A new study by Capgemini, Georgia Institute of Technology, DHL and SAP reveals that for the first time since 2003 the gap between IT expectations and user experience is narrowing.
The number of users satisfied with the IT capabilities of third-party logistics providers (3PLs) is up seven per cent after four years of decline, claims the report. The study, ‘2007 Third-Party Logistics’, is the twelfth in a series of studies on the state of logistics outsourcing and the first to show a rising level of satisfaction.
‘2007 Third-Party Logistics’ a web-based survey of 1,568 logistics executives from 61 countries shows that the gap is now shrinking between IT expectation and IT performance. Satisfaction hit an all-time low of 35 per cent in 2006; this has now increased to 42 per cent in 2007, while the expectation percentage remained the same at 92 per cent; resulting in a shrinking of the IT expectation/performance gap. However, 3PL providers should not become complacent; IT performance and insufficient IT capability continues to be one of the top three performance issues recorded.
As in 2006, visibility tools (91 per cent) and web-enabled communications (88 per cent) are the top two technologies that 3PL users would like to add to their current capabilities, yet there has been a limited increase in usage. RFID remains the technology with the highest future expectations and this year’s survey recorded a marginal increase from 12 per cent (2006) to 14 per cent (2007) in the use of 3PL-provided RFID technology. However, this percentage is far lower than the 56 per cent of 3PL users which expect more from this technology in coming years.
‘IT skills are key to the success of third-party logistics providers, yet there is a significant gap between the services required and those provided. To maintain a competitive edge, 3PL providers must take action,’ says Erik Van Dort, global distribution leader at Capgemini. ‘Many 3PL providers recognise the value of standardised IT processes and the impact on adoption rates. However, it is difficult to improve performance without a formal agreement. IT is still the least favourable option for inclusion in a contract, despite effective contracting practices being named as one of the most important factor for success with 3PLs, second only to “personal relationships at an operational level”.’
Additional trends in the outsourcing of third-party logistics identified in the study include collaboration; developments in emerging markets; and industry-specific trends. Another key finding was a disconnect between the desire and the ability to work collaboratively
The model most often followed for collaborative practices does not usually work. To be effective, collaboration must go beyond vague expressions of partnership and aligned interests. The collaboration process should not only involve 3PLs and their customers, but the customers’ trading partners, suppliers and other key stakeholders – a dialogue that should be facilitated by 3PLs. Beyond relationships, strong processes and use of technology are essential for continued success, most evident in business processes such as inventory management.
The report also revealed that, China remains a top expansion destination but proximity increasingly influences choice.
Preferred outsourcing destinations increasingly reflect locality; for example, European respondents are much more interested in expanding in Eastern Europe. Overall, satisfaction with the performance of 3PL providers in emerging markets is lower than customer satisfaction measured across all markets. Interestingly IT is rated as more important in emerging markets than in mature markets. However, there are clear differences between the two biggest emerging markets India and China. In India, the biggest challenge is the poor infrastructure with 33 per cent experiencing issues; this is followed by the inability to deliver against promises (23 per cent). In China, the latter is considered the biggest problem (25 per cent), followed by legislation (22 per cent). Moreover India is not following the classic Asian strategy for growth. Unlike China, a global exporter of manufactured goods, India dominates in global process outsourcing while manufacturing is more oriented towards the domestic market. This is clearly reflected in the rankings: China is currently the third-largest export country and is set to overtake the US soon, closing in fast on the number one country (Germany); whereas India is ranked 28th. The study also shows that China is increasingly being seen as a new sales territory.