November 25th, 2010

The 2010 15th annual 3PL study focuses attention on topics of current importance

3PL Customer study and Provider study

• Investigate customer needs and experiences

• Validate customer perspectives from 3PL providers point of view

• Identify areas for future improvement

Topics of contemporary interest

• Total Landed Cost (TLC)

• Life sciences

• Fast-moving consumer goods

Strategic assessment of future of 3PL-customer relationships

2010 Special Topics

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Survey respondents represented range of geographies and industries

Shipper respondents

Industry %

1. High-Tech / Electronics 12

2. Consumer Products 10

3. Food and Beverage 9

4. Automotive and Transport Equipment 9

5. Life Sciences and Pharma/Healthcare 8

6. Industrial Manufacturing 8

7. Retail 6

8. Chemical 6

Additional Industries (14) 18

Other 14

North America (446) 40%

Latin America (139) 12%

Europe (297) 26%

Asia-Pacific (194) 17%

Other (57) 5%

Shipper industries represented

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+ 746 Survey respondents from 3PL provider firms.

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Changing use by shippers of 3PL services is evidenced in 2010 after the 2009 economic downturn

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Industry challenges that impact the use of 3PLs

Logistics cost pressure

Highly volatile freight prices

Unpredictable demand challenge efficient supply chain management

Changing use of 3PL services in 2010

65% of the shippers increase the use of 3PL services

24% of the shippers return to insourcing of logistic activities

46% of the shippers are reducing/consolidating the number of 3PLs used

• Consolidation trend of 3PLs in use by shippers is perceived even stronger from 3PL perspective (73%) and is expected to continue in the next couple of years

Shippers report measurable benefits from use of 3PLs

Results All regions

Logistics Cost Reduction (%) 15%

Logistics Fixed Asset Reduction (%) 25%

Inventory Cost Reduction (%) 11%

Average Order Cycle Length Changed From 17 days

Changed To 12 days

Order Fill Rate Changed From 73%

Changed To 81%

Order Accuracy Changed From 83%

Changed To 89%

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The IT Gap continues, but shows some narrowing in recent years

IT “Gap”

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Shipper-3PL relationships evidence continued improvement

Success Ratings: 89% of Shippers; 97% of 3PLs

Success Factors

Openness, transparency and good communication

Agility and flexibility to accommodate current and future business needs and challenges

Interest in “gainsharing” between 3PLs and shippers

Interest in collaborating with other companies, even competitors, to achieve logistics cost and service improvements

Use of 3PLs Provides New and Innovative Ways to Improve Logistics Effectiveness: 68% of Shippers; 95% of 3PLs

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Current State of the 3PL Market Key Takeaways

Outsourcing trend of logistic services continuous in combination with the consolidation of 3PLs in use

Shippers interest in integrated logistics services for supply chain optimization is still limited

Shippers report 15% cost reductions from 3PL use

90% of 3PL relationships are seen as successful

3PLs ability to provide new and innovative ways to increase logistics effectiveness scores low (68%)

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Common understanding of concerns but different view of role that 3PLs should play in addressing them

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Ranking of concerns1

Shipper view 3PL view

Improving shipment density/load utilization 87% 74% 76%

Reducing logistic costs 98% 69% 73%

Having a supply chain disruption/mitigation strategy in place

81% 68% 70%

Building sustainability into supply chain 82% 65% 65%

Ensuring perfect order fulfillment 87% 62% 70%

Shortening new product time-to-market and supply chain integration

81% 46% 62%

Accommodating sales promotions 66% 42% 60%

Rapidly responding to changes in consumer demand 83% 35% 43%

Gathering / utilizing in-store data on products 65% 32% 26%

Growing market share in emerging economies 63% 29% 26%

Assessment of 3PL’s capabilities in addressing top logistic concerns

1 Shippers’ ranking of top concerns (see previous slide)

Shippers most-used cost-reduction strategies don’t always involve 3PLs

46%

32%

56%

16%

48%

53%

74%

75%

80%

83%

86%

87%

Renegotiated rates for warehouse services

Redesigned supply chain network

Improved shipment density/load utilization

Improved forecasting and inventory visibility

Renegotiated rates for logistics services

Improved distribution center processes

Method Used % of Methods implemented with 3PL

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Fast-Moving Consumer Goods Key Takeaways

The high-volume, low-margin fast-moving consumer goods manufacturer must become more demand-driven to serve a less loyal, more cautious post-recession shopper

Shippers are involving 3PLs less often in cost-reduction strategies than one might expect

The role 3PLs can play in helping shippers shall focus in the future more on

• Shortening new product time-to-market and

• Ensuring perfect order fulfillment

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62% of Life Sciences shippers cite ensuring product quality as a significant challenge

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Imperatives Related Data Points

Visibility is the top service Life Sciences companies need from 3PLs

Driving the need for serialization and e-pedigree

50% agree good business case for RFID in Life Sciences Product Visibility

Quality, compliance, and risk

More than 30 different Life Sciences GDP interpretations globally

70% of shippers say that compliance is their top challenge

Balancing quality and price

73% of shippers say quality, compliance and risk mitigation are significantly more important than price

Just 49% of 3PLs agree that customers prioritize these over price

Inventory and temperature control

Inventory control not just accurate quantity but quarantine

More than 60% of shippers list temperature control as an important 3PL capability

Security

High dollar value and treatment value make drugs tempting targets

Counterfeit drugs and drug diversion have doubled over past five to size years

Life Sciences Key Takeaways

Challenges lie in three major areas: Product integrity, customer service requirements, and inherently complex ecosystem

Cost is important but outweighed by quality, compliance and risk mitigation

Visibility is the top service need among life sciences shippers

3PLs can play a role in serving individual customers and also in linking parties together

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Unforeseen costs can quickly increase the total delivered costs of a shipment

Total landed cost: the sum of all costs associated with making and delivering products to the point where they produce revenue

Country of Origin

Price Components China Vietnam EU

Net purchasing price for a specific volume of the product from 3 different suppliers

10,000 8,000 12,000

Total transportation cost to Switzerland – Ocean freight from China/Vietnam – Road freight within Europe

4,000 6,000 1,200

Customs according trade agreement 1,000 1,500 n.a.

VAT (Switzerland 7.6%) based on value of goods 1,140 1,178 1,003

Total Landed Cost 16,140 16,678 14,203

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Shipper Use of Total Landed Cost

% Respondents by reasons why they are not

or minimally using TLC

Nearly half of shipper respondents claim they make extensive use of total landed cost

Exten-sively 45%

Somewhat 41% Minimally

11%

None 3%

27%

31%

48%

49%

Not sure how to calculateor apply total landed cost

Do not have sufficienttime for analysis

Do not have the righttools

Necessary data is notavailable

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Total landed cost Key takeaways

Understanding total landed cost helps companies make better supply chain decisions

While many shippers claim extensive use of TLC, others are hampered by lack of data and tools

Today’s lesser used factors, including risk factors, transfer pricing and tax, and carbon costs, are of increasing interest

3PLs report a lack of customer interest and customer data for providing TLC capabilities

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Q&A

Check out our website at www.3plstudy.com

Download copy of 2010 and earlier reports

Additional information about the 2010 3PL Study

Thank You!

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