Development of the logistics market
Last year, the 11th edition of the annual study “2006-Third Party Logistics” was published. It stated that half of the approximately 370 billion USD in total logistics expenditures in 2005 were accounted for by external service providers. The main factors behind the choice of operators offering integrated logistics services (3PL, Third Party Logistics) and the selection of a specific service provider were price and quality, while the proposed additional services seemed to be of lesser importance. Among the most significant challenges facing modern logistics managers, cost control appears to be the most critical, followed by data availability and accuracy, and only then are changes in service requirements, retention of qualified personnel, transport reliability (equipment and service), speed of movement, and reduction of operation time considered.
To meet market challenges, logistics companies are investing in assets, information technology (IT), and specialized knowledge. This is happening in an environment where price remains the primary selection factor for the consumer. For this reason, the concentration of operations and economies of scale are becoming an essential element of operation. A key challenge for the 3PL sector in the future will therefore be proper management and innovation. The increasing complexity of managing global supply chains will force service providers to focus more on implementing IT technologies. It seems that close cooperation between entities in the logistics market is essential for conducting business under such conditions. However, the aforementioned “2006-Third Party Logistics” study found that most respondents were not satisfied with the level of IT services provided by their partners. In turn, the annual study “Trends and Strategy in Logistics” prepared by the German association Bundesvereinigung für Logistik (BVL) stated that 40% of companies do not have full knowledge regarding their logistics costs. The main reason for this is considered to be the lack of a uniform standard and constant changes in the construction of supply chains.
The Establish Inc./Herbert W. Davis logistics cost database indicates a minimal 0.1 percent increase in total costs, calculated as a percentage of sales in 2006 compared to 2005. Meanwhile, logistics costs, calculated as a percentage of sales, rose from 9 to 9.1% with an average increase in product value and a decrease in transport volume. However, logistics costs vary significantly between different groups of companies – those related to the logistics of building materials and plant products are at the top of the scale, while those related to pharmaceutical and electronic products are at the bottom. The cost components according to the Herbert W. Davis database were as follows: 50% transport costs, 22% transport equipment costs, 17% warehousing costs, 8% customer order/request processing costs, 3% administrative costs (Table 1). Logistics costs grow in inverse proportion to the size of the enterprise. Small companies pay more per unit. After four years of continuous decline, costs are now rising, which is primarily due to increasing fuel prices and limited transport capacity available to carriers. The increase in costs finds some compensation through changes in the organization of warehouse networks and improvements in IT functions. The cost structure indicates that rising energy costs were responsible for as much as 4.8% of the cost increase. It should be emphasized that since 2000, there has not been a year in which the order fulfillment cycle (averaging 8 days for immediate delivery) has decreased. It is also worth mentioning the study by the German BVL titled Die Top 100 der Logistik – 2006 Edition, which is an important source of statistical information on cost distribution (this time regarding the German market): equipment management costs – 20%, warehousing and warehouse operations – 26%, transport – 44%, order management – 5%, logistics planning and administration – 5% (Table 1). Total expenditures in Germany in 2004 amounted to 170 billion euros. Of this amount, 79 billion consisted of outsourced services; this is significantly less than in the US market, which is attributed to the large share of in-house logistics operations of manufacturing companies (Werkslogistikleistungen). Regarding a different geographical scope of the market, data from the American database indicate that transport and warehousing represent 67% of total costs, while for the German market it is 70% (both databases are almost identical even though the H. W. Davis database presents values as a percentage of sales, and BVL as a percentage of total expenditures).
The article comes from the magazine “Logistyka” 5/2007.