

Predictability of demand

“Continuous Replenishment”

“Lean”

Loose

TightHigh Low

Predictable demand, easily managed through tight collaboration with customers. Focus on retention of customer relationships.

Demand predicable, (e.g. from historic off-take), but the loose relationship does not necessitate an extreme service level. Focus on efficiency.

Respond opportunistically & manage yield. Focus on providing creative solutions for premium price.

Unplanned or unforeseen demand, and a sometimes loose relationship with customers - almost always demands an agile response at higher cost-to-serve. Focus on the service-cost equation

“Fully Flexible”

“Agile”



Figure 21: ‘Strawman” Strategy Responses, BlueScope Steel

By understanding buyer values, AUSBAMM and Linfox, will be able to elicit clear responses to end-customer needs and thereby create value for AUSBAMM. “Achieving market alignment therefore overcomes one of the major pitfalls in executing supply chain strategy, that is, treating all customers the same through a primary focus on reducing costs or building service satisfaction”93. The company, whose logistics infrastructure and culture have the capacity for multiple responses to their different customer segment requirements, will be well positioned for success in the future.

At the conclusion of the workshop, the discussion focused on how firms in supply chains can move toward alignment, i.e., through identifying points of mis-alignment; opportunities for improved alignment; and selecting the best initiatives to implement in order to reduce the gaps identified. Some specific suggestions in this case were as follows:

• Communicate the policies, procedures, and strategies to internal stakeholders of the Queensland paint-line

• Communicate the policies, procedures, and strategies to customers and all external stakeholders of the Queensland paint-line

• The Queensland Service Centre paint-line and AUSBAMM Head Office are not completely aligned as to what is the role of the Service Centre in Queensland.

• Increase the involvement of BlueScope Logistics and its LSPs in decisions relating to the management of the Queensland business

• Consider re-segmenting national customers based on the ‘alignment’ model

Segmen- F ocuseA ctivitie

• ‘ 0 - week ’ delivery • Smaller quantity

• ‘0-week’ delivery• Ordering• Co-ordination• Project managment

• VMI/VOS • Weekly planning • Collaboration • Sharing of sales data and

forecasts • EDI• MOQ

• Distribution – Co-ordination• Warehousing

• Inventory management• Manufacturing

• Marketing• Finance & Administration

Shared Infrastructu

Segment- Focused Activities

• ‘ 0 - week ’ delivery • Smaller quantity

• ‘0-week’ delivery• Ordering• Co-ordination• Project managment

• VMI/VOS • Weekly planning • Collaboration • Sharing of sales data and

forecasts • EDI• MOQ

• Distribution – Co-ordination• Warehousing

• Inventory management• Manufacturing

• Marketing• Finance & Administration

Shared Infrastructure

BehaviourCustomeSegmens

Service • Stable • Long term relationship • High levels of support


• Consistency • Highly reliable • Regular deliveries

“ Efficiency/ Consistency ”

“Demanding/ Quick Response”

“ Collaborative ” Key Accounts

A P

I a

(Non Strategic/SmallRoll - formers/Distributors) Projects (Big Roll - formers,

Automotive, etc.) )

Behavioural Customer Segments

Service Priorities

• Stable • Long term relationship • High levels of support


• Consistency • Highly reliable • Regular deliveries

“ Efficiency/ Consistency ”

“Demanding/ Quick Response”

“ Collaborative ” Key Accounts

A P

I a

(Non Strategic, - Distributors) (Projects

)(Large & Small R ll

- Roll-formers)



• Conduct a pilot study with BlueScope Lysaght, to test and demonstrate how Alignment Model principles can be applied throughout its entire supply chain network

The above list highlights some of the suggestions made by workshop attendees designed to achieve ‘quick wins’ in the COLORBOND® steel supply chain network.

Conclusion

Outsourcing is here to stay and indeed BlueScope Steel is considering increasing the size and scope of its logistics outsourcing activities, a move that will be welcomed by LSPs that are capable of delivering so much more.

Cross-company collaboration and integration and associated benefits are still a long way from being achieved due to existence of legacy systems; the cost of replacing them; and the general reluctance on the part of all stakeholders (extending to LSPs) in supply chains to share information. Shippers need to select LSPs with the ‘embedded’ capability to achieve aligned service outcomes with its customers.

If BlueScope Steel were to undertake an alignment analysis for its COLORBOND® steel product supply chains, significant opportunities would be identified with customers and LSPs alike. This would provide a robust platform for redesigning processes; KPIs; training and development; recruitment; technology; and communications (internal and external), all of which over time would lead to more satisfied customers, better working relationships with LSPs, and extra value for all parties involved.



4 Appendices

4.1 Methodology

ALPHA Research Consortium Team Structure

The program structure is shown in Figure 22.

Figure 22: ALPHA Research Consortium Team Structure

Research Approach and Timeline

The timeline for the activities and outcomes completed during the research project between the 18 August 2003, and 20 February 2004 are outlined in Figure 23. The research was required to be completed within the time specified by the LAA Tender.

Research Team

Steering Committee

Academic Advisors

Prof. M. Christopher, Cranfield

School of ManagementP. Scott, UoW

Supply Chain SponsorsI. Dickson, P. Robertson,

BlueScope SteelM. Byrne, T. Franklin, Linfox

Y. Butler, DHL Australia

Program ManagerR. Ogulin, SBS

University Research Team

SBS: M. Campos, A. Friscione, B. Friscione, A. Konstantelos

MGSM: M.Bojnordi, K.Hughes

Quantitative Analysis & Research Advisers

Assoc. Prof. J. Rodwell, MGSMStatistical Services, UoW

ConsultingSponsorsM. Sinclair,

Logistics BureauT. Gore, Lucis

ChairsProf. J.L. Gattorna, SBSProf. W. Selen, MGSM

TechnologySponsorT. Moylan,

Manugistics

Logistics Association ofAustralia (LAA)

K. Grundy



Figure 23: Research Timeline

LAA Research Brief Questions

The following research questions were required by the LAA to be investigated:

• Reasons for companies entering into 3PL/4PL provided arrangements

• Identify customer needs and evaluate strategies employed by 3PL/4PL providers to cater for those needs

• Examine typical aspects of logistics strategies, tactics, and their contribution to customers’ corporate or global development strategies

• Investigate the scope of service provided by 3PL/4PL providers and customers’ corresponding satisfaction with those services

• Examine the impact of e-Commerce, internet, and other enabling technologies on the effectiveness and efficiency of 3PL/4PL provided services, on a national and international basis

• Evaluate the cost-effectiveness of 3PL/4PL provider service

• Investigate models utilised by 3PL/4PL providers and determine if they meet best-practice methodologies

• Determine current and projected capacity of the 3PL/4PL industry over the next few years

Research Methodology

The research combined information gained from secondary sources: publications and websites; as well as from primary data: interviews, surveys and their analysis, as outlined in Figure 24.

Aug Sep Oct Nov Feb

Phase 3: Report Dlv.

Phase 2: Field W ork and Analysis

Phase 1: Concept & Mobilisation

Dec Jan

Phase Task

Research Program Research Preparation Foundation

Field work/Information

Analysis and

Report Generation & Delivery



LAA Brief: & Research Questions

Secondary Research: Academic Publications, Industry Data & Literature, Definitions, Frameworks, & Supply Chain Surveys

Convergent Interviews with Selected Experts

2 Surveys: Shipper & LSP

Survey Data Analysis Supply Chain Case Study

Interviews with Relevant Managers

Report

6 Research Themes

Figure 24: Research Procedure Flowchart

Literature Review and Industry Data

The initial phase of the project commenced with secondary research from published sources such as: electronic journals, reports in principal trade and academic journals, and previous relevant research papers/studies. This included a literature review of the current concepts of outsourcing in logistics, focusing on 3PL and 4PL solutions.

Relevant quantitative data was also gathered on the Australian logistics industry from sources such as: Australian Bureau of Statistics (ABS), and Department of Transport and Regional Services (DOTARS). This included the identification of relevant data on other countries to create a benchmark for comparison. Recently published, and currently unpublished articles (including surveys) were made available to the research team by Cranfield School of Management, as well as from ongoing research (Master’s theses and PhD research) of ALPHA team members, and steering committee members.



Convergent Interviewing

Convergent interviewing was chosen as a robust exploratory approach to identify current issues in the Australian logistics market. This step was taken to reduce the possibility of missing locally based, or recently emerging issues relevant to the industry. Selected experts were interviewed for their opinion(s) on issues relating to Australian Logistics Service Providers (LSPs), and their clients (Shippers). Approximately twenty individuals were interviewed from a range of businesses: Shippers, LSPs and logistics support services, (e.g., software and hardware providers, recruitment).

The issues identified in the convergent interviews, and relevant comments made by individuals in the Steering Committee, were combined with the secondary research, and incorporated into the survey. The following six themes were found to be important in the outsourcing of logistics in Australia:

• Strategic Alliances, Partnerships and Collaboration

• Cross-company Integration and Collaboration

• Customer (Shipper) Alignment

• Geography and Physical Infrastructure

• Recruiting, Developing and Retaining People

• Government Involvement

These are discussed in more detail in Section 1.2 .

Survey Instruments

The survey was based on three constructs that formed the framework to determine future use of 3PL and 4PL services. To aid academic rigor, and to provide a benchmark, questions from a Singaporean outsourcing survey, 199994, were used. These were supplemented as far as possible, with questions that would yield insight into the six research themes arising from the convergent interviews. ALPHA survey used complete sets of scales from the Singaporean survey, so that our results could form part of a future comparative study.

The three survey constructs from the Singapore article were:

1. Extent of use of 3PL/4PL:

• length of experience with outsourced LSP

• percentage of total logistics budget used on LSP

• extent of outsourced logistics services

• geographical usage (Australian owned verses multinational companies)

• use of signed contracts with LSP

• strength/type of relationship between Shipper and LSP



2. Decision Making Process:

• reasons for outsourcing to a LSP • concerns in relation to LSP service provision

• other functional areas involved

3. Impact on the User Firm:

• benefit categories of LSP contributions • obstacles when implementing outsourced LSP services

In order to predict the future use of outsourcing the following scales were operationalised:

• customer satisfaction

• increased use of LSP services over the next two years

• future modification of current LSP service

• predicted scope of logistics services over the next two years

An advantage of the ALPHA research approach was the development of two related survey instruments: one for Shippers, and another for LSPs. The questions were phrased so that responses from Shippers and LSPs could be directly compared on most dimensions. Most questions had response categories on a 5-point Likert-scale, so average scores could be summarised, and the results from the two surveys directly compared. Regression analysis was used to establish the relationships that predicted: customer satisfaction, chance of increased use of future logistics provision, and modification of current LSP practices. Some questions used a nominal scale (e.g., Yes/No responses) allowing qualitative variables to be included such as the presence or absence signed contracts of Shippers with LSPs. Other questions required descriptive data from both Shipper and LSP respondents.

A deliberate decision was made not to use the terms 3PL or 4PL in the surveys. This was based on two factors: the lack of consistency in the marketplace in the use of the terms (as discussed earlier in Section 2.3); and more importantly, in an effort to gain a greater understanding of the characteristics, tends and strategies of outsourcing in Australia. Questions were designed to address the characteristics of 3PLs and 4PLs, without using these specific terms, in order to circumvent as far as possible preconceived ideas on the part of the respondent, and prevent the wording in the surveys influencing the results.

The mailing list was made from a combination of two sources:

• LAA’s current membership list, and

• A selected group of relevant industry partners provided by John Gattorna from his contact list, developed over the past few years.



A total of 1299 surveys were posted in November 2003, 1028 were Shipper surveys sent to relevant companies, and 271 LSP surveys were sent to Logistics Service Providers and others (e.g., industry support companies such as Consultants and IT providers). By early January 2004, there was a 9.4% response rate for the Shipper survey (97 surveys returned), and 23.6% for the LSP (64 surveys). This allowed comprehensive descriptive and inferential analysis of the data to be completed.

A summary of the industries represented by the Shippers who responded to the survey in Figure 25.

Source: ALPHA Survey (2003) Figure25: Industries Represented by Respondents of the Shipper Survey

Analysis of Responses

SPSS was used for analyzing the survey data using the following statistical methods: 1. summary of average response scores and standard deviations 2. statistical comparison of average response scores for Shippers and LSP’s 3. descriptive bar chart comparisons 4. bi-variate correlation analysis on specific variables of interest 5. selected regression analyses 6. other descriptive statistical methods Since most of the questions on the Shipper and LSP surveys were strongly related (almost “reflections” of each other), further analysis was possible by comparing the responses of the two groups (Refer Section 4.4). .

Industries represented in survey

Health Services

Professional & Consu

Government Administr

Information & Commun

Personal & Household

Food Retailing

Wholesael Trade

Metal Products Manuf

Machinery & Equipmen

Chemicals & Pharmace

Automotive Manufactu

Printing, PublishingElectronics Manufact

Consumer Products Ma


Construction

Utilites

Agriculture, Forestr

Not on list - manual

Missing

Industries represented in survey

Health Services

Professional & Consu

Government Administr

Information & Commun

Personal & Household

Food Retailing

Wholesael Trade

Metal Products Manuf

Machinery & Equipmen

Chemicals & Pharmace

Automotive Manufactu

Printing, PublishingElectronics Manufact



Construction

Utilites

Agriculture, Forestr

Not on list - manual

Missing



Supply Chain IT: An Australian Perspective

Today, IT infrastructure typically consists of interface devices, communication links, databases, and system architecture. During the 1980s and earlier, IT infrastructure was primarily mainframes and silo software systems such as Materials Requirements Planning (MRP). In the 1990s these systems were gradually replaced by client/server computers, still using stand-alone software programs. Initially, the approach to application integration was to build hardwired point-to-point links, one application at a time. The emphasis of businesses using these systems was to reduce inventory from their part of the supply chain. Inventory did not necessarily disappear from the supply chain, just relocated to another part of the supply chain. These ‘silo’ stand-alone software solutions helped companies reach a more advanced level of operational excellence, but more was needed to optimise the supply chain.

New strategies and products entered the market that replaced inventory with information. Late in the 1980s and early 1990s, the integration of different modules of supply chain IT software became more important. The paradigm of supply chain IT changed from the traditional mainframe and PC-based planning systems, to distributed and integrated computing, and eventually to on-line supply chain execution applications and data integration. During this period, collaboration and the use of EDI further facilitated the development of integrated supply chain systems.

Supply Chain Application Architecture

Today, many companies incorporate IT integration and solutions into the supply chain by utilising new technology platforms: the current focus in the market is Enterprise Resource Planning (ERP) systems, supply chain solutions, and system integration. These solutions link companies via the internet to enable faster response, increased accuracy, and improved flexibility to respond to changes in both demand and supply. IT solutions are being developed jointly by: consulting firms, supply chain software providers, hardware companies, e-commerce providers, and ERP providers.

IT system solutions have differing capabilities and benefits. Most businesses select a solution based on a balance of functionality and price (which can include consideration of the cost of the system, as well as the cost to integrate the new system with other existing software). This has resulted in companies needing to choose between best-of-breed and pre-packaged solutions. Best-of-breed solutions integrate leading applications in each respective functional area to achieve a distinctive IT solution. A packaged solution however, circumvents the challenge of an IT architecture consisting of a set of disconnected systems by providing an “off-the-shelf” solution. Many software solutions currently available in the marketplace tend to be standard packages that may not readily link with another supply chain software solution. This causes problems when businesses move towards closer collaboration, as the integration of different solutions is a costly and complex process.

A summary of the layered view of systems is shown in Figure 26.



Source: Gattorna (2003)95

Figure 26: Layered View of Supply Chain Management Systems

Global Supply Chain Software Application Providers

Table 2, lists the 2002 and 2003 fifteen global market leaders (by revenue), in supply chain management applications. 96 All these companies experienced a decline in market revenue, linked to the global economic downturn in 2002. The following year supply chain execution systems increased in sales.97 AMR Research predicts increased supply chain integration by businesses will result in increased sales over the period 2002-2007.98

Company 2002

Revenue (USDm)

2003 Revenue (USDm)

SAP 511 516 i2 Technology 434 399 Manugistics 226 228 Manhattan Associates 176 197 IBS 161 164 J.D. Edwards 140 145 Swisslog 114 119 Aspen Technology 98 99 Retek 77 81 RedPrairie 75 81 Vastera 74 86 EXE Technologies 73 74 PeopleSoft 69 80 Descartes 56 58 Vertex Interactive 47 45

Source: Supply Chain Management Review (2003) 99

Table 2: Leading Supply Chain Software Providers

e-Collaboration

Strategic Decisions & Collaborative

Capability

OperationalTools &

Reporting

ERP

APS

WarehouseMgmt

DataWarehouse

EDI

MRP Production Finance

BusinessIntelligence

Availableto Promise

CustomerCare

Data

Logistics Network Design

Factory Planning

e-ProcurementSupply

Chain Planning

Internal Focus External

CPFRNew ProductCollaboration

Visibility & EventManagement

Sales &Marketing

e-Collaboration

Strategic Decisions & Collaborative

Capability

OperationalTools &

Reporting

ERP

APS

WarehouseMgmt

DataWarehouse

EDI

MRP Production Finance

BusinessIntelligence

Availableto Promise

CustomerCare

Data

Logistics Network Design

Factory Planning

e-ProcurementSupply

Chain Planning

Internal Focus External

CPFRNew ProductCollaboration

Visibility & EventManagement

Sales &Marketing



IBS3%Rest

73%

Manhattan Associates4%

Manugistics4%

I2Technology7%

SAP9%

The top five supply chain application vendors have approximately 30% of the market share as shown in Figure 27. The market is quite fragmented, and this has resulted in an enormous range of available supply chain solutions. SAP remains the market leader due to the popularity of its ERP, its easy-to-add functionality of WMS, and modular system. New vendor companies entering the market tend to target small-to-medium sized businesses that cannot afford the more expensive systems currently available.

:

Source: Adapted from Supply Chain Management Review (2003) 100 Figure 27: Supply Chain Software Vendor Revenue Share Forecast, 2003

SAP

SAP’s business software solutions are designed to meet the demand of companies of all sizes - from small businesses through to global enterprises. SAP Australia & New Zealand employ more than 350 people, with over 370 business customers across major industries including: public sector, manufacturing, mining, retail, utilities & telecommunications, and financial services. Australian SAP customers include: Australia Post, BHP Steel, Caltex, Coles-Myer, Commonwealth Bank, Holden, National Australia Bank, Queensland Health, Shell Australia, SingTel, Optus, Telstra, Toyota, Motor Corporation, Westpac, WMC, and Woolworths.101

On January 5, 2004, at SAP’s Annual General Meeting it was announced that its fourth quarter software revenue results for 2003 was approximately EUR930 million, representing a 3% decline compared to the EUR958 million earned in the same period in 2002.102 On a constant currency basis however, software revenue for 2003 had actually increased by 4%. These results were achieved mainly through strong performance in United States and Germany. Total revenue for the fourth quarter 2004, is expected to be approximately EUR2.2 billion, which is a 3% decrease from the EUR2.3 billion reported in the same period in 2003.103

One of SAP’s products is MySAP.com's Advanced Planner & Optimiser (APO), which provides up-to-date information about a company's current inventory, and triggers replenishment in response to a pre-set quantity of customer orders. APO consists of several application levels: Network Design, Demand Planning, Supply Network Planning, Production Planning and Detailed Scheduling, Global ATP, Transportation Planning and Vehicle Scheduling, and Supply Chain Collaboration; and is designed to help improve strategic plans, forecasts, production plans, quotations, schedules and product shipping by real-time integration.



i2 Technology

i2 was founded in 1988, and is now a leading supply chain optimisation company. Its software utilises a process methodology to help businesses with variability of their supply and demand. i2’s core competencies focus on end-to-end supply chain solutions, including products for supplier relationship management, supply chain management, demand chain management, service parts management and transportation. i2 has partnerships with consulting companies and system integrators such as: Accenture, A.T. Kearney, Cap Gemini, Ernst & Young, and IBM; distributors such: as DataTechnology and SCM Technologies; and software providers such as: Borland, Extol, IBM, and Informatica.104

On January 16, 2004, IBM and i2 Technologies announced the availability of i2’s Supply Chain Planning Solutions for customers (using IBM eServer xSeries Intel® processor-based servers running Microsoft Windows Server).105 Another important product is i2 Supply Chain Management (i2 SCM), which provides multi-enterprise visibility, collaboration, intelligent decision support, and execution capability. i2 SCM enables a business to strategise, plan, and execute service processes across multiple enterprises for improved profitability106. Australian customers include: Toshiba America, Cooper Industries, Woolworths, K-mart, BlueScope Steel, Kobe Steel, Fiat Auto SpA, Ford Motor Company, IBM, FedEx, and UPS.

Manugistics

For nearly three decades Manugistics has had a reputation for excellence in supply chain software products; providing solutions for supply chain management, service and parts management, pricing and revenue optimisation, and supplier relationship management, as well as infrastructure products, strategic consulting, and implementation services for more than 1200 clients. Manugistics also provides software solutions to improve security and integrity of global supply chains. Clients include: AT&T, BMW, Boeing, DuPont, Harley-Davidson, Woolworths, and British Airways. 107

Manugistics’ supply chain management solutions include: Network Design and Optimisation, Manufacturing Planning and Scheduling, Sales and Operations Planning, Fulfilment Management, Collaborative VMI and CPFR™, iHub, Service and Parts Management, Global Logistics Management, Global Logistics Sourcing, and Fleet Management.108 Business partners include: Accenture, Apex, IBM, Chrome, and NEC.

In 2003 Manugistics released a new version of its business applications software designed for use with radio frequency identification (RFID), an emerging inventory-tracking technology. This is part of Manugistics’ “adaptive planning” program - a set of applications designed to detect and resolve logistical problems. Manugistics has made a strategic decision to focus on this emerging technology in response to Wal-Mart and the U.S. Department of Defence announcing their decision to expand their RFID projects.109

On January 7, 2004, Sun Microsystems Inc. and Manugistics Group Inc. announced a major performance improvement for Manugistics' Store-Level Replenishment Solution by re-architecting the application running on the Solaris™ Operating System using SPARC® technology. This improvement enables retail customers to optimise business processes, and forecast demand at individual store level, rather than at large distribution centres.110



Manhattan Associates

Manhattan Associates was established in California, USA in 1990. Since that time the company has grown to nearly 850 employees, with more than 925 licensed customers, representing 1,400 facilities worldwide. In 2002, Manhattan Associates opened a Centre of Expertise in Sydney, Australia, in order to establish partnerships and operations to service customers throughout Asia Pacific. Last year, they developed “RFID-in-a-Box™” with Alien Technology, which uses RFID for inventory identification and tracking.111 Manhattan Associates has also enhanced its range of software solutions to include transportation management and trading partner management solutions. Their main products are: Trading Partner Management Application, Transportation Management Systems Application, and Warehouse Management Systems Application. 112

Total revenue for Mahattan Associates in the quarter ending September 30, 2003, was AUD50.2 million; which is an increase of 17% compared to the same period, 2002. Software and hosting fees for the quarter ending September 30, 2003, totalled AUD9.6 million, a decrease of 4%, reflecting the global economic downturn and a decline in software expenditure by businesses over that period. 113

International Business Systems (IBS)

IBS, International Business Systems, is a Swedish-based supplier of wholesale distribution and supply chain execution software, providing integrated IT solutions for distribution and supply chain-focused companies. Their customer-base includes: ABB, Cartier, CIBA Vision, Galenica, General Electric, Honda, Maxell, Mitsubishi, Miele, Pioneer and Volvo. IBS is now active in over 40 countries.114

Total revenue for the first nine months of 2003 was SEK1,672 million compared to SEK1,782 million earned in same period of the previous year. Pre-tax profit in 2003, was SEK–59 million, compared to SEK–227 million during the corresponding period in 2002. The 2003 result included SEK113 million for non-recurring costs, which translates into an improved operating profit of SEK55 million. These substantial improvements in profit recorded in 2003, were achieved in the USA, UK, France, Italy, South America, Asia and Sweden.115 In Australia, IBS has offices in Sydney and Melbourne; and customers include: Laminex Group, Miele, Remington, Cork International, and MTU Detroit Diesel.116

The main products of IBS are warehouse solutions, service management solutions, and manufacturing solutions. IBS' Virtual Enterprise software is a collaborative commerce solution with the ability of Enterprise Application Integration (EAI) software, equipped with business logic.117 IBS Virtual Enterprise supplies businesses in areas such as: collaborative sales and procurement, supply chain visibility and optimisation, and shared financial services.



4.2 Top Australian Logistics Service Providers

The following table represents revenue information for the top 12 Logistics Service Providers in Australia, during 2002. Figures were sourced from commercial databases, company websites, and annual reports. Some of the companies listed below (e.g., P&O, Australia Post), are involved in additional activities not directly related to logistics. The revenue earned from these activities (e.g., acquisition of new companies, creation of strategic alliances, sale of business units) has not been deducted from the totals in the table.

Although most of these companies are Australian-owned, many are overseas operators that have significant presence in Australia (e.g., Exel, P&O, EGL). All provide similar service offerings such as: freight forwarding, customs clearance, logistics storage and distribution, cargo management, mail, delivery and retail services, and refrigerated storage.

* indicates figures to 6/2003

Source: Commercial Databases, Company Websites, Annual Reports

Table 3: Top Australian Logistics Service Providers

Australia Post

Australia Post is a government-owned company established in 1989. It is ranked 46 of the top 2000 companies in Australia, with annual revenue of AUD3,971.9 million, in the year to 06/2003, and has over 26,000 employees. 118 Revenue for Post Logistics rose 92.8% in 2002/03 (actual figures not disclosed), but it contributes a significant part of the AUD231.7 million attributed to unidentified sources. 119 Post Logistics, Australia Post’s integrated business logistics operation offers clients integrated logistics and fulfilment services, including: order processing, credit management, warehousing, inventory management, kitting, pick and pack, distribution, and returns management services. This range of services can be bundled according to the customer’s requirements. Post Logistics fulfilled an average of 11,300 orders per day in 2002/2003 (compared to 8,400 orders in the previous year). 120 In 2002/03, Post Logistics completed its first year of the contract for Microsoft Xbox, which involved outsourcing the total supply chain process to Post, including purchase of the product for sole distribution; earning greater-than-expected revenue. In

Company

Total Revenue AUDm in 2002

Australia Post 3,971*

Toll Logistics Australia Pty Ltd 2,603 *

P&O Australia Limited 1,405

Linfox Proprietary Limited 1,300

Patrick Corporation Limited 875

TNT Australia Pty Limited 742

John Swire & Sons Pty Limited 274

K&S Corporation Limited 267

Star Track 245 *

Exel (Australia) Pty Ltd (Group) 178

DHL 157



November 2002, Post Logistics entered into a new five-year agreement with Coles-Myer, expanding its current services to include: inventory management and fulfilment; currently services include: warehousing, pick-and-pack, and delivery of fresh, frozen and dry groceries. Post Logistics also secured a major contract in the apparel market, with the signing of a new warehousing and fulfilment agreement for Best & Less. 121

Toll Holdings Limited

Toll is Australia’s largest transport and logistics provider with approximately 5% market share of the AUD57 billion Australian logistics sector. 122 In the 12 months prior to 6/2003, Toll generated a total revenue of AUD2,603.5 million. Toll is ranked 84 of the top 2000 companies in Australia; with over 12,000 employees, (including subsidiaries under the company's control) . 123

Toll is an Australian-owned company founded in 1986, with headquarters located in Melbourne. Toll provides multi-modal distribution services including: road, rail, sea transport, wharf cartage, container handling, multi-user and purpose-built warehousing facilities and management, packaging design, packaging contracting and reverse logistics (including recycling), refrigerated warehousing and storage, as well as cold chain management. Customers are from automotive, beverages, food & retail, industrial, ports & resources and removalist industry sectors. 124

Toll is able to offer tailored inter-modal solutions to their customers by utilising all major transportation modes, as well as warehousing, and privatised port-management operations. Additionally, the group’s ability to draw on resources across a number of divisions allows integrated solutions that maximise efficiencies of all elements in the supply chain. 125

Toll exemplifies how collaboration with supply chain partners and competitors can be applied to reshape the industry. In 2002, the group’s acquisitions included: February, Toll Group and Patrick Corporation announced completion of their AUD1.2 billion acquisition of National Rail and FreightCorp (renamed Pacific National); in May, iToll acquired BHP Stevedoring, and BHP Transport and Logistics (New Zealand), from BHP Billiton; and a majority equity position in Southern Distribution Centre Ltd (SDC).126 In June, the acquisition of DX Group from AUSDOC enabled Toll Holdings to increase scale in both air and road express freight services, and add further capability through the acquired comprehensive point-to-point courier network. In October, Toll acquired the Brambles Industries Cargo Shipping Operations; and in November, the Mayne Group’s time critical Express operations. 127

P&O Australia Limited

The Peninsular and Oriental Steam Navigation Company (P&O), is a major international logistics and transport company founded in 1837, in Britain. Its fastest growing division is the development of container ports around the world. Underpinning the company’s activities is the international strength of the P&O brand, a commitment to customer service, a global coverage, and an excellent knowledge and skills-base, in logistics and transport. 128

P&O commenced services in Australia in 1852, and currently has four major businesses providing diverse services in the Australian market; P&O Ports, P&O Cold Logistics, P&O Maritime Services and P&O Australian Resorts.129 In the 12 months prior to 12/2002 P&O generated a total revenue of AUD1,405 million. 130



Linfox Australia Proprietary Limited

Linfox is an privately-owned Australian company, established in 1965; ranked 323 out of the top 2000 companies in Australia; with revenue of AUD1.3 billion, and 9,000 employees. It currently has a fleet of over 4,200 vehicles with operations in seven countries. Linfox is structured into industry streams that service: retail, beverages, FMCG, fulfilment, cash services (Armaguard), food services, freight forwarding, petro-chemical and building-products sectors.

Linfox maintains a strong presence in Asia; logistics operations were established in Malaysia and Thailand in 1993, and Hong Kong in 2001. The recent acquisition of Mayne Logistics has doubled Linfox’s presence in South-East Asia, resulting from expansion into mainland China and Indonesia. Customers include: Coles-Myer, Shell, BRL Hardy, and Posthaul. Linfox has four divisions: Linfox Logistics, Linfox Armaguard, Linfox Property, and Linfox Airports. 131

Patrick Logistics Proprietary Limited

Patrick Logistics is an Australian publicly listed company, founded in 1969. The majority of Patrick’s income is generated from transport services provision. It is ranked 235 of the top 2000 companies in Australia; with approximately 3,700 employees, and reported revenues of AUD875.15 million, in 2002. In the 12 months prior to 9/2003, Patrick generated a total revenue of AUD1,132 million. Patrick Logistics is a focused transport logistics company specialising in: loading and unloading of ships, efficient land-based collection, distribution, and storage of cargo for import, export, and within Australia. Patrick has built an integrated network of freight logistics operations that deliver seamless and efficient transport solutions across all modes: rail, road, sea and air. 132

In 2002, Patrick Logistics enhanced the capability of its land-based logistics operations through: acquisition of United Transport; purchase of a 50% share in the depot and rail operator, Seatons133; and expanding port operations through the purchase of CSX World Terminals (Brisbane operation).134 In 2003, Patrick has significantly expanded its capacity to provide fast and reliable distribution of cargo by the acquisition of a 50% share in the rail operator, Pacific National, and Virgin Blue Airlines. These were two of the biggest logistics business deals during 2003. In February, Patrick, in partnership with Toll Holdings, paid AUD1.17 billion for FreightCorp and National Rail Corporation; and on March 12, purchased a 50% share Virgin Blue Airlines for AUD260 million.135 The partnership was based on a shared vision for the Australian rail-freight industry, and their combined size and experience to successfully manage the integration of large-scale acquisitions. 136

TNT Australia Pty Limited

TNT Logistics, a division of TNT Australia P/L, is a leading global logistics company operating in 36 countries. TNT Logistics designs, implements and operates complex supply chain solutions to increase optimisation, integration and visibility on national, regional and global scales. 137 The Australian operation of TNT Logistics, TNT Australia Pty Limited, is ranked 261 of the top 2000 companies in Australia. In the 12 months prior to 12/2002, it reported total revenue of AUD742.15 million. 138 Within Australia TNT Logistics operates 25 sites, encompassing over 150,000m2 of warehousing space, serviced by approximately 700 employees. 139

TNT Logistics is moving away from the most 'generic' Third Party Logistics activities by re-engineering skills to increase service levels, and provide end-to-end visibility in



the supply chain. This creates the highest value for customers by optimising the supply chain, and extending service offerings beyond activities currently performed by other logistics companies. 140

John Swire & Sons Pty Limited

John Swire & Sons Pty Limited generated revenue of AUD274 million, in 2002. 141 They provide supply chain management solutions for local subsidiaries and act as an agent in Australia for the group's overseas businesses divisions. Swire & Sons focus primarily on cold storage, road transportation and distribution services, arable and livestock farming, and shipping services.

Swire is the market leader in refrigerated storage, distribution of perishable foodstuffs, and specialist road haulage businesses, serving Queensland, New South Wales, Victoria, South Australia and Tasmania.142 They are one of the largest operators of refrigerated transport and warehousing for perishable foodstuffs in Australia. Clients include some of the country's major food producers, distributors and retailers.

K & S Corporation Limited

K & S Corporation Limited has been providing transport, warehousing and logistics support to the Australian Industry for more than 55 years .143 K & S is has three businesses: K & S Freight (transportation), K & S Integrated Distribution (warehousing), and K & S Agencies (Fuel). The group generated total revenue by 2002 of AUD267 million;144 transportation accounted for 85% of the revenue, fuel 12% and warehousing 3%.145

The main source of revenue for K & S is the Freight Division, which is one of Australia's largest full load forwarding agents; providing transport and logistics operations in all mainland States and Territories, including road and rail haulage as well as logistics solutions for manufacturers, as well as sea full-load movements.146 The Integrated Distribution provides warehousing and distribution services in all Australian states; while K&S Agencies (fuel division) distributes to fishing, farming and retail sectors throughout south-eastern South Australia.

Star Track Express

Star Track Express, trading as Multigroup Distribution Services Pty Ltd, has developed its services around state-of-the-art logistics technology. Star Track ranked 837 of the top 2000 companies in Australia, and generated total revenue of AUD245 million in the year ended 6/2003.147 The 30-year-old company operates from 52 sites; employing more than 2,400 people nationally.148

Star Track is primarily a distributor of packaged goods; operating in the high-value, time-sensitive business-to-business market, with a strong commitment to the latest technology. Star Track has made significant investment in infrastructure and information technology, to create both superior freight handling facilities and market-leading freight management systems. The primary business aim was to provide efficient and accurate delivery of product and information for customers; resulting in on-time delivery rates above 99%.149

Star Track was purchased at the end of 2003, for $750 million, by Australia Post and Qantas in a 50:50 joint venture. Australia Post and Qantas aim to expand their business-to-business market in express logistics, in Australia and overseas.150



Exel (Australia) Proprietary Limited

Exel is a global leader in supply chain management; and a publically listed company in the UK. In 2002, it reported a turnover of more than USD7 billion. Exel has a strong presence in Australian and New Zealand, in the freight-forwarding, brokerage and logistics markets. Exel (Australia), is the largest customs brokerage and fastest growing 3PL operator for both airfreight and sea-freight, within the region; offering both consultancy, and Third Party Logistics services, including: kitting, repair, call centres and other value-adding activities. Australian operations have 800 employees; and account for approximately AUD178 million of the total revenue in the calendar year, 2002. 151 Exel is ranked 1015 of the top 2000 companies in Australia.

Exel (Australia) operates in 21 locations and has over 120,000m2 of 3PL facilities; dominating the technology, healthcare and FMCG sectors. Exel manages Third Party Logistics for over 40% of Australian, and 70% of New Zealand pharmaceutical companies. In the telecoms sector, it works with all major phone manufacturers and provides services including QA, SIM Lock, kitting, and software upgrades, as well as consultancy, and freight-forwarding solutions. Exel’s growth strategy is based on strengthening three areas: global coverage, integrated capability and customer focus.

In October 2002, Amcor Australasia (Australian and New Zealand arm of the Australian-based global packaging group), appointed Exel as its Lead Logistics Provider for international freight movements, and customs brokerage activities in Australasia.152 In July 2002, Smith & Nephew, a leading provider of healthcare products and services to hospitals, distributors and pharmacies, announced that it would be strengthening its relationship with Exel. 153

DHL154

The company was formed in 1969 and its network grew very quickly. In 1982, DHL grew with offices in 30 countries and territories in just this one year. The year after, it opened offices in Eastern Europe, the first air express company to do so, and in 1986 DHL entered into a joint venture with Sinotrans in the People's Republic of China and became the first express company active in China. DHL has been operating in Australia for 32 years.

For 2003, Deutsche Post World Net, owners of DHL, placed all worldwide express and logistics under one brand. This has seen Danzas and Deutsche Post Euro Express join forces with DHL; the result is now DHL provides total express logistics and freight solutions under their brand.

DHL has four divisions to respond to customer needs: DHL Express, DHL Freight, DHL Danzas Air & Ocean, and DHL Solutions, which is a tailor-made contract and industry-specific logistics solution from consulting to supply chain design, from storage and sales logistics to production and order management.

Nowadays, DHL has more than 170,000 employees (after merging) active in more than 220 countries and territories with more than 250 aircraft and 75,000 vehicles globally. In Australia, DHL Express and DHL Danzas Air & Ocean have more than 1,400 employees and over 30,000 customers.



4.3 Shipper and LSP Summary Survey Results

Survey responses to Shipper and LSP surveys are organised in the following pages to according to the issues for investigation outlined in the Logistics Association Brief. In summary, the LAA requested information on:

Reasons for companies entering into 3PL/4PL provided arrangements

• Reasons for companies entering into 3PL/4PL provided arrangements

• Identify customer needs and evaluate strategies employed by 3PL/4PL providers to cater for those needs

• Examine typical aspects of logistics strategies, tactics, and their contribution to customers’ corporate or global development strategies

• Investigate the scope of service provided by 3PL/4PL providers and customers’ corresponding satisfaction with those services

• Examine the impact of e-Commerce, internet, and other enabling technologies on the effectiveness and efficiency of 3PL/4PL provided services, on a national and international basis

• Evaluate the cost-effectiveness of 3PL/4PL provider service

• Investigate models utilised by 3PL/4PL providers and determine if they meet best-practice methodologies

• Determine current and projected capacity of the 3PL/4PL industry over the next few years

Each LAA issue has been highlighted in the following pages, followed by the relevant question(s) from Shipper and LSP surveys, along with the appropriate scale (usually a Likhert-scale: 1 to 5, or –2 to 2). The responses from Shippers and LSPs are summarised in table form, allowing direct comparison of the different responses. The mean value of each response is listed in ranked order from the highest to the lowest, with standard deviations included to illustrate the cohesion of each response; where relevant the information is illustrated with histograms.


The reasons for companies entering into 3PL/4PL provider arrangements

Shipper Survey Q7: How important to your company were the following reasons for outsourcing activities to a Logistics Service Provider?

LSP Survey Q6: How important to your customers were the following reasons for outsourcing logistics activities?

Responses: 1 (Not Important) to 5 (Very Important)

Rank Q7 Shipper Response

Mean SD Rank Q6 LSP Response Mean SD

1 customer satisfaction 4.18 0.984 1 customer satisfaction 4.07 0.962 2 flexibility 4.05 0.843 2 cost savings 3.93 0.971 3 productivity improvement 3.89 0.960 3 productivity improvement 3.91 0.823 4 cost savings 3.87 0.997 4 focus on core business 3.76 0.858 5 focus on core business 3.73 1.178 5 access to up-to-date techniques &

expertise 3.66 0.993

6 access to up-to-date techniques & expertise

3.50 1.074 6 flexibility 3.53 0.903

7 employee morale 2.57 1.045 7 employee morale 2.45 1.172



Shipper Survey Q9: To what extent do the statements below reflect your reasons for selecting your logistics partner(s)?

LSP Survey Q8: In your opinion, to what extent do the statements below reflect your customers’ reasons for selecting your company as their logistics partner?

Responses: 1 (Not Important or Low) to 5 (Very Important or High)



1 supports the importance we give to customer service

4.49 0.636 1 high degree of integrity 4.34 0.739

2 reliable and consistent in dealing with us

4.38 0.608 2 Trustworthy 4.29 0.817

3 committed to us 4.29 0.746 3 strong reputation 4.26 0.785 4 high degree of integrity

4.27 0.823 4 reliable and consistent in dealing with

your customers 4.21 0.767

5 trustworthy 4.23 0.861 5 committed to customers 4.14 0.826 6 offers economic benefit 4.22 0.796 6 offers economic benefit 4.12 0.796 7 improves our market position 4.07 0.947 7 know their business 4.10 0.810 8 knows our business 3.99 0.866 8 support the importance your

customers give to customer service 4.05 0.804

9 strong reputation 3.82 0.846 9 improves customers’ competitive market position

3.76 0.979

10 has potential synergy with us 3.66 1.009 10 has potential synergy with customers 3.62 0.855



Identify customer needs and evaluate strategies employed by 3PL/4PL providers to cater for those needs

Shipper Survey Q8: To what extent does your company outsource the following logistics activities?

LSP Survey Q7: To what extent do your customers outsource the following activities to you or other logistics providers?

Responses: 1 (Not At All or Low) to 5 (Very Extensive or High)



1 outbound transportation 4.70 0.675 1 transportation 3.95 1.419 2 inbound transportation 4.18 1.359 2 logistics technology 3.48 1.143 3 warehousing 3.07 1.602 3 inventory replenishment & warehousing 3.44 1.310 4 fleet management/operations 3.00 1.583 4 logistics information systems 3.26 1.133 5 shipment consolidation 2.95 1.690 5 carrier selection 3.02 1.371 6 order fulfilment 2.85 1.644 6 coordination of LSPs 2.94 1.123 7 product returns 2.76 1.608 7 fleet management/operations 2.93 1.425 8 logistics information systems 2.48 1.479 8 product returns 2.77 1.268 9 carrier selection 2.28 1.571 9 rate negotiation 2.74 1.357 10 product assembly/installation 2.03 1.480 10 freight payment 2.55 1.379 11 rate negotiation 1.95 1.370 11 product assembly/installation 2.54 1.255 12 customer spare parts 1.92 1.366 12 customer spare parts 2.47 1.287 13 freight payment 1.91 1.374 13 marketing & promotional services 2.14 1.109 14 inventory replenishment 1.88 1.374



Shipper Survey Q10: How important are the contributions of your Logistics Service Provider(s) to the benefit categories below?

LSP Survey Q9: To what extent can the logistics services your company offers help improve your customers’ overall logistics performance?


Rank Q10 Shipper Response Mean SD Rank Q9 LSP Response Mean SD 1 increase reliable and consistent

service 4.35 0.747 1 increase reliable and consistent service 4.10 0.718

2 reduce cost 4.10 0.945 2 help customer focus on their core business

4.07 0.934

3 enhance flexibility 4.06 0.805 3 give access to techniques and expertise

3.97 0.858

4 shorten delivery lead time 3.82 1.132 4 reduce cost 3.97 0.917 5 increase productivity 3.80 0.927 5 increase productivity 3.93 0.769 6 help customer focus on our core

business 3.80 0.984 6 enhance flexibility 3.91 0.864

7 improve visibility across logistics and SC

3.47 1.148 7 give access to up-to-date technology 3.84 0.988

8 give access to techniques and expertise

3.45 1.006 8 shorten delivery lead time 3.74 1.085

9 improve space and capacity utilisation 3.31 1.242 9 improve visibility across logistics and SC

3.72 1.152

10 give access to up-to-date technology 3.22 1.131 10 improve space and capacity utilisation 3.72 1.225 11 enable us to offer new services 2.85 1.302 11 enable customer to offer new services 3.31 1.063 12 access new markets 2.28 1.280 12 access new markets 3.12 1.093



Examine typical aspects of logistics strategies, tactics, and their contribution to customers’ corporate or global development strategies. Investigate models utilised by 3PL/4PL providers and determine if they meet best-practice methodologies. Determine current and projected capacity of the 3PL/4PL industry over the next 5 years

Shipper Survey Q13: If you work with more than one Logistics Service Provider, to what extent do the following descriptions apply?

LSP Survey Q12: In working with your customers, to what extent do the following descriptions apply?




1 adversarial relationship with LSP 4.16 0.955 1 customer requirements are the main drivers for improving our services

4.23 0.866

2 collaborative relationship with LSP 3.90 0.911 2 adversarial relationship with most of our customers/Shippers

4.18 1.197

3 negotiate on factors other than price 3.90 1.073 3 collaborative relationship with most of our customers/Shippers

4.11 0.772

4 distinguish contracts & relationships

3.68 1.029 4 negotiate on factors other than price 3.84 0.977

5 optimise multiple LSPs 3.51 0.984 5 capability to coordinate multiple LSPs for our customers/Shippers

3.53 1.297

6 negotiate based on price 3.44 1.177 6 distinguish contracts & relationships based on the type of services provided

3.51 1.088

7 standard policy in dealing with LSPs 3.04 1.319 7 invest regularly in new logistics services 3.46 1.026 8 we let a Lead Logistics Provider (LLP)

coordinate other LSPs for us 2.05 1.226 8 negotiate based on price 3.35 1.077

9 standard policy in dealing with customers/Shippers

2.77 1.282



Shipper Survey Q18: How much do each of these issues prevent your company from achieving the full potential of supply chain management?

LSP Survey Q21: How much do each of these issues prevent your company from delivering the full potential of your logistics services?

Responses: 1 (Not At All or Low) to 5 (Very Important or High)



1 lack of sophisticated IT for information sharing

3.48 1.248 1 lack of sophisticated IT for information sharing

2.82 1.245

2 lack of ability in managing inventories 2.97 1.156 2 lack of cooperation 2.75 1.090 3 lack of cooperation 2.74 1.107 3 lack of leverage within your SC 2.57 1.056 4 lack of interest to participate in SC 2.66 1.177 4 competition from other supply chains 2.56 1.245 5 suppliers' geographical distance 2.66 1.226 5 lack of interest of customers/Shippers to

participate in SC 2.54 1.119

6 lack of leverage within your SC 2.51 1.240 6 lack of trust of SC members 2.46 1.074 7 lack of trust of SC members 2.41 1.052 7 lack of interest of suppliers/contractors to

participate in SC 2.43 1.102

8 customers' geographical distance 2.33 1.185 8 lack of ability in managing inventories 2.41 1.230 9 competition from other supply chains 2.22 1.189 9 suppliers' geographical distance 1.98 1.072 10 customers' geographical distance 1.97 1.016



Note: the following two questions are not asking for identical information:

Shipper Survey Q20: How likely is it that your company is going to increase the use of logistics provider services over the next two years?

LSP Survey Q18: How likely is it that your company is going to increase the scope of logistics services offered to customers during the next 2 yrs?

Responses: 2 (Very Likely), 1 (Likely), -1 (Unlikely), -2 (Very Unlikely)

Shipper Q20 Incr Use of LSP Over Next 2 Yrs

Q20 Increase Use of LSP Over Next 2 Years

Very LikelyLikelyUnlikelyVery Unlikely

Freq

uenc

y

40

30

20

10

0

Mean = 0.44 Mean = 1.22

SD = 1.369 SD = 0.940

LSP Q18 Incr Scope of LSP Over Next 2 Yrs

Q18 Increase Scope of LSP Over Next 2 Years

Very Likely LikelyUnlikely

Very Unlikely

Frequency

30

20

10

0

Very Unlikely Unlikely Likely Very Likely



Shipper Survey Q21: How would you modify your use of logistics provider services if you were given complete corporate responsibility to make that decision?

LSP Survey Q17: To what extent would you modify the scope of your service offering to your customers if you were given complete corporate responsibility to make that decision?

Responses: 2 (Substantially Increase), 1 (Moderately Increase), 0 (No Change), -1 (Moderately Decrease), -2 (Eliminate)

Shipper Q21 Modifiy LSP Services

Q21 Modifiy LSP Services

Substantially IncreaModerately Increase

No ChangeModerately Decrease

Eliminate

Freq

uenc

y

60

50

40

30

20

10

0

Mean = 0.55 Mean = 0.92

SD = 0.780 SD = 0.596

LSP Q17 Modifiy LSP Services

Q17 Modifiy LSP Services

Substantially Increase Moderately IncreaseNo Change

Eliminate

Frequency

50

40

30

20

10

0

Eliminate Moderately Decrease



Investigate the scope of service provided by 3PL/4PL providers and customers’ corresponding satisfaction with those services

Shipper Survey Q14: Overall, how satisfied are you with the performance of your Logistics Service Provider(s)?

LSP Survey Q16: In your opinion, how satisfied are your customers with your overall performance as their Logistics Service Provider?

Responses: 2 (Very Satisfied), 1 (Satisfied), -1 (Dissatisfied), -2 (Very Dissatisfied)

Shipper Q14 Satisfied with LSP Performance

Q14 Satisfied with LSP Performance

Very SatisfiedSatisfiedDissatisfiedVery Dissatisfied

Freq

uenc

y

60

50

40

30

20

10

0

LSP Q16 Satisfied with LSP Performance

Q16 Satisfied with LSP Performance

Very SatisfiedSatisfiedVery Dissatisfied

Freq

uenc

y

50

40

30

20

10

0

Mean = 0.93 Mean = 1.27

SD = 0.816 SD = 0.639



Shipper Survey Q15: Indicate your company's emphasis over the next two years to improve overall logistics performance.

LSP Survey Q13: Indicate your company's emphasis over the next two years to improve overall logistics performance.

Responses: 1 (Insufficiently - Low) to 5 (Very Well - High)



1 improve customer service 4.3 0.769 1 improve productivity 4.28 0.796 2 reduce product/service cost 4.16 0.825 2 improve customer service 4.14 0.875 3 improve productivity 4.15 0.833 3 Information sharing 4.07 0.923 4 improve information sharing 3.73 0.989 4 improve capacity/space utilisation 3.79 1.114 5 reduce response time 3.69 1.108 5 reduce response time 3.75 0.987 6 improve capacity/space utilisation 3.60 1.138 6 increase training/development of employees 3.70 0.844 7 increase training/development of

employees 3.22 1.038 7 reduce product/service cost 3.58 0.963

8 increase marketing efforts 2.95 1.234 8 increase marketing efforts 3.23 0.964



Examine the impact of eCommerce, Internet, and other enabling technologies on the effectiveness and efficiency of 3PL/4PL provided services, on a national and international basis

Shipper Survey Q16: To what extent are you using any of the following logistics information and communication technologies listed below?

LSP Survey Q14: To what extent are you using any of the logistics information and communication technologies listed below?

Responses: 1 (No Use or Low) to 5 (Heavy Use or High)



1 using EDI to connect with suppliers/customers

3.46 1.4133 1 using applications connecting to suppliers/customers

3.79 1.145

2 using integrated logistics IT applications 3.32 1.342 2 using internet to connect with supplier/customers

3.75 1.243

3 using internet to connect with supplier/customers

3.31 1.238 3 using integrated logistics IT applications 3.51 1.167

4 using connected logistics facilities IT applications

3.23 1.410 4 using EDI to connect with suppliers/customers

3.40 1.462

5 using applications connecting to suppliers/customers

3.18 1.285 5 using connected logistics facilities IT applications

3.30 1.362

6 using stand-alone IT applications 3.69 1.453 6 using non-integrated IT applications 2.77 1.163



Shipper Survey Q17: To what extent do your company's information and communication technologies support logistics processes?

LSP Survey Q15: To what extent do your company's information and communication technologies support logistics processes?

Responses: 1 (Insufficiently or Low) to 5 (Very well or High)



1 support - financial transactions 3.37 1.300 1 support - financial transactions 3.32 1.338 2 support - electronic sales transactions 3.30 1.323 2 support - electronic sales transactions 3.11 1.220 3 support - electronic procurement 2.96 1.472 3 support - collaborative supply planning 2.86 1.187 4 support - collaborative supply planning 2.71 1.360 4 support - electronic procurement 2.84 1.347 5 support - collaborative demand planning 2.40 1.281 5 support - collaborative demand planning 2.75 1.243



Evaluate the cost-effectiveness of 3PL/4PL provider service

Shipper Survey Q7: How important to your company were the following reasons for outsourcing activities to a Logistics Service Provider?

LSP Survey Q6: How important to your customers were the following reasons for outsourcing logistics activities?




1 customer satisfaction 4.18 0.984 1 customer satisfaction 4.07 0.962 2 flexibility 4.05 0.843 2 cost savings 3.93 0.971 3 productivity improvement 3.89 0.960 3 productivity improvement 3.91 0.823 4 cost savings 3.87 0.997 4 focus on core business 3.76 0.858 5 focus on core business 3.73 1.178 5 access to up-to-date techniques &

expertise 3.66 0.993

6 access to up-to-date techniques & expertise

3.50 1.074 6 flexibility 3.53 0.903

7 employee morale 2.57 1.045 7 employee morale 2.45 1.172



Shipper Survey Q10: How important are the contributions of your Logistics Service Provider(s) to the benefit categories below?

LSP Survey Q9: To what extent can the logistics services your company offers help improve your customers’ overall logistics performance?




1 increase reliable and consistent service

4.35 0.747 1 increase reliable and consistent service 4.10 0.718

2 reduce cost 4.10 0.945 2 help customer focus on their core business

4.07 0.934

3 enhance flexibility 4.06 0.805 3 give access to techniques and expertise

3.97 0.858

4 shorten delivery lead time 3.82 1.132 4 reduce cost 3.97 0.917 5 increase productivity 3.80 0.927 5 increase productivity 3.93 0.769 6 help customer focus on our core

business 3.80 0.984 6 enhance flexibility 3.91 0.864

7 improve visibility across logistics and SC

3.47 1.148 7 give access to up-to-date technology 3.84 0.988

8 give access to techniques and expertise

3.45 1.006 8 shorten delivery lead time 3.74 1.085

9 improve space and capacity utilisation 3.31 1.242 9 improve visibility across logistics and SC

3.72 1.152

10 give access to up-to-date technology 3.22 1.131 10 improve space and capacity utilisation 3.72 1.225 11 enable us to offer new services 2.85 1.302 11 enable customer to offer new services 3.31 1.063 12 access new markets 2.28 1.280 12 access new markets 3.12 1.093



Shipper Survey Q11: Rate the importance of the following concerns in relation to outsourced logistics services provision?

LSP Survey Q10: Rate the importance of the following concerns in relation to outsourced logistics services provision?




1 uncertainty about service quality provided by LSP(s)

4.53 0.731 1 cost of your services 3.26 0.983

2 cost of outsourcing 3.97 0.926 2 uncertainty about level of service provided by your company

2.74 1.158

3 uncertainty about service capability of LSP(s)

3.66 1.098 3 uncertainty about reliability of services offered by you as LSP

2.71 1.107

4 uncertainty about cultural fit of your organisation with LSP

3.18 1.063 4 potential loss of direct control of logistics activities

2.62 1.259

5 potential loss of direct control of logistics activities

2.87 1.270 5 uncertainty about cultural fit of your organisation with your customer

2.57 1.141



5 References

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http://www.auspost.com.au/annualreport2003/parcels_logistics.asp 122 Toll Website, (2003), “Snapshot of Toll”, available from: http://www.toll.com.au/about_snapshot.html 123 Seek Website, (2003), “Top 2000 Company Profiles: “Toll Holdings Limited”, available from:

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125 Toll Website, (2003), “About Toll”, available from: http://www.toll.com.au/about.html

126 Toll Website, (2003), “About Toll”, available from: http://www.toll.com.au/about.html 127 Toll Website, (2003), “Milestones – 2000’s”, available from: http://www.toll.com.au/milestone2000.html 128 P&O Website, (2003), “General Overview”, available from: http://portal.pohub.com/portal/page?_pageid=71,44831&_dad=pogprtl&_schema=POGPRTL 129 Company overview, P&O Australia website, available from: P&O Website, (2003), “General Overview”, available from: http://portal.pohub.com/portal/page?_pageid=71,44831&_dad=pogprtl&_schema=POGPRTL 130 Seek Website, (2003), “Top 2000 Company Profiles: P&O Australia Limited”, available from: http://www.seek.co.nz/if.asp?loc=ibis 131 Linfox Website, (2003), “Annual Report, 2003”, available from: www.linfox.com.au 132 Patrick Website, (2003), “Annual Report, 2003”, available from: www.patrick.com.au 133 Sea Freight Council of NSW, (2002), Logistics Working Group Minutes, 15th April 2002, http://www.tradegate.org.au/ 134 BTRE Report, (2001), Waterline – Stevedore Productivity, March 2001, Issue 26. 135 Patrick Website, (2003), “Annual Report, 2003”, available from: www.patrick.com.au 136 Patrick Website, (2003), “Annual Report, 2003”, available from: www.patrick.com.au 137 TNT Logistics Website, (2003), “TNT Company Profile: the Company”, available from:

http://www.tntlogistics.com.au/ 138 Seek Website, (2003), “Top 2000 Company Profiles: TNT Australia Pty Limited”, available from:

http://www.seek.co.nz/if.asp?loc=ibis 139 TNT Logistics Website, (2003), “Company Profile: Facts & Figures”, available from:

http://www.tntlogistics.com.au/ 140 TNT Logistics Website, (2003), “Company Profile: Strategy”, available from: http://www.tntlogistics.com.au/ 141 John Swire & Sons Pty Limited Website, (2003), available from: http://www.swire.com/activities/australia 142 John Swire & Sons Pty Limited Website, (2003), available from: http://www.swire.com/activities/australia 143 K&S Corporation Website, (2003): available from: http://www.ksgroup.com.au/ 144 K&S Corporation Website, (2003), “K&S Corporation Annual Report, 2002”, available from:

http://www.ksgroup.com.au/shareholders/K&SannRep2002.pdf 145K&S Corporation Website, (2003), “Transportation and Logistics”,

http://www.business.com/directory/transportation_and_logistics/ 146 Yahoo Finance, (2003), “Profile K&S Corporation” http://au.biz.yahoo.com/p/k/ksc.ax.html 147 Seek Website, (2003), “Top 2000 Company Profiles: Multigroup Distribution Services Pty Ltd”, available

from: http://www.seek.co.nz/if.asp?loc=ibis 148 Qantas and Australia Post buy Star Track Express, Australia Post’s Corporate Media Releases, available

from: Qantas and Australia Post buy Star Track Express, Australia Post’s Corporate Media Releases, available from: http://www.auspost.com.au/BCP/0,1080,CH3594%257EMO19,00.html

149 Qantas and Australia Post buy Star Track Express, Australia Post’s Corporate Media Releases, available from: http://www.auspost.com.au/BCP/0,1080,CH3594%257EMO19,00.html

150 AusPost Website (2003) “Qantas and Australia Post buy Star Track Express”, Australia Post’s Corporate Media Releases, available from: http://www.auspost.com.au/BCP/0,1080,CH3594%257EMO19,00.html

151 Exel Website, (2003), “Annual Report, 2002”, available from: www.exel.com and “History”, available from: http://www.exel.com/company/history.asp

152 Exel Website (2002), “Amcour Appoints Exel a Lead International Logistics Partner”, Press Release 10 October, 2002 http://www.exel.com/australia/news-pressreleases 153 Exel Website, (2003), “Annual Report, 2002”, available from: www.exel.com and “History”, available

from: http://www.exel.com/company/history.asp 154 DHL Marketing Department, (March 2004) details supplied with thanks.

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