Where is the Innovation in Logistics Outsourcing ?

presentation to Eye For Transport Conference

Atlanta June 22, 2010 Jim Eckler

CEO SCI Group Inc.

SCI provides world-class, outsourced supply chain services …

For companies seeking improved supply chain performance

A Canadian-based organization with all of the resources required to operate and support the most complex supply chain requirements

Backed by the strength and breadth of the Canada Post Group of Companies SUPPLY CHAIN

PROCESSES

ENTERPRISE PROCESSES

Toronto

Montreal Ottawa

Vancouver Calgary Halifax

Kingston

Regina Winnipeg

Providing national coverage with deep competency throughout the supply chain …

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Thunder Bay

Edmonton

What do I know about Innovation?

15 years as CEO of one of Canada's largest 3PLs 18 years as strategy consultant to many global

corporations Educator to business executives

… and a passionate practitioner of outsourcing to

businesses that demand innovation.

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Topics

What is Innovation? Why business needs Innovation? What’s the track record for Innovation in Logistics? What have 3PLs done? Some examples of Innovation in Logistics. What does the industry need to do?

To compete today, businesses need innovation more than ever … Business conditions have intensified more than expected

– Complexity reigns – Resources are limited with six billion people to serve – Global competitors are everywhere … many accepting very low

wages

But competition is everywhere

… and differentiation is a must

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The new competitive battleground is Innovation …

The competitive battleground has shifted from machine processes to thinking processes

The winners are those who innovate … the losers are those who do not.

The battleground has become Innovation Capacity

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What is Innovation?

Innovation is a change in a process for doing something that adds value …

– Begins with a creative idea … finishes with implementation

– Radical or Incremental change

– Positive or Negative outcomes

– Success will require Risk

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Innovation has many names in the business environment …

Continuous Improvement Quality Management Business Transformation Lean Process Improvement Six Sigma Software Implementation Capital Investment

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We spend a huge amount of time trying to innovate … but are we achieving an ROI?

In logistics over the past 30 years, managers have introduced many valuable innovations

• Services – Intermodal carriage – Cross dock services – Logistics outsourcing

• Information – WMS – TMS – ERP – EDI – Bar Code – RFID – Portals

• Relationships – Dedicated contract

carriage – LLP/4PL

• Structure – Supply Chain

Management – Collaboration

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But much more is needed …

To innovate more, many organizations have chosen to outsource logistics functions …

3PLs are hired to improve logistics performance and drive innovation … transferring the Innovation mandate to the 3PL

3PLs operate key functions

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… with an important Innovation mandate.

Too many outsourced relationships have ignored the Innovation mandate due to:

Transaction/activity based focus

Functional specifications

Cost driven

Procurement driven

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Where is the real Innovation?

Published data shows a positive outlook for the 3PL industry …

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$0

$20

$40

$60

$80

$100

$120

$140

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E

$ B

illio

ns

North American 3PL Industry Revenue

But declining growth in the 3PL industry suggests serious concerns …

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Source: Armstrong & Associates

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E

Year

ove

r Yea

r Rev

enue

Cha

nge

North American 3PL Industry Revenue Trend

While innovation in logistics is crucial, 3PLs have not been innovation leaders …

Conflicted motivation

Low margins limit risk-taking

Contract complacency

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3PLs must become customer-focused Innovation Drivers.

3PLs and their clients need to explicitly focus on Innovation within the relationship

Embed innovation in the services contracts Motivate innovation through incentives Develop innovation capacity in the

operations Share risks Create a culture of innovation Establish open, transparent, collaborative

relationships

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Recently, some 3PLs have pursued some valuable innovations … but much, much more is needed

Vested Outsourcing

Supply Chain Management process outsourcing

Supply Chain financing

… Others?

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Six keys to outsourcing success …

1. Avoid transactional contracts - Focus on strategic outcomes

2. Ensure that outsourcing does not become a procurement exercise

3. Structure compensation to leverage risk and reward 4. Elevate the Innovation agenda 5. Make innovation customer-focused 6. Remain open to change.

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“The future success and

growth of outsourced logistics services will be directly linked to

Innovation.”