Research Data Outline

for Logistics Service Corp. Speech

	 October 7, 1995					page 1
	 LOGISTICS INDUSTRY - RESEARCH INFORMATION

	 1. SIZE & GROWTH

		  - In the United States alone, manufacturers and
		    distributors paid about $400 billion last year for
		    logistics services. This amount will grow to $500
		    billion in the next 5 years.

		  - This includes trucking, air cargo, express cargo,
		    warehousing, and freight forwarding.

		  - Only a small percentage of this amount is outsourced
		    to third-party logistics providers -- but this is
		    starting to change.

		  - Third-party logistics may grow to become a $50
		    billion industry by the end of the decade.

	 2. NEW METHODS

		  - The old distribution approaches are being rendered
		    useless with the rapid expansion of electronic data
		    interchange throughout the transportation industry.

		  - Traditional paper trails are vanishing as the
		    industry begins to be freed from past regulatory
		    structures.

		  - Shipments are moving faster and more frequently.

		  - They are timed for exact-day delivery.

		  - More value-added services are being performed in
		    transit.

		  - Corporations are downsizing and forging new
		    partnership alignments for services.

		  - Bar-coding, JIT, POS, and ECR are forming seamless
		    information links between factories and end markets.

		  - Globally, new lanes of commerce between economic
		    alliances such as GATT and NAFTA will expand the need
		    for logistics efficiency.

	 3. AN EFFICIENT SOCIETY

		  - Every can that sits on the shelf, every drill bit,
		    or article of clothing has a bar code, a SKU number,
		    and probably has a logistical data history.

		  - "Logistics is either inventory in motion or
		    inventory at rest." 





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	 LOGISTICS INDUSTRY - RESEARCH INFORMATION

		  - The big issues that are attracting shippers to third-
		    party logistics are the promise of cost reduction,
		    information technology, and better customer service.

		  - Third-party logistics is becoming increasingly
		    attractive in the face of budget cuts and corporate
		    downsizing.

		  - More industries are moving toward outsourcing
		    logistics. It started with automotive, high-tech, and
		    retail but is now moving into chemical, oil,
		    appliance, and food industries.

		  - Competitive marketing demands are requiring more and
		    more quick filling of orders and inventory
		    management. As companies are being forced to track
		    these costs, third-party specialists can lower that
		    cost.

	 4. SIZE OF THE THIRD-PARTY LOGISTICS MARKET

		  - About $16 billion of logistics services were
		    outsourced last year. The number is expected to
		    increase to $26 billion in 1996. By the year 2000 it
		    will reach $50 billion -- having leveled off at about
		    10 percent of what the industry spends on moving and
		    storing goods.

	 5. WHO USES LOGISTICS SERVICES?

		  - One major competitor with 70,000 truck-loads a year
		    contracts out nearly all logistics operations while a
		    competitor in the same industry does not contract any
		    logistics services.

		  - Shippers often use logistics firms to manage one
		    protion of the logistics portfolio -- such as
		    international freight or warehouse operations.

		  - One shipper uses contract logistics to manage low-
		    volume freight routes. Another for billing and
		    freight auditing.

		  - It might be a single component to an assembly line
		    manufacturer that requires JIT inventory delivery.

		  - Often on a plant-by-plant basis. With one new plant
		    the manufacturer decided to go third-party rather
		    than build up the logistics infrastructure.

	 6. LOGISTICS AS STRATEGIC MARKETING TOOL

		  - In just the last five years, the percent of product




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	 LOGISTICS INDUSTRY - RESEARCH INFORMATION

		    shipped JIT/Quick Response has jumped from 18 percent
		    to 28 percent.

		  - As freight gets down to a "zero days early and a
		    zero days late" criteria, transporation is becoming a
		    strategic tool. Transporation is becoming one of the
		    key marketing tools for retailers seeking market
		    share.

		  - When shippers can't ge their products delivered on
		    time, they lose shelf space and market share.
		    Retailers won't order a product again if they open
		    floor space or shel space for a product and it
		    doesn't arrive on time.

	 7. HOW MUCH VALUE DO THIRD-PARTY PROVIDERS OFFER?

		  - One of the most debated questions in the industry is
		    how much value do logistics companies really bring to
		    the table. It is a question with as many answers as
		    there are shippers.

		  - Example of FedEx versus USPS on a 2 lb package.

	 8. RELUCTANCE TO OUTSOURCE

		  - Add cost to the process.

		  - Logistics are an internal strategic priority.

		  - Don't want to give up control or customer relations
		    to a logistics provider.

		  - One major food processing group with thousands of
		    truckloads per week invested heavily in information
		    management to link trucks, warehouses, and corporate
		    headquarters. Cost savings.

	 9. SUCCESSFUL LOGISTICS PROVIDERS

		  - Invest in the development of information and
		    communications systems.

		  - A lot of companies offer third-party services. The
		    successful ones that do it efficiently have built
		    their information systems so they can come right into
		    a company and set it up. They have a long-term
		    commitment to invest and stay up to date with
		    information systems.

	 10. SHIPPERS LOOK FOR

		  - In choosing logistics providers, shippers are




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	 LOGISTICS INDUSTRY - RESEARCH INFORMATION

		    looking for financial strength, sophistication of
		    information systems, and real expertise in the
		    transporation industry.

	 11. WAREHOUSE LOGISTICS

		  - The greatest value-added potential in the logistics
		    chain exists in warehousing.

		  - As manufacturers and distributors exhibit a trend to
		    outsource more peripheral assembly, logistics
		    providers can become part of that process.

		  - Example -- A GE plant produces electrical products
		    for overseas markets, but has the voltage-specific
		    power supply added by a warehouse service.

		  - In clothing, logistics providers may sew in garmet
		    labels.

		  - As companies look to re-engineer their manufacturing
		    processes, logistics providers are getting into sub-
		    assembly.

		  - Outsourced warehousing offers flexibility. Companies
		    want to retain flexibility without committing large
		    capital expenditures outside of their core areas of
		    interest.

		  - As markets shift, companies want to be able to
		    reposition distribution without tying up assets.

		  - If business grows beyond existing warehouse
		    capacity, third-party warehouse services present an
		    option without having to capitalize expansion.

	 12. INTERNATIONAL LOGISTICS

		  - Political changes also affect the transportation
		    market. Recent trade agreements like GATT and NAFTA
		    are spurring growth in both import ane export
		    markets.

		  - Growing middle class in Asia and South America,
		    spurring more imports. The market is moving beyond
		    the scope of many businesses abilities.

		  - International logistics services and freight
		    forwarding can reduce costs.

		  - One consumer products manufacturer uses third-party
		    logistics only for international shipments. Able to
		    cut costs by 17 percent.




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	 LOGISTICS INDUSTRY - RESEARCH INFORMATION

	 13. TECHNOLOGY AND LOGISTICS

		  - Information systems are one of the biggest issues
		    shippers consider when outsourcing. For many it forms
		    the basis for their decisions to purchase logistics
		    services.

		  - Some companies have spent millions developing their
		    own EDI systems, others have decided to outsource
		    some or all of their systems.

		  - Systems are moving from transaction based systems to
		    more interactive, planning-based systems.

	 14. FUTURE: SATELLITE COMMUNICATIONS

		  - Mobile terminals communicate data about cargo
		    content, route travelled, engine temperature, mph,
		    scheduled maintenance, next stop, etc.

	 15. CLIFFORD LYNCH: OUTSOURCING IN THE 1990S

		  - 1950s & 60s: outsourcing of transportation and
		    warehousing was common. Primarily short-term
		    transactional contracts. Standard 30-day public
		    warehouse agreements.

		  - By 1970 heavy emphasis on cost reductions and
		    improved productivity, longer term relationships
		    became more common. Larger singele-tenant facilities
		    were built and operated by warehouse companies in
		    major markets of the country. Consolidation of
		    facilities.

		  - 1980s services offered by outside firms expanded
		    rapidly. Value-added services such as packaging,
		    blending, systems support, inventory management,
		    sophisticated handling methods.

		  - Motor carriers, freed from regulation, were able to
		    enter into long-term relationships with customers.
		    True logisitics partnerships.

		  - Mergers and acquisitions brought a surplus of
		    warehouses. Consolidation of facilities became a
		    must. Distribution systems were re-analyzed and
		    outsourced.

		  - 1990 -- Increasing interest in outsourcing any
		    function that was not directly related to a company's
		    core business.

		  - Quote: Peter Drucker -- Post Capitalist Society:




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	 LOGISTICS INDUSTRY - RESEARCH INFORMATION

		    "Big business...will not be the one that emplys a
		    great many people. It will be the one that has
		    substantial revenues and substantial
		    results...achieved from work that is focused on its
		    mission. The rest it contracts out." 

		  - 1990s - Logistics companies continue to grow. Many
		    firms asset based, i.e warehouse companies and motor
		    carriers. Others such as freight payment and
		    brokerage firms are not asset based.

	 16. REASONS FOR OUTSOURCING

		  - Improved return on assets. By reducing investments
		    in warehouse facilities and materials handling and
		    transportation equipment, the return on assets can be
		    improved significantly. Cash is preserved to invest
		    in the core business.

		  - More effective utilization of personnel. Emphasis on
		    core business brings greater productivity.

		  - Streamlining and downsizing necessary in a
		    competitive market. Contract logistics offers a cost-
		    effective means to downsize.

		  - A changing marketplace brings logistics changes as
		    well. Reduced risk of misplaced, outdated facilities
		    and equipment through contracted logistics.

		  - Increased sophistication of contract logistic
		    providers. Sophisticated systems and equipment.
		    Staffed with logistics professionals. Better
		    qualified to perform product distribution.

		  - Reasons for outsourcing vary by industry.

	 17. JIT, ECR, CROSS-DOCKING

		  - JIT in automotive industry been used for years.

		  - ECR in grocery industry has greatly enhanced the
		    need for outsourcing.

		  - ECR demand driven system that links all segments in
		    the product pipeline into a smooth flowing stream of
		    products.

		  - Cross-docking in the retailing industry results in
		    smaller more frequent shipments.

		  - Rather than handle the smaller shipments from their
		    own plants, grocery manufacturers are turning to




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	 LOGISTICS INDUSTRY - RESEARCH INFORMATION

		    contract logistics companies. Third-party providers
		    can combine the smaller shipments into truckloads,
		    reducing freight and handling costs.

		  - Today, the leading logistics firms have systems to
		    consolidate orders into truck or container loads by
		    customer and requested arrival date. They route the
		    shipments and electronically direct them to the
		    appropriate carriers.

		  - One major logistics provider ships 500 - 1000
		    trailers of consolidate product each day.

		  - Consolidation programs can reduce transporation
		    costs by 30 to 50 percent.

		  - In the automotive industry, one logistics firm had
		    the ability to pull parts from 360 vendors into one
		    warehouse, process the orders, and deliver the parts
		    to destination plants within two-hour time windows.

		  - Excel and Chryler have a similar arrangement.
		    Through the EDI network, trucks are dispatched to
		    Chrysler's parts suppliers in the Southeast. After
		    the parts are picked up they are delivered to a cross-
		    dock. There they are consolidate and shipped by
		    common carrier to 12 different assembly plants in the
		    U.S. and Canada. the parts are never warehoused or
		    inventoried at the plants. The JIT delivery system
		    schedules their arrival 15 to 30 minutes prior to
		    when the parts are needed for manufacturing.

		  - It is estimated that by the year 2000, 39 percent of
		    all domestic shipments will be in a JIT or Quick
		    Response mode.

		  - Suppose Wal Mart wants three tubes of toothpaste
		    shrink-wrapped together. K-Mart wants two and Target
		    wants a toothbrush thrown in. The manufacturer is
		    only tooled up to put 1 or 2 dozen packages in a
		    case, put it on a pallet, and off to storage or
		    shipping.

		  - At a third-party distribution center, the original
		    cases are opened and repackaged according to the
		    customer's demands, then shipped.

		  - This kind of customer-specific packaging is being
		    used on everything from mixing colors of house paint
		    to packaging bulk plastic resins

		  - Third-party providers are no longer just managing
		    inventories, they are adding value to what gets




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	 LOGISTICS INDUSTRY - RESEARCH INFORMATION

		    shipped out.

	 18. SYSTEMS SUPPORT

		  - Logistics providers are being expected to offer
		    accurate information on a real-time basis. They must
		    have good warehouse and inventory management systems,
		    and often sophisticated order processing systems.

	 19. OUTSOURCING VITAL PART OF DOING BUSINESS

		  - Unprecedented opportunity to form partnerships in
		    providing faciltities, managing inventories, adding
		    value and moving them to the consumer.

	 20. FORTUNE MAG

		  - As corporations look for ways tto simulataneously
		    grow and maintain their competitive edge, outsourcing
		    has become a powerful new management tool for
		    achieving these goals.

		  - Companies have always outsourced or "out-tasked" --
		    hired special contractors for particular jobs.
		    Likewise, companies have always foundit good business
		    sense to form needed relationships with firms whose
		    capabilities complement their own or to contract for
		    shared access to resources beyond their reach.

		  - What distinguishes outsourcing is that it
		    fundamentally challenges what we mean by "the
		    corporation." Outsourcing is a basic redefinition of
		    the corporation.

		  - Outsourcing demands that corporations rethink their
		    core competancies. Long term outside relationships
		    are at the heart of this redefinition.

		  - As companies adopt outsourcing, the choice of which
		    facets of the organization to outsource and what
		    types of outside realtionships will best suit its
		    purpose becomes critical top the ultimate goal --
		    bringing the greatest value to the customer and the
		    greatest productivity to the corporation itself.

		  - Outsourcing becomes a central management tool for
		    the fundamental reenginering and reenergizing of
		    America's businesses.

		  - One survey of over 300 companies found that 66
		    percent outsourced import/export services. 63 percent
		    employed freight brokers. 48 percent outsourced
		    warehousing.




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	 LOGISTICS INDUSTRY - RESEARCH INFORMATION

		  - At the extreme end, a start-up company TopsyTail has
		    sales of $80 million with only 3 full-time employees.
		    It has a network of 20 outsourced vnedors who handle
		    everything from the manufacturing of their hair care
		    products to the servicing of their retail accounts.

	 21. REALIZATION OF CORE COMPETENCIES

		  - Core competancies are what gives an organization its
		    clear leadership position in the eyes of its
		    customers. They are the capabilities of the
		    organization that distinguish it from its
		    competitors. The success of the company depends on
		    these capabilties.

		  - The key is to understand what business you are in,
		    what your customers percieve as the core
		    competencies, and how to focus those competencies
		    into value for the customer.

		  - Criteria for core competancies

			    Skill or knowledge, not products or
			    functions.

			    Flexible long-term platforms capable of
			    evolution.

			    Limited in number.

			    Unique sources of leverage.

			    Areas where the company can dominate.

			    Elements of importance to customers in the
			    long run.

			    Embedded in the organization's systems.

		  - Oursourcing enables executives to focus more on the
		    "what" and less on the "how."

		  - "How" type issues tend to siphon off huge amounts of
		    management's attention and resources.

		  - Chrysler Corporation designated a single outside
		    logistics supplier to coordinate their inbound
		    logistics requirements. Called "lead logistics."

		  - The lead logisitics manager handles much of the
		    plant's transportation needs, real-time monitoring of
		    other carrier's in-bound parts shipments, and
		    troubleshooting.




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	 LOGISTICS INDUSTRY - RESEARCH INFORMATION

		  - Chief advantages are operating efficiencies,
		    improved accountability, and the opportunity for
		    Chrysler's logistics professionals to focus less on
		    the day-to-day issues of transportation in favor of
		    broader planning activities.

		  - Growth no longer means adding internal resources as
		    it has in the past. Companies now grow through
		    partnerships.while once they may have asked, "Why
		    shouldn't we do that ourselves," they now ask, "Why
		    should we do that ourselves?" 

		  - "Expertise and excellence comes from specialization
		    in one's core competancy.

		  - The goal of outsourcing is successful partnerships
		    that deliver value." 

		  - END OF FORTUNE 12-12-94

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