Thursday, April 12, 2007

U.S. and Global Third-Party Logistics (3PL) Market Analysis Is Released

U.S. and Global Third-Party Logistics (3PL) Market Analysis Is Released

STOUGHTON, Wis., April 12 /PRNewswire/ -- Third-party logistics gross
revenues for the U.S. broke $110 billion for the first time in 2006. 3PL
gross revenues hit $113.6 billion, a 9.5% increase. Net revenues were $53.1
billion. EBIT and net income margins in relation to net revenue were 8.6%
and 5.4% respectively. Margins for the year were down slightly due to the
fourth quarter economic slowdown.
As part of its just released report, Armstrong & Associates estimates
the global third-party logistics market at $391 billion. European 3PL
revenues are estimated at $139 billion.
For the U.S. market, International Transportation Management (ITM),
which includes major components of freight forwarding and global supply
chain management, had net revenue increases of 17.7%. Kuehne + Nagel,
Expeditors, DHL Global and APL all had net income margins of 10% or greater
compared to net revenue. ITM growth is primarily a reflection of continued
economic expansion in China and the Asia Pacific markets.
Domestic Transportation Management (DTM), including freight brokerage,
posted a 12% gain in net revenues (gross margin). Gross revenues (turnover)
were $33.8 billion. BAX, BNSF, C.H. Robinson, Meridian IQ and NFI grew by
more than 20%. Hub, Penske, Ryder and Werner grew by 10% or more. After-tax
Net margin for DTM was 11.1%
DTM net revenue growth slipped from 18% in 2005 and net income margin
dropped by 1%. We attribute these changes to the U.S. economic slowdown;
they are temporary downturns and have no significant long term importance
for key players in DTM. Despite the slowdown, C.H. Robinson still ended the
year with net revenues of $1.1 billion and a net income margin of 24.7%.
BNSF Logistics, Hub, NFI and Werner all had double digit net income
Table 1. Revenues and Profitability by 3PL Segment -- 2006

(Gross Net Net Net Income
Revenue) Revenue Revenue (Profit)
3PL Segment $ Billions $ Billions Growth Margin
Management 33.8 6.6 12.0% 11.1%
Management 42.4 15.9 17.7% 5.7%
Dedicated Contract
Carriage 11.0 10.9 8.0% 4.4%
Warehouse/Distribution 23.4 19.7 9.7% 3.9%
Total (1) 110.6 53.1 11.9% 5.4%

(1) Total turnover (gross revenue) for the 3PL industry in the U.S. is
estimated at $113.6 billion; $3 billion is included for the contract
logistics software segment.
The complete report can be obtained online at: Armstrong & Associates'
Extended Information Service subscribers will receive the report this week.
About Armstrong & Associates: Armstrong & Associates, Inc. is a supply
chain management consulting firm specializing in market research, mergers
and acquisitions and outsourcing. Armstrong & Associates publishes Who's
Who In Logistics? Armstrong's Guide to Global Supply Chain Management.
Recent research papers include An Overview of Warehousing in North America
-- 2007 Market Size, Major 3PLs, Benchmarking Prices and Practices and
Brand Recognition, RFP Activity and Expected Profit Margins for 3PLs --
2007. In addition, Armstrong & Associates maintains databases of
warehousemen, freight forwarders and third-party logistics and distributing

SOURCE Armstrong & Associates

Monday, April 09, 2007

How to Remain Lean in Logistics

How to Remain Lean in Logistics

By T. D. Clark
In order to avoid the average 7.96 percent increase in logistics costs that the average process industry company has been hit with over the past two years, a new Aberdeen Group report suggests aping the ways of Best in Class companies.

The new Aberdeen Group report "Supply Chain Cost-Cutting Strategies: How Top Process Industry Performers Take Radically Different Actions” involved 74 process industry companies including those in the chemicals, pharmaceuticals, food and beverage, oil and gas, and pulp and paper sectors.

“Although three-quarters of all process industry companies are focusing on supply chain transformation, we found that Best in Class companies are strikingly ahead of their peers in achieving their transformation goals,” says Beth Enslow, Aberdeen SVP of Enterprise Research and author of the report. “They are four times more likely than their lower-performing peers to have established a centralized supply chain management organization and to have achieved data and process visibility across their supply chain, enabled by their higher adoption rate of technology.”

Other key highlights from the study:

• Best in Class companies have a 2.5x to 9x advantage in key performance improvements, including advancements over the past two years in the following:

o Forecast accuracy,
o Perfect order percentages and
o Manufacturing and logistics costs.

• Best in Class companies are twice as likely to have the following:

o Logistics costs as a percentage of sales of 6 percent or less,
o A perfect order percentage of 91 percent or better, and
o A product family-level forecast accuracy of 71 percent or better.

What does it mean to be “Best in Class” in logistics?

Well, if you’re the Defense Logistics Agency (DLA), it means forking over some $250 million to Accenture to provide business systems integration, systems engineering and application management services. Under a new contract, Accenture will work with DLA to deliver new capabilities that focus on providing more efficient, effective and reliable supply-chain support to the military services and America’s warfighters, according to the recent announcement. Accenture will continue to modernize DLA’s multiple logistics systems into a single, integrated end-to-end system, extending business functions based on leading practices and replacing legacy software systems with commercial-off-the-shelf (COTS) software.

While “a single, integrated end-to-end system” is a phrase that has more than likely worn out its welcome, it makes perfect sense when applied directly to logistics where deep visibility is critical. Maybe that’s why everyone was so excited about the potential of radio frequency identification (RFID). Heck, some of us are still excited by RFID’s possibilities and its role in logistics.

Take a recent Forbes piece entitled “RFID and the Search for Perfect Logistics”, for instance. Penned by AMR Research analyst John Fontanella, the first passage speaks volumes:

While working with a client to define specifications for a new warehouse management system, a member of the manufacturing team, new to the world of distribution, asked us a simple but thought-provoking question: "Why don't logistics processes perform at the same high-quality standards that my production lines do?"

Fontanella argues that a wide range of literacy skills, job aptitudes and experience in the workforce prevents the consistency needed to operate at very high levels of performance. “Manufacturing learned this lesson long ago, having spent the last 20 years automating its assembly lines and, in the process, stretching performance to what was before unimaginable levels,” according to Fontanella who claims that there is no reason why logistics should lag.

RFID, in combination with other technologies, can provide the quantum leaps needed in execution performance, says Fontanella. But for this to become a reality, the right combination of companies need to come together to form a scalable, replicable and cost-effective RFID/logistics strategy — something that still hasn’t happened yet.

If the right RFID solution existed, would your company consider investing in it to enable a leaner logistics operation?

Check back in with the blog tomorrow for the latest issue of the IMT newsletter, in which we further delve into how Lean can be applied throughout the entire supply chain.