Risk Mitigation is Major Concern for Supply Chain Managers

A new third-party logistics study highlights supply chain disruptions such as weather, pandemic and energy costs, as well as top strategies for mitigating supply chain risk. These results are part of the 17th Annual Third Party Logistics Study, which was conducted by executive search firm Korn/Ferry with Capgemini, a global consulting firm, and Penn State.

Approximately 2,342 industry executives provided usable responses to the survey, including users and non-users of 3PL services as well as 3PL providers.

The report highlights adverse weather and the threat of a pandemic as the biggest source of supply chain disruption, cited by 69% of shipper respondents, and volatility in commodity, labor or energy costs as the second, cited by 59% of shipper respondents.

In total, economic losses from supply chain disruptions increased 465% between 2009 and 2011. Yet, despite the increased risk of supply chain disruption, many companies are currently underfunding supply chain disruption mitigation planning and without more advanced strategies in place such as supply chain mapping and enterprise risk management.

Closer partnerships (69%), improved business continuity planning (61%), advanced supply chain visibility tools (65%) and better employee training (64%) are the top strategies 3PLs are currently using to mitigate supply chain risk.

Other study highlights:

Despite challenging business conditions, aggregate global revenues for the 3PL sector continue to rise, and far more shippers (65%) are increasing their use of 3PL services rather than returning to insourcing (22%) some 3PL services. Nearly three in five (58%) shippers are reducing or consolidating the number of 3PLs they use.

Shippers report spending an average 12% of revenues on logistics, and an average 39% of that figure is spent on outsourced logistics services. Outsourcing accounts for 54% of shippers’ transportation spend and 39% of warehouse operations spend. As found in past Annual 3PL Study surveys, transactional, operational,  and repetitive activities such as transportation, warehousing, and freight forwarding tend to be the most frequently outsourced.

Both shippers (86%) and 3PL providers (94%) largely view their relationships as successful, with shippers posting some impressive results from outsourcing: just over half (56%) say their use of 3PLs has led to year-over- year incremental benefits. They also report significant savings from logistics cost reductions (15%), inventory cost reductions (8%) and logistics fixed asset reductions (26%). Shippers
are more satisfied than 3PLs (71% to 63%) with the openness, transparency and good communication in their relationships, and 67% of shipper respondents judge their 3PLs as sufficiently agile and flexible.

Shippers’ openness to more strategic 3PL-shipper arrangements, including gainsharing and collaboration with other companies, appears to be declining somewhat. The “IT Gap” appears to have stabilized over the last few years, with 94% agreeing that IT is a necessary element of 3PL capability but just 53% indicating they are currently satisfied with 3PL IT capabilities. Contributors and potential solutions to this disparity are explored in the IT Gap section.

Many 3PL-shipper relationships are not set up to support innovation. They are tactical rather than strategic, offer insufficient visibility and are limited by metrics, contract terms, and risk mitigation strategies. Most 3PL respondents (89%) believe they are ready to innovate, but just 53% of shippers agree. 3PLs and shippers each see themselves as the largest sources of innovation within their relationships.

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