Users Want More for Less as Weakened Economy Reduces Demand
NEW YORK; Nov. 1, 2002 –The number of American manufacturing executives that would increase their use of third-party logistics providers has dropped significantly this year, according to a survey by Accenture and Northeastern University.
The survey, which captured data from 66 executives of the largest American manufacturing companies and 18 chief executives of the top global providers of third-party logistics services, was the third such survey sponsored by Accenture and the 10th conducted by Northeastern since 1991.
Only 56 percent of the manufacturing executives in the current survey said if allowed complete autonomy in their decisions that they would increase use of third-party logistics providers at least moderately. This was significantly less than the 74 percent of respondents who said the same in both the 2000 and 2001 surveys.
Not surprisingly, the CEOs of the 3PL providers in this year’s survey also projected a lower one-year growth rate for their industry—11 percent—than the 17 percent projected by the respondents in the 2001 survey.
“The future of the third-party logistics marketplace, as in many other industries, will be a function of the economy,” said Stephen Kendrick, a partner in Accenture’s Supply Chain Management practice. “If the economy rebounds, then the volume generated by existing third-party logistics contracts will grow, the industry’s growth pattern will resume, and merger and acquisition activity will continue, although at a more moderate pace. However, if the economy doesn’t rebound soon, volume from existing clients will be flat at best, price and margin pressures will intensify, and both M&A activity and geographic expansion will decrease.”
But the survey findings indicate that the economy isn’t the only reason for lower demand for third-party logistics services. Other factors include pricing pressures, staffing issues, the increasing technology demands of customers, and the perception that the transition to a third-party logistics provider is time-consuming.
For instance, 40 percent of the manufacturing executives surveyed said the transition to a third-party provider took more time than they had expected. In addition, 61 percent of the manufacturing executives reported spending approximately the same amount of time managing logistics activities after the transition to third-party logistics providers as when the functions were managed in-house.
“Providers of third-party logistics need to work with clients to streamline the transition process, which is currently seen as very time-consuming,” said Robert Lieb, professor, Northeastern University. “Also, if a client spends as much time managing an outsourced process as they had spent managing the process in-house, then that defeats one of the main reasons for outsourcing. By reducing the time they spend managing logistics processes, clients will have additional time to work on more strategic initiatives.
Among the survey’s other findings:
CEOs of third-party logistics providers said that IT integration, globalization and broadened service offerings posed the greatest opportunities for their industry.
- Customs brokerage and freight forwarding are among the most widely used third-party logistics services, reflecting the globalization of demand for third-party logistics and of provider service offerings.
- While a large percentage of users said third-party logistics services had a positive impact on logistics costs (70 percent), services levels (65 percent) and customer satisfaction (52 percent), these levels have respectively declined by 15 percent, 16 percent and 19 percent from 2001 levels.
- CEOs of third-party logistics providers identified continued downward pressure on prices, increased pressure to internationalize company service offerings, and increased customer interest in outsouring a range of logistics activities as the major industry dynamics.
- The top “must-have abilities” named by users when considering possible third-party logistics providers were integration of the client’s software and systems with that of other supply chain partners (47 percent), operation of the client’s software and systems (43 percent), and implementation of new software and systems (40 percent).
- Twelve percent of users said they believed that the third-party logistics industry was “very profitable”; 62 percent said the industry was “moderately profitable”; 24 percent labeled the industry as “break-even”; and 2 percent said the industry was “moderately unprofitable.”
One-third of third-party logistics users had concerns about the long-time viability of the third-party logistics business model, citing the following factors:
- Increasing cost of services
- A growing perception of logistics as a core competency that should be managed in-house
- A lack of provider commitment to service-quality improvements
- A lack of collaboration between providers and their customers
About the Survey
Northeastern University has been gathering data about, and conducting research on, the use of third-party logistics services since 1991; Accenture began sponsoring the research in 2000. As part of the survey, a user questionnaire was mailed to the chief logistics executive of the 500 largest American manufacturing companies, and a provider questionnaire was mailed to CEOs of 20 of the top global providers of 3PL services. Data was collected from 66 chief logistics officers and 18 of 20 CEOs.
Accenture is the world’s leading management consulting and technology services company. Committed to delivering innovation, Accenture collaborates with its clients to help them realize their visions and create tangible value. With deep industry expertise, broad global resources and proven experience in consulting and outsourcing, Accenture can mobilize the right people, skills, alliances and technologies. With more than 75,000 people in 47 countries, the company generated net revenues of $11.6 billion for the fiscal year ended August 31, 2002. Its home page is www.accenture.com.