1. Third-Party Fulfillment: Trends and Outlook Rama Ramaswami Editorial Director Operations & Fulfillment Magazine Primedia Inc. April 3, 2004

2. Bright Future for 3PFs While most other sectors languish, outsourcing is booming. Using a 3PF is no longer a luxury; it’s an essential growth strategy for every company.

3. Defining the Terms Fulfillment is a horizontal function that cuts across most industries. Terms and acronyms often used interchangeably: 3PFs, 3PLs, outsourcing service providers, value-added contract services, suppliers, outside contractors

4. U.S. 3PL Market Stats FY 2003: $76.9 billion in gross revenue $32.9 billion in net revenue Net revenue up 6.1% from FY 2002 Net income = 3.9% of net revenue Source: Armstrong & Associates Inc., 2004

5. Sticker Shock Direct marketers will shell out $157 billion for order fulfillment in 2004. E-commerce fulfillment will account for 47% of that amount. Source: The Winterberry Group

6. Farming It Out The third-party e-fulfillment market totaled $4 billion in 1999, 56% of the $7 billion 3PF market. By 2004, the market for e-fulfillment outsourcing will reach $8.8 billion. Source: The Winterberry Group

7. Outsourced Services North America W. Europe Warehousing73%91% Outbound transport71%95% Customs brokerage66%57% _________ Customer service 9%14% 4PL services 7%10% Inventory ownership 6% 0 Trade financing 0 5% Source: Third-Party Logistics Study 2003, Georgia Tech et al. Note: Base = 400 respondents; annual revenue = $100 million to $25 billion

8. What Small Companies Plan to Outsource <500 employees 500-999 employees IT46% 67% Administration39% 39% Finance23% 24% Human Resources18% 22% Distribution/ Logistics14% 30% Source: The Outsourcing Institute, 2004

9. Most Important Industry Dynamics Continued downward pressure on pricing Broader array of services Large-scale 3PL mergers More pressure to go global Foreign 3PLs entering the U.S. New service providers Collaborative arrangements Performance mandates from parent company Source: Northeastern University/Accenture survey of 20 CEOs of 3PLs, 2003

10. Best Opportunities Expansion of integrated supply chain services Continued globalization Integrated information technology Reduced customization Source: Northeastern University/Accenture survey of 20 CEOs of 3PLs, 2003

11. Problem Areas Managing the vendor-client relationship Legal and contractual issues Service quality Level of technology Performance benchmarks

12. Five-Step Action Plan 1. Collaborate. 3PL user/provider deal structures Cost sharing47% Risk/reward sharing38% Revenue sharing10% Joint ventures 8% Source: Third-Party Logistics Study 2003, Georgia Tech et al. Note: Base = 400 respondents; annual revenue = $100 million to $25 billion

13. Five-Step Action Plan 2. Add value. Consulting/process reengineeringSmall-package fulfillment Order managementPool distribution/cross-docking Reverse logisticsInventory/vendor management Kitting/pick and packCustoms brokerage Call centersWMS, RF, and bar coding Light manufacturingTransportation network planning Source: Armstrong & Associates Inc., 2004

14. Five-Step Action Plan 3. Invest in technology. IT requirements North American 3PL users Supplier management systems44% Product vertical electronic markets37% Supply chain planning systems36% Transport/logistics electronic markets35% Web-enabled communications22% Source: Third-Party Logistics Study 2003, Georgia Tech et al. Note: Base = 400 respondents; annual revenue = $100 million to $25 billion

15. Five-Step Action Plan 4. Improve service quality. Areas for improvement North American 3PL users Service-level commitments not met 66% Lack of strategic management skills 53% Cost “creep” and price increases after relationship has begun51% Time and effort spent on logistics not reduced 43% Cost reductions not realized 43% Source: Third-Party Logistics Study 2003, Georgia Tech et al. Note: Base = 400 respondents; annual revenue = $100 million to $25 billion

16. Five-Step Action Plan 4. Improve service quality. (continued) Measures of 3PL success Average improvement/North America Fixed logistics asset reduction 16% Logistics cost reduction 9% Overall inventory reduction 8% Average order-cycle length change (days) From 9.8 to 7.9 Cash-to-cash cycle reduction (days) From 25.6 to 18.3 Source: Third-Party Logistics Study 2003, Georgia Tech et al. Note: Base = 400 respondents; annual revenue = $100 million to $25 billion

17. Five-Step Action Plan 5. Develop global capabilities. International operations Emerging markets: EU, China, Asia-Pacific Core competency New sources of supply Advanced security processes Redesigned logistics and supply chains Offshore outsourcing?

18. Q&A Contact Information Rama Ramaswami Editorial Director Operations & Fulfillment (203) 358-3764 rramaswami@primediabusiness.com www.opsandfulfillment.com