To Outsource or Not to Outsource

Scott McWilliamsExecutive Chairman, OHL

Agenda

3rd Party Logistics (3PL) Providers 3PL Market Overview Disadvantages to Outsourced Logistics Advantages to Outsourced Logistics Suggestions When Outsourcing With a 3PL Final Thoughts

3PL Providers

3PL (Third Party Logistics) Providers can perform all or part of the following logistics functions: Transportation Warehouse/Distribution Information/Financial Value Added Source

Transportation 3PLs

Both asset and non-asset based Services include:

– Carrier procurement and management– Network optimization– Transportation optimization– Performance management/reporting– Freight audit and payment– Forwarding

Warehouse/Distribution 3PLs

Regional, domestic and global 3PLs Services include:

– Warehousing– Inventory management– Information systems (WMS, OMS)– Fulfillment– Value-added services such as embroidery,

engraving, gift wrap, software installation, etc.– Returns management

Information Based 3PLs

Information based 3PLs core offering is management and technology within the supply chain versus physical execution

Services include:– Process management– Information technology (TMS, BI)– Consultation on industry trends, solutions, and

benchmarks

3PL ProvidersBusiness Resource

Problem Solver

Vendor

Transactional Basic services Focused on cost

Broader service offerings Enhanced expertise Contractual

Greater expertise Technology integration Enhanced capabilities

Information based knowledge Shared gains/risk Flexible and collaborative Advanced technology

3PL Market Overview

3PL Activity for 2011

Gross Revenue ($Billions)

% Change YOY

Net Revenue ($Billions)

% Change YOY

Profit Margin

% Change YOY

Domestic Transportation Management (non-asset)

$41.3 12.2% $6.3 12.2% 17.4% 11.5%

Domestic Transportation Management (asset)

$11.1 4.7% $10.9 4.7% 4.5% 12.5%

Warehouse / Distribution

$34.0 8.2% $26.6 8.4% 3.0% 7.1%

Source: Armstrong & Associates, 2012

CAGR of 3PL market 10.3% for past 15 years Asset based carriers increased performance continues supported

by efforts to keep supply tight

3PL Market Overview

3PL Customer Composition

2011 %

Retail 24%

Technology 22%

Automotive 11%

Utilities/Metals 10%

Food/Grocery 9%

Industrials 7%

Healthcare 7%

Other 6%

Consumer Goods 5%

Source: Monte Sol Capital, Radiant Logistics July 2012; Armstrong & Associates, 2012

The “30 Club” – GM, P&G, Wal*Mart, Pepsi and Ford Who are 3PL customers?

3PL Market Overview Majority of companies plan to increase outsourcing in 2013 Continuing trend to consolidate number 3PLs used Latest 3PL Study reports 86% of outsourcers report success

Source: Stifel, Nicholaus & Company Inc. 2013 Third-Party Logistics Study, 2012

Reason Most Frequent Answers

2013 2009

Logistics is a Core Competency 15% 27%

Cost Reductions Would Not be Experienced 15% 32%

Logistics Too Important to Consider Outsourcing 12% 25%

Service Level Commitments would Not be Realized 9% 23%

Against Corporate Philosophy 8% 16%

Have More Logistics Expertise Than Most 3PLs 8% 17%

Control Over the Outsourced Function(s) Would Diminish 7% 25%

Too Difficult to Integrate I.T. Systems 7% 8%

Issues Related to Security of Shipments 6% 7%

Inability of 3PLs to Form Meaningful and Trusting Relationships 6% 7%

Global Capabilities of 3PLs Needs Improvement 5% 10%

Previously Outsourced and Chose Not to Continue 3% 14%

Source: Stifel, Nicholaus & Company Inc. 2013 Third-Party Logistics Study, 2012

Latest 3PL study shows fewer reasons why firms don’t outsource Non-users realizing 3PLs getting better over time

Disadvantages to Outsourced Logistics

Other areas……. Integration/Coordination costs 3PL biased choice of service providers Sensitive data/information leaks Reduced contact with their customer Competitor and 3PL collaboration

Disadvantages to Outsourced Logistics

Advantages to Outsourced Logistics

Risk sharing Supply-chain contingency Flexibility

– Real Estate– Operations– Labor– Strategy

Variable costs Speed Focus on core competency Access to additional resources Software

Advantages to Outsourced Logistics

Latest 3PL study shows quantified results

Results Globally

Logistics Cost Reduction 18%

Inventory Cost Reduction 8%

Logistics Fixed Asset Reduction 26%

Order Fill RateChanged From

58%

Changed To 65%

Order AccuracyChanged From

67%

Changed To 72%

Source: Stifel, Nicholaus & Company Inc. 2013 Third-Party Logistics Study, 2012

Suggestions when outsourcing to a 3PL

Both sides should learn from past failures:

Source: Inbound Logistics 3PL Market Report, 2012

Suggestions when outsourcing to a 3PL

For the Shipper…

1. Have strategy for outsourcing

2. Develop rigorous selection process

3. Clearly define your expectations

4. Develop a good contract

5. Establish solid policies and procedures

6. Identify and avoid potential friction points

7. Communicate – effectively!

8. Measure performance and communicate results

9. Motivate and reward providers

10. Be a good partner

For the 3PL…

1. Offer strategic thinking and planning

2. Understand competitive market

3. Insist on clearly defined expectations

4. Develop a good contract

5. Establish sound policies and procedures

6. Identify and avoid potential friction points

7. Communicate – effectively!

8. Request performance measurement program

9. Motivate and reward your personnel

10. Be a good partner

Source: C.F. Lynch & Associates, Logistics Outsourcing

Final Thoughts

Understand your situation – everyone is unique