To Outsource or Not to Outsource
Scott McWilliams
Executive Chairman, OHL
Agenda
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3rd Party Logistics (3PL) Providers
3PL Market Overview
Disadvantages to Outsourced Logistics
Advantages to Outsourced Logistics
Suggestions When Outsourcing With a 3PL
Final Thoughts
3PL Providers
3PL (Third Party Logistics) Providers can
perform all or part of the following logistics
functions:
 Transportation
 Warehouse/Distribution
 Information/Financial
 Value Added Source
Transportation 3PLs
 Both asset and non-asset based
 Services include:
–
–
–
–
–
–
Carrier procurement and management
Network optimization
Transportation optimization
Performance management/reporting
Freight audit and payment
Forwarding
Warehouse/Distribution 3PLs
 Regional, domestic and global 3PLs
 Services include:
–
–
–
–
–
Warehousing
Inventory management
Information systems (WMS, OMS)
Fulfillment
Value-added services such as embroidery,
engraving, gift wrap, software installation, etc.
– Returns management
Information Based 3PLs
 Information based 3PLs core offering is
management and technology within the
supply chain versus physical execution
 Services include:
– Process management
– Information technology (TMS, BI)
– Consultation on industry trends, solutions, and
benchmarks
3PL Providers
Strategic
Resource
Business
Resource
Problem Solver
Vendor
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Information based knowledge
Shared gains/risk
Flexible and collaborative
Advanced technology
 Greater expertise
 Technology integration
 Enhanced capabilities
 Broader service offerings
 Enhanced expertise
 Contractual
 Transactional
 Basic services
 Focused on cost
3PL Market Overview
 CAGR of 3PL market 10.3% for past 15 years
 Asset based carriers increased performance continues supported by
efforts to keep supply tight
3PL Activity
for 2011
Gross
Revenue
($Billions)
%
Change
YOY
Net Revenue
($Billions)
%
Change
YOY
Profit
Margin
%
Change
YOY
Domestic
Transportation
Management
(non-asset)
$41.3
12.2%
$6.3
12.2%
17.4%
11.5%
Domestic
Transportation
Management
(asset)
$11.1
4.7%
$10.9
4.7%
4.5%
12.5%
Warehouse /
Distribution
$34.0
8.2%
$26.6
8.4%
3.0%
7.1%
Source: Armstrong & Associates, 2012
3PL Market Overview
 The “30 Club” – GM, P&G, Wal*Mart, Pepsi and Ford
 Who are 3PL customers?
3PL Customer
Composition
2011
%
Retail
24%
Technology
22%
Automotive
11%
Utilities/Metals
10%
Food/Grocery
9%
Industrials
7%
Healthcare
7%
Other
6%
Consumer Goods
5%
Source: Monte Sol Capital, Radiant Logistics July 2012; Armstrong & Associates, 2012
3PL Market Overview
 Majority of companies plan to increase outsourcing in 2013
 Continuing trend to consolidate number 3PLs used
 Latest 3PL Study reports 86% of outsourcers report success
Source: Stifel, Nicholaus & Company Inc. 2013 Third-Party Logistics Study, 2012
Disadvantages to Outsourced Logistics
 Latest 3PL study shows fewer reasons why firms don’t outsource
 Non-users realizing 3PLs getting better over time
Reason
Most Frequent Answers
2013
2009
Logistics is a Core Competency
15%
27%
Cost Reductions Would Not be Experienced
15%
32%
Logistics Too Important to Consider Outsourcing
12%
25%
Service Level Commitments would Not be Realized
9%
23%
Against Corporate Philosophy
8%
16%
Have More Logistics Expertise Than Most 3PLs
8%
17%
Control Over the Outsourced Function(s) Would Diminish
7%
25%
Too Difficult to Integrate I.T. Systems
7%
8%
Issues Related to Security of Shipments
6%
7%
Inability of 3PLs to Form Meaningful and Trusting Relationships
6%
7%
Global Capabilities of 3PLs Needs Improvement
5%
10%
Previously Outsourced and Chose Not to Continue
3%
14%
Source: Stifel, Nicholaus & Company Inc. 2013 Third-Party Logistics Study, 2012
Disadvantages to Outsourced Logistics
Other areas…….
 Integration/Coordination costs
 3PL biased choice of service providers
 Sensitive data/information leaks
 Reduced contact with their customer
 Competitor and 3PL collaboration
Advantages to Outsourced Logistics
 Risk sharing
 Supply-chain contingency
 Flexibility
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Real Estate
Operations
Labor
Strategy
Variable costs
Speed
Focus on core competency
Access to additional resources
Software
Advantages to Outsourced Logistics
 Latest 3PL study shows quantified results
Results
Globally
Logistics Cost Reduction
18%
Inventory Cost Reduction
8%
Logistics Fixed Asset Reduction
Order Fill Rate
Order Accuracy
26%
Changed
From
58%
Changed To
65%
Changed
From
67%
Changed To
72%
Source: Stifel, Nicholaus & Company Inc. 2013 Third-Party Logistics Study, 2012
Suggestions when outsourcing to a 3PL
Both sides should learn from past failures:
Source: Inbound Logistics 3PL Market Report, 2012
Suggestions when outsourcing to a 3PL
For the Shipper…
1.
2.
Have strategy for outsourcing
Develop rigorous selection
process
3. Clearly define your expectations
4. Develop a good contract
5. Establish solid policies and
procedures
6. Identify and avoid potential
friction points
7. Communicate – effectively!
8. Measure performance and
communicate results
9. Motivate and reward providers
10. Be a good partner
For the 3PL…
1.
2.
3.
Offer strategic thinking and planning
Understand competitive market
Insist on clearly defined
expectations
4. Develop a good contract
5. Establish sound policies and
procedures
6. Identify and avoid potential friction
points
7. Communicate – effectively!
8. Request performance measurement
program
9. Motivate and reward your personnel
10. Be a good partner
Source: C.F. Lynch & Associates, Logistics Outsourcing
Final Thoughts
 Understand your situation – everyone is
unique