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3PL Landscape & Selection Strategies

Presented by:

St. Onge CompanySponsoring Company

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Presenter

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Bryan JensenChairman/EVPSt. Onge Company

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Source Documents & Study Information

• 2019 23rd Annual Third-Party Logistics Study: The State of Logistics Outsourcing – C. John Langley Jr., Ph.D., and Infosys, 2019

• Respondents to study

• Shippers – 62%

• 46% Shippers currently using 3PL/4PL

• 16% Shippers not using 3PL/4PL

• 3PL/4PLs – 38%

• Annual State of Logistics Report - CSCMP

• 28th Annual Report

• 29th Annual Report

• 3PL Market Analysis – Armstrong

• 3PL Global Market Analysis - Armstrong

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Our 3PL Practice Clients Include

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Agenda

• 2019 Executive Summary

• State of the 3PL Market

• State of the 3PL Workforce

• The Push for Agility

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• The “Last Mile Yard”

• Omni-channel Retailing

• Contemporary Issues

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2019 EXECUTIVE SUMMARY

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2019 Executive Summary

1. Partnerships between 3PLs and Shippers remain strong

• Perception from 3PLs – 98% successful

• Perception from Shippers – 91% successful

2. Contribution to Shipper’s success

• 3PLs point of view – 98%

• Shipper view – 89%

3. Improved Shipper Effectiveness

• 3PL view – 91%

• Shipper view – 73%

4. IT from the Shipper’s perspective

• Importance – 93%

• Satisfied with 3PL – 55%

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Most Prevalent Outsourced %

Domestic Transportation 81%

International Transportation 71%

Warehousing 69%

Freight Forwarding 50%

Customs Brokerage 40%

Most frequently outsourced activities are those that are transactional, operational,

and repetitive.

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2019 Executive Summary

5. 3PLs contributed to reducing overall logistics cost

• Perception from 3PLs – 95%

• Perception from Shippers – 72%

6. Shippers increasing their use of 3PLs

• 3PLs point of view – 86%

• Shipper’s view – 63%

5. Consolidating number of 3PLs used

• 3PL view – 73%

• Shipper’s view – 61%

6. Shippers returning to insourcing logistics

• 3PL view – 36%

• Shipper view – 28%

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Shipper’s Logistics and 3PL Expenditures

3PLs consistently over-estimate key aspects of success

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STATE OF THE 3PL MARKET

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Domestic Logistics Expenditures

• 11% of total logistics expenditures are related to outsourcing. This is unchanged from 2018. Included in the percentage is transportation, distribution, warehousing, and value-added services.

• Total logistics expenditures directed to outsourcing

was slightly higher at 53%.

• Transportation spend managed by 3PLs decreased by 5% from 2018.

• Warehouse operations spend managed by 3PLs decreased by 5% from 2018.

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International Logistics Expenditures

• Global 3PL revenues increased for all seven regions.

• Global 3PL revenues increased to $869 billion from $804.2 billion.

• Highest % increases in 3PL revenues: CIS/Russia at 17.5%, followed

by South America at 13.9%, then North America at 9.8%.

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CAGR = compounded annual growth rates

CIS = Commonwealth of Independent States

The most recent completed global study was 2017

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Activities OutsourcedMore strategic and customer-facing activities tend to be outsourced less than more tactical and operational

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Information Technology

• Information technologies required by Shippers and perceived by 3PLs

• Transportation management (planning) and Warehouse Management Systems continue to be the top needs of Shippers

• Most frequently needed technologies continue to be execution and transaction-based

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Information Technology Gap

Shippers’ view of 3PLs IT capabilities

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In the most recent

study, Shippers agree

93% of the time that IT

Capabilities are

necessary for 3PLs.

However, 55% of

Shippers are satisfied

with 3PL IT

capabilities.

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Information Technology Investments• 3PLs continue to invest mainly in Warehouse and Transportation Management Systems

• Shippers continue to invest in ERP systems

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Outsourcing Vs. Insourcing • 63% of Shippers using 3PLs plan to increase their outsourcing compared to 61% last year

• 28% of Shippers using 3PLs plan to return 3PL operations to insourcing

• 61% of Shippers using 3PL plan to consolidate the number of providers

• Reasons given for not using 3PLs

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Concerns %

Loss of Control 27%

More Logistics Expertise than 3PLs 22%

Too difficult due to IT integration 18%

Concern that cost/service would

not improve 15%

Non-3PL Users

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STATE OF THE 3PL WORKFORCE

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Top workforce issues

• Finding and developing talent continues to be a major concern for Shippers and 3PLs

• Some studies estimate by 2030 the global supply of labor could fall short by 16%

• The global average salary per worker is estimated

to increase by $11,164 by 2030

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Countries facing

the greatest wage

Increase per

worker by 2030

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Reasons why companies are looking outside to fill key positions

Top Reasons companies have looked externally for talent in the past 12 months

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44% of 3PLs look outside

their organizations for

talent

24% of Shippers and

3PLs reported not having

enough executive talent

21% report not having

enough mid-level talent

34% report not having

enough hourly talent

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The Push for Agility

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Investments to improve agility

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Top reasons for re-examining supply chains

• For Shippers and 3PLs, the number 1 reason for re-examining their supply chain is lower operating cost

• In general, 3PLs and Shippers are aligned in their reasons for supply chain optimization

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Shippers involve 3PLs with their supply chain re-designs more than any partnerThe vast majority of assistance comes from 3PLs, 71%

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Supply chain design is the most frequently sought assistance

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How Shippers and 3PLs perceive top concerns about supply chain decisions

Infrastructure and workforce readiness top the list of concerns for Shippers and 3PLs when it comes to supply chain decisions

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Technology is used to alleviate several concerns with supply chain decision

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73% of Shippers and 72% of 3PLs have invested in Control Towers to assist with visibility

• Control towers and predictive analytics are two of the major technology advances utilized by Shippers and 3PLs to stay nimble and agile in the supply chain

• Operational control towers combine visibility and analytics giving users the ability to respond in real-time

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Major areas of investment

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THE “LAST MILE YARD”

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Redefining terms• The “last mile” is common in supply chains. It denote the final leg between supplier and

end user.

• With the advancement of e-commerce and omni-channel distribution the concept has been significantly enhanced and termed the “last yard.”

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Five key trends driving changes in last-yard logistics

• Declining volumes of physical (“snail”) mail and rising package volumes

• Significant increases in seasonal shipments

• Increases in personal packages shipped to work addresses

• Increases in value and criticality of many shipments

• Growth in perishable consumables and non-consumables

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Shippers and 3PLs views on the Last-Yard

77% of Shippers feel that last-yard logistics services will play a critical role in how 3PLs differentiate and add value for their Shippers

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Major concerns by Shippers with last-yard logistics

3PLs need to understand and address these potential concerns

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Value-added last-yard logistics capabilities

• Accurate shipment documentation

• Light assembly, often in homes or stores

• Kitting and returns management

• Value-added logistics services

• Moving items to the point-of-use

• Separating/segmenting product

• Technical support

• Marketing and promotional services

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Planned investment in receiving and tracking systems

• Self-serve capabilities such as lockers allow access to shipments by recipients without the need for staff

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SaaS = Software-as-a-service

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Omni-channel retailing

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Shippers are less confident today than four years ago

• One-touch integration between operations and physical product flow across all channels to provide a seamless shopping experience

• Self-assessed level of ability to handle omni-channel retailing 2015 vs. 2019

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Innovative Delivery Options

• Order online and deliver to home is still the dominant delivery option but others are making headway: Same-hour, same-day, and next-day

• Amazon Treasure Truck in select markets

• What is Treasure Truck?

At Treasure Truck, we hand-pick our favorite new, trending, local, or delicious items, load 'em up, then cruise around town spreading joy for everyone with an appetite for fun. Every time you swing by, you’ll find something new to enjoy, like games, giveaways, tasty treats, and other surprises.

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Brick-and-mortar stores are the

new “fulfillment centers”

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Main issues with multiple channel fulfillment

• Shippers and 3PLs have slightly different views on challenges facing them when it comes to omni-channel fulfillment

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System integration is the biggest challenge for 3PLs according to 42% of the respondents

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Fulfillment strategies continue to evolve but have a long ways to go

Over half of the Shippers surveyed and almost half of the 3PLs have not developed innovative fulfillment strategies.

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Contemporary Issues

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Reverse Logistics

Reverse Logistics Continues to Grow

• The USPS estimates that between $113 billion and $132 billion e-commerce purchases were returned in 2017

• 79% of online shoppers surveyed rate free shipping on returns as important when selecting a retailer

• Issues

• When will a product be returned

• What condition will it be in

• How much labor and space will to take to process returns

• 24% of Shippers outsource their reverse logistics

• 44% of 3PLs offer reverse logistics services – much of the time this is at a cost plus arrangement due to unknowns

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“Sending products back through the supply chain is like swimming up a river, with waterfalls to climb up and dozens of tributaries that make it unclear which way to go” - USPS

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International trade

Global trade continues to be a challenge

• 42% of Shippers said 3PLs must have global trade management tools

• Customs processing

• Import/export document management

• Systems that support international trade

• 40% of Shippers outsource customs brokerage

• 42% of 3PLs offer customs brokerage services

• 42% of Shippers and 37% of 3PLs use supply chain partners for country specific expertise

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World events like Brexit and the North American Free Trade Agreements continue to impact international trade and supply chains.

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How do I select the optimal provider?

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How do I know a 3PL can provide my organization value?

• They should respond to the areas of greatest concern

– Simplify Complexity

– Demonstrate IT Capability

– Provide a Material Handling Technology Evaluation (more equipment is not always better but they should demonstrate they have evaluated that)

– Establish their ability to lead logistically

– Start with Cost Plus but ensure they can support gain sharing or alternative “share the benefit” plans

– Stand on their ability to support continuous improvement processes

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How do I know a 3PL can provide my organization value?

• Simplify Complexity– Show previous success in perceived complex areas (co-

pack, kitting, direct to consumer operations, multi-channel)

• Demonstrate IT Capability– Internal WMS

– Prove success with client’s WMS

– Demonstrate interfacing capability

• Prove a Material Handling Technology Evaluation (more equipment is not always better but demonstrate they have evaluated that)

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How do I know a 3PL can provide my organization value?

• Establish their ability to lead to logistically– Share the details of their pricing methods

– Can they support location analysis? (Logistics Leadership)

– Innovative Design (with corresponding investment)

– Can they meet emerging service requirements (Big Data)?

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Location

Time & OperatingCharacteristics

Staffing

Operating ExpenseMetrics

Volume & ProcessInformation

DATA INPUTS

Equipment

Space

Labor

CALCULATIONS

Material Handling &

Storage Requirements

SpaceRequirements

StaffingRequirements

RESULTS REPORTS

Annual OperatingExpenses

SpaceRequirements

Capital Purchases

ImplementationCosts & Staffing

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How do I know a 3PL can provide my organization value?

• Start with Cost Plus (or Activity Based Costing) but ensure they can support either pricing approach along with gain sharing or other approaches you may be comfortable with

• Stand on their ability to support continuous improvement processes supported by previous successes– Coupled with gain share drives a potential win/win situation

with a partner who desires long term partnerships

• Clearly define impacts to cost across the relationship– Volume, Inventory Turn Shifts, Storage Profile Shifts, Order

Profile Shifts

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How do I know a 3PL can provide my organization value?

• The best providers realize while cost is always a consideration, and customers can be won on cost, they are kept through:– Exceeding Client Expectations (even as they change)

– Frequent meaningful communications

– Clear vision of business requirements & their impact

– Willingness to invest

• Commitment by Supplier & Client is paramount

“When my customer puts their head on their pillow at night, the last worry they should have is their distribution partner’s

ability, performance and cost.”

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Take Aways

• E-com is growing

• 3PL use is growing

• The two together are causing some ‘Growing Pains’ • Labor challenges everyone (or is it payroll??)

• Technology investment and integration

• Fulfillment Growth is outpacing other distribution needs

• Seasonality presents larger and larger challenges

• Evaluate you 3PL partner in their proven abilities to solve the tougher challenges to enhance you chance of successful selection

(Or be a 3PL with the ability to solve the tougher challenges to enhance your chance to be selected!)

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Speaker: BJensen@stonge.com

Website: www.stonge.com

Or visit our Booth S1855

For More Information

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