Third Party Logistics Libby Ogard Prime Focus LLC October 20, 2004.

Third Party Logistics

Libby OgardPrime Focus LLC

October 20, 2004

Source: Council of Logistics Management

Definitions

• Third Party Logistics (3PL): Outsourcing all or much of a companies logistics operations to a specialized company

• Third Party Logistics Provider: A firm which provides multiple logistics services for use by customers. Preferably, these services are integrated or “bundled” together by the provider. These firms facilitate the movement of parts and materials from suppliers to manufacturers and finished products from manufacturers to distributors and retailers. Among the services which they provide are transportation, warehousing, cross-docking, inventory management, packaging and freight forwarding.

Why Outsource?

• 80% of the top 400 US companies operate on a global scale

SHANGHAI, CHINA

PHILIPPINES

U.K.

HONG KONG

KOREA

JORDAN

HONDURAS

DOM. REPUBLIC

LOS ANGELES, CAL.

SAIPAN

LEGEND MERCHANDISING & PRODUCTION SERVICES

PRODUCTION SERVICES

US - Hayward

SRI LANKADHAKA, BANGLADESH

NEW YORK, NY

F I J I

TAIWAN

MAURITIUS

SWAZILAND

ISRAEL

EGYPT

PORTUGAL

SPAIN

MINNEAPOLIS, MINN.

HAYWARD CAL.

GUADALAJARA, MEXICO

GUATEMALA

NICARAGUA

LAHORE, PAKISTAN

NEW DELHI, INDIA

FRANCE

CHITTAGONG, BANGLADESH

MALAYSIA

MADRAS, INDIA

BANGALORE, INDIA

BOMBAY, INDIA

GUANGZHOU, CHINA

DONGGUAN, CHINA

QINGDAO, CHINA

TIANJIN, CHINA

MEXICO CITY, MEXICO

THAILAND

SINGAPORE

POLAND

INDONESIA

DUBAI

KENYA

Madagascar

MILAN, ITALY

FLORENCE, ITALYTURKEY

SHENZHEN, CHINA

EL SALVADOR

BRAZIL

LESOTHO

DURBAN

VIETNAM

BAHRAIN

KARACHI, PAKISTAN

Complex Inland Distribution Patterns

Profitability depends on Speed, Reliability and Visibility

Outsourcing - Industry Trends

Outsourcing - Industry Trends

Description Savings Realized

Route Design & Optimization

Closed Loop Dedicated Operations

Mode Conversion

Core Carrier Management

Rate Negotiation & Audit

Inbound Consolidation

Reverse Logistics

DC Location Realignments

Reduced Inventory

10-15%

15%

10-15%

5-10%

4-5%

20-25%

10-15%

10-12%

7-10%

Contract Logistics Savings Potential

FY 2003 Fortune 500 Global 3PL Gross Revenues by Industry

Consumer Products, $2.20

Healthcare$2.80

Food $6.40

Insdustrial $18.8 Other $2.90

Automotive, $26.7

Technology $22.20 Retailing $16.20

Automotive Technology Consumer Products

Retailing Health Care Food

Industrial Other

Costs stated in Billion's of Dollars

Customers of 3PL’s

Industry Global Costs

Domestic Costs

Automotive $98.2 $37.4

Technology $156.4 $77.4

Retailing $98.6 $67.2

Consumer Products $13.6 $13.3

Food and Grocery $32.2 $27.8

Healthcare $38.4 $34.0

Industrial and Elements $179.7 $84

Other $63 $25.3

Total Costs $678.3 $366.3

Armstrong and Associates 2004

Customers of 3PL’s

Percent of Fortune 500 Companies Using 3PL’s

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

1-100 101-200 201-300 301-400 401-500

2002

2003

Buyers of 3PL Services

Customer # of 3PL’s Used

General Motors 37

Wal-Mart Stores 33

Ford Motor, HP 27

Procter & Gamble 20

General Electric 17

Georgia Pacific, IBM 16

PepsiCo, Sears 13

Coca-Cola, Sara Lee, Target, Xerox

12

General Mills 11

Delphi, Safeway 10

Source: Armstrong and Assoc 2004

Services Provided By 3PL’s

Transportation Mgt21%

Private Fleets7%

Intermodal4%

Warehousing21%

Value Added20%

International9%

Integrated9%

Other5%

Lead Logistics4%

Top Providers Est. Rev. ($M)

2003 Rank Provider 3PL 2003 Revenue1 Excel $8,300

2 Kuehne & Nagel $6,900

3 Schenker $6,400

4 DHL $5,700

5 P&O Nedlloyd $4,800

6 TGP/TNT $4,700

7 Panalpina $4,600

8 UPS Supply Chain $4,100

9 Nippon Express $4,000

10 C.H. Robinson $3,600

11 Menlo Worldwide $3,100

12 NYK Logistics $3,000

10 Commandments of Outsourcing

1. Develop a strategy for outsourcing

2. Establish a rigorous provider selection process

3. Clearly define expectations

4. Develop a good contract

5. Establish sound policies and procedures

6. Identify and avoid potential points of friction

7. Communicate effectively with your partner

8. Measure performance and communicate results

9. Motivate and reward provider

10. Be a good Partner