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— May 3, 2006

3PLs

The Coming Wave of Supply Chain Convergence
From Eye For Transport/ BG Strategic Advisors/Ben Gordon
Change continues to ripple through the supply chain industry. In the past decade, we have seen warehousing companies become logistics companies, we have watched logistics managers become supply chain professionals, and we have seen 3PLs become 4PLs and even 7PLs (which, according to one company, is the combination of 3PL and 4PL).
What will be the next big trend in the supply chain industry? I believe the watchwords will be "supply chain convergence." Convergence is all about the combination of relevant services to provide customers with a broader set of solutions. In the 1990s, convergence meant the fusion of warehousing, freight forwarding, and transportation management to produce lead logistics providers or 4PLs. Companies like Menlo, UPS, Kuehne + Nagel, and others developed integrated supply chain solutions and enabled customers to reduce the number of logistics suppliers they used. Today, companies are increasingly choosing to compete by combining services. For instance, PWC Logistics acquired GeoLogistics, Trans-Link, and Transoceanic in order to add freight forwarding, event logistics, and project logistics to their arsenal of contract warehousing-based capabilities. Similarly, UTi has acquired Standard Logistics, Unigistix, and Market Transport in a bid to add warehousing, reverse/value-added logistics, and transportation management to their freight forwarding base. The convergence of logistics services is already well underway.
In the current decade, we are beginning to see the emergence of the next big wave of convergence: the combination of outsourced logistics with other forms of outsourcing. For example, in a recent survey of logistics CEOs at the International Warehousing and Logistics Association (IWLA), we found that, out of five questions, the topic that generated the highest level of interest was "Where logistics outsourcing converges with other outsourcing." In fact, 100% of respondents picked this topic!
Why is convergence so important? First, let's look at the data. Global logistics is a $179 billion market. But contract manufacturing generates $170 billion. And outsourced technology represents a $300 billion market! All of these markets are maturing, as 20-30% growth rates from the 1990s have fallen to 5-15% today. Increasingly, as other outsourcing markets mature alongside logistics, we will see convergence. See the chart below for more information.
Consequently, smart logistics executives are watching other outsourcing industries for new ideas. General Motors, for instance, has just reconfigured their outsourcing of IT. GM awards $15 billion in annual spend on outsourcing contracts. Historically, GM relied on a large number of outsourced IT providers, played a hands-off role, and signed long-term contracts. But today, CIP Ralph Szygenda is leading a new initiative. His objectives are to reduce the set of IT outsourcing candidates to a top-6 group, manage the outsourcing contracts more actively, and shorten contracts from 10 years down to 5.
This move will have several implications for the logistics industry. First, just as GM's move to dedicated contract carriage with Schneider over 15 years ago ushered in a new era of dedicated contract carriage growth, so GM's moves in IT outsourcing may represent a broader trend. Second, logistics outsourcing contracts are likely to follow the same path as the IT outsourcing route. Third, aggressive IT outsourcers are seeking logistics partners. Some are even pursuing mergers. Companies like EDS, Accenture, and other IT firms are looking at logistics acquisitions as a way to extend their outsourcing capabilities. Meanwhile, logistics companies like New Breed and Menlo are bolstering their IT capabilities in a bid to accomplish a similar goal, but from a different direction. Convergence is already underway!
At the same time, customer demand is also accelerating this trend toward convergence. As Fortune 500 customers have sought to reduce the number of supply chain providers they use, companies like Gillette, Kimberly Clark, and Nortel in turn have increasingly prioritized the selection of suppliers that can provide a broader scope of services. Forward-thinking logistics companies are responding by combining new services to provide more integrated solutions.
A prime example is Power Group, which sold to Exel in September 2002. Exel, a $7 billion global logistics company, transformed itself from value-added warehousing into full-blown supply chain solutions through a targeted acquisition program. From 1999 to 2001, Exel acquired more than five companies. In 2002, they expanded into contract manufacturing and packaging with the purchase of Power. In turn, Power provided primary packaging of branded products (dry food and beverage) in cartons, bags, sticks, pouches as well as plastics and glass bottles in the US and Canada. Due to the high level of strategic value in the combination of packaging and logistics, Exel was able to pay a premium price. In a market where valuations are typically in the range of 4 to 6 times earnings before interest, taxes, depreciation and amortization (EBITDA), according to public sources, Power was valued at approximately 9x EBITDA.
Why was this warehousing-packaging combination such a valuable deal? In short, it provided the ability to combine manufacturing, packaging and supply chain services into an integrated solution to create value for customers. It also enabled Exel to transfer Power Packaging's core skills and expertise in dry food and beverage to other product categories such as health and beauty aids, pharmaceuticals and medical devices. Finally, it enabled Exel to improve utilization of existing warehouse facilities, while also raising the revenue per square foot that the warehouse-based logistics giant could accomplish.
In short, smart logistics companies should respond by evaluating the growth in outsourcing services such as IT, HR, manufacturing, packaging, and other new services, and deciding whether acquisitions of new capabilities make sense. As outsourced supply chain services converge, the winners will be those that continue to evolve.
http://www.eyefortransport.com/
http://www.bgstrategicadvisors.com

NYK Group Company Invests in the VOSA Group of Companies
NYK Group South Asia Pte. Ltd., NYK's subsidiary in Singapore, recently acquired a 2.75 percent stake (320,000 shares) in the VOSA Group of Companies (VOSA) when this agency sold 38.55 percent of its shares at a recent initial public offering.
VOSA, Vietnam's one of the largest shipping agency, has a number of container freight stations* (CFS) and warehouses at major ports and cities in Vietnam. The company also handles forwarding, international multimodal transport, and cargo measuring and handling. Since 1995, VOSA has served as the NYK Group's general agent in Vietnam.
Through this investment, the NYK Group has gained a powerful partner in developing new business in Vietnam, new ventures that should mesh well with the group's international shipping operations, which include logistics services (such as customs clearance, distribution, and on-site logistics at factories), energy-related projects, and the training and employment of Vietnamese seafarers.
The NYK Group is making a great effort to expand business in Vietnam. In fact, the NYK Group is currently the only Japanese shipping group that provides direct shipping services from Japan to both Cailan in northern Vietnam and Ho Chi Minh in southern Vietnam.
http://www.nykline.co.jp/

DHL Opened a Hi-Tech DC for Unilever in the UK
DHL Exel Supply Chain opened a new 40,000 sq. m. DC in Cannock, Staffordshire, UK that it will manage on behalf of Unilever UK Foods. Manned by over 200 local DHL employees, the site uses the the latest technology to store, pick, repack and despatch goods to stock around 2,000 stores nationwide.
Unilever worked with DHL to develop the technology to manage the last stages in its supply chain - often the most complex and time critical. The DC uses the latest systems to ensure that each UK store has the right quantity of individual Unilever products at any given time. the co-packing facility operated by DHL, allows preparation of special store promotions of particular products. Industry estimates suggest that in the UK alone, the co-packing market is worth around £1 billion each year. Food manufacturers are increasingly turning to logistics providers to outsource packaging activities to enable them to concentrate on their core business.
Using automated conveyor belts and cranes, which are programmed to know exactly how to sequence operations and where to move and store the goods, each pallet is picked according to the needs of stores in the region using electronic sensors, without the need for pen and paper.
http://www.dpwn.de/

Kuehne + Nagel To Acquire Groupage Business from F.W. DEUS GmbH
Kuehne + Nagle has acquired the consolidation and groupage business of F.W. DEUS GmbH in Germany, which since 1982 has guaranteed 24/48 hour nationwide door-to-door delivery. DEUS is selling its groupage division in order to fully focus on its traditional core business, removal and furniture logistics.
The acquisition of DEUS' overland operations enables K+N to further enhance its German network, as the improve its infrastructure for German and European groupage services. Based on the agreement, all groupage operations and respective 130 specialised employees of F.W. DEUS GmbH & Co. KG will transfer to the independent Kuehne + Nagel subsidiary operating under the name KN DEUS GmbH.
http://www.kn-portal.com/

UPS Expands Air Network in China
UPS has started direct air service from Shanghai to Europe along with the addition of three new flights connecting Shanghai to the U.S. and another new flight between Qingdao and Incheon, Korea. UPS now flies to more points in China than any other U.S. airline, freight or passenger. The new flights are part of UPS' strategy to expand its service options.
UPS will utilize MD-11 aircraft to fly from Shanghai to Cologne five times a week. In addition to the new service to Europe, UPS has added three new frequencies on its Shanghai-U.S. route, increasing to nine times per week the number of non-stop flights on that lane. The number of UPS flights into Qingdao, a major port and manufacturing center, now has increased to six per week.
The airline's growth is part of a broader effort to accelerate global trade and offer new service options to customers. Already the world's largest package delivery service and among the largest of logistics companies, UPS in recent months has doubled the size of its air hub in Cologne, Germany; begun expanding its network reach inside China and Japan; expanded its intra-Asia air hub in the Philippines; is nearing completion of a new 425,000-square-foot freight and logistics hub in Singapore; is developing a new air hub in Shanghai, and has re-engineered its U.S. ground network to accelerate the delivery of more than half-a-million packages every day.
http://www.pressroom.ups.com/

TNT Signs Deals with Grundfos and GE
Grundfos, a worldwide manufacturer of pumps, has signed a three-year agreement with TNT Logistics, for it to perform a leading global role in developing and implementing efficient supply chain solutions that encompass management and integration of different network flows for Grundfos. And if needed, warehouse solutions can be added at strategic locations.
At the same time TNT Express and TNT Freight Management, part of TNT Express, signed the agreement, as Grundfos recognized the added value of their network capabilities in the supply chain. TNT Express' expanding networks in Asia are supportive for the expansion of Grundfos in the same region and TNT Freight Management's transparent sea & air-solutions will cope with the increasing intercontinental flows due to the global manufacturing strategy of Grundfos.
TNT Logistics also has signed a contract with GE Plastics in Brazil. TNT Logistics is now responsible for the activities involving material handling of the client: receiving, checking, warehousing, line feeding, dispatching and invoicing in Brazil.
GE Plastics' plant, located in Campinas, in the São Paulo region, is responsible for the manufacturing and commercialisation of high technology engineering plastics, plastics sheets for civil construction and thermoplastic resin, used in the production of automotive parts, medical products, among others.
The 10 warehouses now under TNT Logistics' responsibility have a total size of 15,000 square meters. The TNT Logistics team, with 29 people, manages a volume of approximately 3,500 tons per month, from the receiving of raw material to the dispatching of the finished products.
http://www.tntlogistics.com/

Fujitsu Siemens Opens Regional Assembly at PWC Logistics Facility in JAFZ
Fujitsu Siemens Computers' state-of-the-art assembly plant was recently opened at the PWC Logistics facility in the Jebel Ali Free Zone (JAFZ) in Dubai. The 1,500 square meters assembly plant will enable Fujitsu Siemens Computers to deliver PCs anywhere in the Middle East within an average of five to eight days - nearly 50% faster than the present industry standard. The components will be shipped from Germany and other locations around the globe to Dubai, where the PCs will be assembled.
The assembly plant is the cornerstone of a first-of-its-kind agreement between the European IT giant and PWC Logistics, a global provider of integrated supply chain solutions, to deliver complete end-to-end solutions to its regional customers. PWC Logistics will be responsible for the delivery of all components from Germany and elsewhere, as well as the transportation of finished products throughout the Middle East.
http://www.pwclogistics.com/

Royal Mouldings Limited Extends Logistics Contract With Ryder
Royal Mouldings Limited, North America's largest marketer and manufacturer of Cellular Vinyl extrusion components and decorative polymer mouldings, has extended its multi-year contract with Ryder for Dedicated Contract Carriage (DCC) services and has added Ryder's Transportation Management services which include carrier procurement and management, and freight bill audit and payment.
Ryder's supply chain services provide a customized package of dedicated contract carriage and transportation management services that allows customers' management to focus on core business issues. Ryder provides these services through turnkey transportation solutions that include vehicles, drivers, management, carrier procurement and carrier management, technology and processes. Under the agreement, Ryder manages the pickup of products from Royal Moulding's distribution facility in Marion, Virginia and outbound delivery to more than 1,000 retail locations in 48 states.
http://phx.corporate-ir.net/

Owens Announces Opening of Cat Logistics Facility in China
Caterpillar Logistics Services has opened a new parts distribution center in the Lingang Industrial Area in Shanghai. The distribution center is currently providing parts for Caterpillar dealers in China, with plans to expand parts distribution from the location to dealers in Korea and Mongolia by the end of 2006. The new 226,042 sq. ft. distribution center will distribute parts to 34 dealer locations in China and will initially employ approximately 40 logistics professionals and carry in excess of 21,000 part numbers for Caterpillar machine and engine products.
The establishment of the China Distribution Center positions Cat Logistics to manage aftermarket parts distribution for other companies seeking a presence in the Chinese marketplace. Cat Logistics currently provides integrated logistics solutions for more than 60 global companies.
http://www.catlogistics.com/

KWE Adds to Air Import Operations Warehouse in Tianjin , China
Beijing Kintetsu World Express Co., Ltd., a company registered in China that is part of the group of Kintetsu World Express, Inc., has newly established an air import operations warehouse in the Tianjin Airport International Logistics Zone. This addition brings the total number of business sites within the Tianjin area of China to five. Tiajin, an area designated by the Chinese government as a hub for the development of the Balhae Bay coastal region, is an area of intensive development which, centering on Japanese and South Korean manufacturers of electrical appliances and automobiles, is attracting a large number of manufacturing companies. Further the ongoing development of facilities around the Tianjin Airport and improvements in transportation infrastructure have resulted in a continued increase in the amount of airfreight.
Since the establishment in 2000 of the Tianjin Branch, BKWE has been actively expanding sales activities within this area having already established two sales offices, one airport operation office and one warehouse focusing on domestic logistics within China. Tianjin is now the fourth largest area in terms of the volume of freight handled after Shanghai, Hong Kong and Dalian.
http://www.kwe.co.jp/

Bobcat Goes Lean With Menlo Worldwide
After six month, the re-engineering project that Bobcat, a West Fargo, ND-based producer of small loaders, excavators and other compact construction equipment, started in conjunction with Menlo Worldwide is yielding major benefits. The project included improving warehousing operations, inventory accuracy and streamlining material flow to assembly lines. The main benefit is coming a new manufacturing support center established with Menlo Worldwide that has adopted "lean" warehousing concepts.
Menlo established a dedicated warehouse facility in Bismark where Bobcat's receiving, inventory control, and material handling were centralized, reorganized, and adapted to lean warehousing methodologies. In the first five months of operations, overall inventory accuracy improved from 60 to 99 percent. The dollar value of on-hand inventory was reduced by 26 percent. Parts shortages were reduced by 90 percent. And expedited freight costs declined by 95 percent.
http://www.bobcat.com
http://www.menloworldwide.com/


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