Top 30 3PL’s in 2006

Richard Armstrong of Armstrong & Associates has released his annual report of the top 3PL providers in North America. Rankings are based on total annual revenue in N. America.

I found it interesting to note that in the article customer satisfaction was deemed greater with the mid-sized 3PL‘s ($500-1000 million annual revenue) as opposed to the larger 3PL‘s. Although, many of the larger 3PL‘s have grown through acquisition which has most likely caused customer service to suffer during integration activities.

It seems that every big deal has generated a host of problems, disrupting some customer relationships and lowering profits for the new companies. Turnover of key personnel and procedures because of purchases are a regular complaint. Our analysis indicates that the net income margin* is only 4.1% for 3PLs with net revenues greater than one billion dollars. If we take expeditors and Caterpillar Logistics out of the group, the margin drops to 2.5%. Expeditors and Caterpillar have primarily grown organically rather than through purchases.

Here are the top 30:

1. UPS Supply Chain Solutions
2. C.H. Robinson Worldwide
3. Schenker USA/BAX Global
4. Expeditors International of Washington
5. Schneider Logistics/Dedicated
6. DHL Contract Logistics (Exel)
7. Penske Logistics
8. EGL Eagle Global Logistics
9. UTi Worldwide
10. Kuehne + Nagel Contract Logistics, North America
11. Ryder System
12. Caterpillar Logistics Services
13. Hub Group
14. Menlo Worldwide
15. Meridian IQ
16. J.B. Hunt Dedicated Services
17. TNT Logistics North America
18. Werner Dedicated Services
19. Landstar Global Logistics
20. Greatwide Logistics Services
21. Transplace
22. NFI Industries
23. PBB Global Logistics
24. GENCO
25. Logistics Insight Corporation
26. Ozburn-Hessey Logistics
27. Total Logistics Control
28. BNSF Logistics
29. A.N. Deringer
30. Kelron Logistics

This month’s World Trade: 10 Trends That Will Change your Supply Chain

This month’s issue of World Trade Magazine is chock full of useful information, particularly its cover article covering 10 Trends That Will Change Your Supply Chain:

1. The Adaptive Process of Operating in Low Cost Regions

I believe that tracking and responding to the relative positions of low cost regions will be an ongoing theme for global supply chain managers. Five years ago, China was “the” source for low cost products; now Vietnam is competing against inland China and parts of India for that same position. Add in the importance of market proximity, whether to the U. S., Europe, or emerging urban markets in India and China, and it becomes even more necessary to understand how an area’s character fits with a firm’s global supply chain strategies.

2. Managing the Risk Inherent in Global Outsourcing

Unfortunately, we see many firms that have not placed their outsourcing strategy within the context of a complete global strategic plan. There is invariably pressure from the top to reduce direct, visible cost. This quickly evolves into an outsourcing strategy to take advantage of the incredible pool of low cost labor in other regions of the world: Asia, Latin America, and Eastern Europe.

When pursuing an outsourcing strategy, it is hard for many companies to stop and consider risk because they are blinded by the huge savings potential.

3. Lean Six Sigma Logistics

While the practices of Lean and Six Sigma are commonly applied in manufacturing, they are rarely used elsewhere in the supply chain. This is changing, though. Leading companies are finding that the application of Lean and Six Sigma makes good business sense in logistics management as well, given that wastes and process variation exist throughout our logistics and supply chain networks.

4. Use of 3PLs

Looking to the future, many 3PL-customer relationships are evolving from conventional customer-supplier relationships to true “partnerships.” Accomplishing this objective would allay a frequent criticism from this year’s survey respondents: 3PL providers many times “react” to situations; they do not anticipate and identify opportunities to improve. To be fair, the study results also suggest that customers sometimes limit their 3PL providers from demonstrating their full set of capabilities. The good news is that upgrading the quality of customer-3PL relationships is an objective of 3PL users in all of the geographies studied.

5. Structuring High Performance Supply Chain Relationships

Management’s goal should be to establish the correct amount of closeness in their firm’s supply chain relationships, not to just get close for the sake of being close.

6. Trading off the positives and negatives of Service Level Agreements

For example, a retailer could require a supplier to achieve a certain fill rate (fraction of demand met from inventory) over a specified review period. Such service level measures are often part of a supplier scorecard. The important question is, are these service level agreements (SLA) effective at resolving misaligned incentives and improving performance?

The short answer is, yes, usually such SLAs do improve performance by providing a supplier incentive to improve service, thus improving the overall performance of the supply chain. Recent research has shown, however, that imposing such SLAs on suppliers can drive strange inventory management strategies.

7. The Impacy of Reduction in Supply Chain Variation on Shareholder Value

Supply chain management should be viewed as a powerful tool affecting all three drivers of financial performance/shareholder value. While holding the right mix of inventory could result in revenue growth, providing the same level of service with a lower amount of inventory (safety stocks) would result in shorter cash-to-cash cycle time and higher liquidity, allowing firms to grow faster and create shareholder value.

8. New Product Launches and the Supply Chain

To ensure the success of a product launch, one needs to pay close attention to supply chain design, sales and operations planning, as well as supply chain coordination.

9. Revitalized Supply Chain Command

The next era, the era of revitalized command, is already upon us.

The multinational enterprise is becoming more risk-averse and less likely to over-extend itself through alliances; at the same time, it is showing an emerging bias toward more direct absorption and control over assets in its network.

10. Transforming Supply Chain IT into “Business Technology”

The visibility of the entire supply chain in real time is one of today’s overarching goals, and automation plays a big role in that. Nonetheless, more than half of supply chains are still managed manually with phone, fax and paper, making it virtually impossible to have visibility into the overall supply chain….

Read the whole thing.

Bad news for the big boys: Customers prefer shipping with multiple providers

While the big boys of the 3PL/Freight Forwarding industry have been busy consolidating and gobbling up smaller players in an effort to become gargantuan one-stop-shops for their customers, recent studies show that most customers, particularly large ones, prefer to ship with multiple providers instead of centralizing with one major provider:

The Unisys study found that despite the billions spent on shipping industry consolidation in the name of efficiency and better customer service, almost three-quarters of large shippers would rather do business with several shipping providers than centralize their operations with one major supplier. Respondents overall felt that the bigger a logistics provider was, the less flexible and user-friendly its systems were.

Rather, many respondents indicated that they had an intentional, specific logistics strategy to diversify their business among multiple providers so as to encourage competition and lower prices. They felt that multiple suppliers keep prices and services competitive, and that often niche logistics providers deliver a better service, communicate faster, and are more flexible.

Emphasis ours. The author seems to disagree with the findings of the Unisys study, stating:

But there are more variables that are part of the overall cost equation than just rates. In addition to reducing costs, shippers also have the conflicting tasks of improving customer service, enhancing their supply chain execution, keeping up with technological advances and requirements and serving new markets. In such cases, employing many logistics providers may actually serve to increase costs when the performance of those relationships is examined in greater detail. What is gained through more competitive rates may be more than compromised by the difficulties and waste inherent in employing multiple providers, all of whom may employ different IT platforms and don’t have the expertise or scope to see the overall picture.

Current research also routinely indicates that shippers are looking for closer, more integrated relationships. Such relationships are far more strategic in nature and more focused on value creation. I’m not at all certain such relationships are possible when shippers try to have them with 30 different logistics service providers or when the providers involved have the feeling they are always just one low-ball rate quote away from losing the contract.

I’m not sure what kind of companies the author has been speaking with, but I highly doubt major shippers would be utilizing 30 different logistics service providers, nor would they want their current providers to work under the assumption they were “…one low-ball rate quote away from losing the contract….” With the complexities and difficulties of today’s global supply chains, companies are looking for stability and visbility: service providers that will offer dependable service at value rates and provide a high level of visibility into their clients’ shipments/supply chain. That just isn’t going to happen if your supply chain strategy is simply to juggle service providers based on the lowest cost.

My current company employes four logistics service providers. We split Asia between 2 service providers based on both costs and coverage respective to the areas they covered, gave Europe (excluding Italy) to another provider, and decided to keep Italy with a small niche provider who doesn’t even have any offices in the U.S. but does such a great job – and with great rates – out of Italy that it just didn’t make sense to give it to anyone else. In all cases it boiled down to who could service those origins best at the most economic cost. And underlying it all was a requirement that all the providers meet our EDI/Technology requirements as well as bringing a high level of visibility to the supply chain that other providers either could not meet or do as well. Companies that employ an old-fashioned, simplistic logistics strategy of always going with the lowest provider, playing providers against each other in a simple cost-cutting strategy, will soon find themselves out of business. Those days are gone.

IDS Logistics (subsidiary of Li & Fung) acquires US Impac Logistics

Via AllRoadsLeadtoChina:

It is a sign of things to come, and for the Li & Fung Group (China’s largest trading, sourcing, and outsourced manufacturing company) there will be huge benefits all over the place from this deal on the cost and revenue side of the equation.

Outside of the savings that will result from the integrated network, Li & Fung as a group will be able to purchase raw materials on behalf of clients, manage the manufacturing, and then management the movement of goods from manufacturing site to retailer…. potentially on a massive scale.

Li & Fung, already a behemoth in the trading world, is positioning itself to be a one-stop-outsourcing shop to their clients. Need to source product from Asia? No problem, we can help. Need help with compliance and manufacturing issues? No problem, we can help. Need help getting the product from point A to point B? No problem, we can help.

It will be interesting to see how many of their clients are willing to put all their eggs in one basket – I doubt many will do so, but that’s beside the point. Li & Fung is expanding their service offerings, I am sure some clients will only use them for trading services while some clients only use them for logistics services. And of course IDS Logistics is a subsidiary of Li & Fung, they operate under a different name/structure. But it’s still interesting to see Li & Fung’s continued expansion as one of the largest trade services providers in Asia.

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