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© 2009 KPMG Tanácsadó Kft., a Hungarian limited liability company and a member firm of the KPMG network ofindependent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.

Logistics Outsourcingin Hungary 2009

ADVISORY

© 2009 KPMG Tanácsadó Kft., a Hungarian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International,a Swiss cooperative. All rights reserved.

3Logistics Outsourcing in Hungary 2009


1 Executive Summary 4

2 Introduction 62.1 Outsourcing 62.2 Insourcing, Co-sourcing, Nearshoring, Offshoring 62.3 Logistics Outsourcing 62.4 3PL/4PL 8

3 Methodology 9

4 Companies outsourcing logistics functions 104.1 Outsourcing objectives, outsourced activities 10

4.1.1 Purpose of outsourcing 104.1.2 Outsourced activities 104.1.3 Insourced activities 124.1.4 Importance of logistics outsourcing 12

4.2 Selection criteria for logistics service providers 134.2.1 Client expectations, selection criteria 134.2.2 Assessing the logistics service 13

providers’ market

4.3 Contracting 134.3.1 Drafting of contracts 134.3.2 Service-level agreements and sanctions 144.3.3 Term of agreements 144.3.4 Pricing 14

4.4 Operational features 154.4.1 Geographic spread of outsourcing relations 154.4.2 Number of outsourcing partners, 15

length of relationship4.4.3 Financial aspects of outsourcing 164.4.4 Performance measurement 16

4.5 Difficulties, risks, obstacles 174.5.1 Difficulties 174.5.2 Risks 174.5.3 Causes of dissatisfaction 18

4.6 Advantages of outsourcing, 18fulfilment of expectations4.6.1 Fulfilment of strategic, logistics objectives 184.6.2 Achievement of cost and 20

service-level expectations4.6.3 General satisfaction 20

5 Features of operation of logistics service providers 225.1 General features of operation 225.2 Logistics services and service characteristics 22

5.2.1 Services 225.2.2 3PL/4PL 235.2.3 Geographic coverage 235.2.4 Industry focus 245.2.5 Quality assurance and other standards 24

5.3 Asset base of operation 255.3.1 Transport vehicles 265.3.2 Warehouse facilities 265.3.3 Information technology 27

6 Conclusion 29

7 References 30

Table of Contents

At the beginning of 2009, KPMGTanácsadó Kft. (hereafter KPMG)conducted a survey on the status oflogistics outsourcing in Hungary.The survey was a continuation ofresearch completed in 2003, updatingthe topics and issues covered.

In our survey we have queriedcompanies outsourcing and providinglogistics services on the following:

• objectives of logistics outsourcing

• criteria for selection of a logisticsservice provider

• difficulties and obstacles of theactual outsourcing activities

• critical success factors

• advantages gained throughoutsourcing.

Wherever possible, we have comparedthe results of the 2009 Hungariansurvey to the results of the 2003 survey,and to a KPMG survey on WesternEurope, as well as to data from variousinternational research sources, toprovide a basis for analysis of theHungarian outsourcing market.

Our latest survey initiative has achieveda 35% response ratio, underlining theimportance of, and current interest in,the topic.

Main conclusions of the study include:

The objectives of logistics outsourcing,and its position in Hungary

• The key strategic objectives oflogistics outsourcing are “Costsavings”, “Additional flexibility”,“Improved service levels”, and“Focus on core business”.

• The most frequently outsourcedactivities are “Domestictransportation” and “Internationaltransportation” (84% and 81%),“Warehousing” (69%), “Domesticforwarding” (69%) and “Inwardsclearance/Outwards clearance”(63%). The degree of outsourcing ofthese services practically correspondswith the international average.

• No major outsourcing wave can beexpected in the future, because mostcompanies have restructured theiroperations in the previous years andthese days they purchase thelogistics services required for theiroperations from the market insteadof managing them in house.

• The strategic importance of logisticsoutsourcing has also increasedsignificantly in the past few years.At present, 38% of the surveyrespondents outsourcing theirlogistics activities do not believe theycould achieve their business objectiveswithout outsourcing. In 2003, only18% of them thought the same.

• A supply market has developed inlogistics services. Fifty-seven per centof companies that outsource theiractivities think that many logistics

companies offer high-quality servicesand there is already competition insupply. In 2003, 38% of outsourcingcompanies shared this opinion.

Selection of the logistics serviceprovider, contracting

• Contracting companies and logisticsservice providers share the sameideas on client expectations from anoutsourcing partner. The three mostimportant criteria are “Reliability”,“Efficient and responsive tocustomer requests” and “High levelof customer service”.

• In 2009, “Offered level of service”(72%) was the most importantaspect in the selection of a logisticsservice provider. Compared to 2003,this represents a major shift towardsquality, as in 2003 the primaryrequirement was “Low cost/price”.

• Current outsourcing agreementstend to be agreements for a definiteterm. Since 2003, the number offixed-term contracts has increasedfrom 50% to 58%. Simultaneously,the term of the contracts is graduallybecoming shorter and has reducedfrom an average 3.4 years to 2.4years since 2003.

• Eighty-one per cent of thecontracts also contain servicelevel agreements (“SLA”).

• The most frequently appliedsanctions encouraging theachievement of service levels are“Penalties” (61%) and “Terminationof the contract” (58%). The “Refundor credit of the service fee” (23%)

4 Logistics Outsourcing in Hungary 2009


1 Executive Summary

is the third most frequently appliedpenalisation method, although itsscope of use has reducedsomewhat, as may not have provedeffective enough as sanctioning tool.

• The two most widely-used methodsof settlement between serviceproviders and clients are “Pricingbased on activity-based costing”(97%), and the “Open book” (17%).

Operational features

• In terms of geographic coverage,currently logistics outsourcingcontracts are mainly “Hungary based”(41% of the responses). On the otherhand, the ratio of co-operation limitedonly to Hungary is graduallydecreasing (it was still 66% in 2003),and outsourcing enterprises expect itto drop to 33% in three years’ time.

• On the other hand “Regional”(covering Central and Eastern Europeor partly CEE), “Pan-European” and“Global” co-operation are increasing.Currently, such contracts represent59% and, according to projections,they will represent two-thirds ofoutsourcing contracts in the future.

• The logistics services of participatingcompanies are performed by one (13%)or two (13%) outsourcing partners andof those surveyed 26% each have 3–5partners, or 6-10 partners. Twenty-twoper cent of them operate with morethan 10 logistics service providers.These ratios show some distortioncompared to the 2003 survey, inwhich one-third of survey participantshad one logistics outsourcing partner.

• Thirty-nine per cent of surveyparticipants spent between HUF 250million and 1 billion on outsourcingactivities per year.

• In companies where outsourcingtook place with the transfer of staff, onaverage 39 employees were transferred.

• The performance of outsourcingpartners is most frequently measuredwith the following indicators: “On-timedelivery” (87%), “Damages” (70%),“Arrival or pickup timeliness” (63%),“Transportation costs” (60%),“Warehousing costs” (50%), “Volumefill rate” (50%), “Order fill rate” (50%).

• Regarding “Volume fill rate” and“Order fill rate”, service levels achievedby logistics service providers werehigher, while in the case of the ratioof “On-time delivery” it was lowerthan clients’ expectations.

• Companies outsourcing theiractivities considered inadequateperformance of a logistics serviceprovider the biggest risk in the supplychain. Bankruptcy and theft were alsoconsidered significant risks.

Advantages of outsourcing,fulfilment of expectations

• The achievement of the four mostimportant strategic objectives ofthose outsourcing was higher than80%. Similarly, logistics objectiveswere also achieved on average atmore than 80% of survey participants.

• Most expectations related tooutsourcing partners were achieved,reflecting the customer orientation ofthe majority of logistics serviceproviders. On average, 89% of thefive major expectations towardspartners was achieved.

• Fifty-five per cent of participatingenterprises managed to cut theircosts through outsourcing, and only10% had higher expenditure (other

respondents did not know or did notmeasure their costs). The averagecosts saving ratio was 12.2%.

• The majority of quality indicators,such as the “On-time delivery” andthe “Order fill rate” have alsoimproved on average by 9-13%.

• Fifty-five per cent of outsourcingcompanies thought that managementand control efforts of logistics activitiesalso decreased after outsourcing.

• Seventy five per cent of thoseoutsourcing were satisfied with theresults. Occasionally, some outsourcedactivities were also insourced, althoughthis was not a frequent practice.

• Logistics outsourcing appeared to bea durable tendency: those who havemade a decision to outsourcelogistics services are not likely toinsource the same activities.

• Apart from the growth of companiesrendering outsourcing services, nomajor growth can be expected onthis market. The reason behind this isthat most companies have alreadyrestructured their operations in recentyears and nowadays they are purchasingthe logistics services required for theiroperations on the marketplace insteadof performing them in house.

For further information aboutthe survey please contact:

Mark Bownas, PartnerDr. Károly Teleki, Research DirectorLászló Reich, Analyst

KPMG Tanácsadó Kft.

1139 Budapest, Váci út 99.Tel: (1) 887 71 00Fax: (1) 887 7392


© 2009 KPMG Tanácsadó Kft., a Hungarian limited liability company and a member firm of the KPMG network ofindependent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.

2.1 Outsourcing

According to a generally-accepteddefinition, outsourcing is the process bywhich a company contracts out anactivity it has traditionally performed toanother company specialised in thatactivity.

According to its classic meaning,outsourcing also involves the transferof staff and assets, although it isdifferent from a simple sale andpurchase transaction because it alsoinvolves a contract, pursuant to whichthe party outsourcing its resources usesthe services of the transferee.It is absolutely important for theoutsourcing company to have sufficientcontrol over its outsourced activitiesand the service provider, and thereforethe main criteria of co-operation aregenerally laid down in a service levelagreement (SLA).

These enterprises intend to achieve aparticular business objective throughoutsourcing, which can vary accordingto the company in question: e.g.,reduction of operating expenses,service-level improvement, focusingon a core activity, redundancies,greater flexibility, etc.

Most companies outsource theirback-office functions, such as, e.g.,accounting, payroll accounting, IT,maintenance, office and facilitymanagement as well as logistics.

2.2 Insourcing, co-sourcing,nearshoring, offshoring

Insourcing (a reversal of outsourcing,reclaiming the activity) is a processcontrary to outsourcing, whereby acompany takes back a previouslyoutsourced activity and integrates itinto its own organisational structure.An activity is generally insourced whenthe enterprise is dissatisfied with theoutsourcing results and returns to itsprevious operational model. In a broadercontext, insourcing also means that acompany does not take back an activityoutsourced earlier but createscompetencies internally for theperformance of a new activity (e.g.,establishment of a forwarding group).

In American business terminology,

insourcing has another meaning as well, that

foreign-owned companies establish facilities

and create jobs in the United States

(e.g., the Japanese Honda Motor Company

established Honda North America Inc. and its

production plants). But this is not applicable

in the Hungarian context.

If a company uses both internal andexternal resources to perform a certainactivity (e.g., certain parts of softwaredevelopment have been outsourced,but certain development is alsoperformed in house), the process iscalled co-sourcing. An example of co-sourcing is when a company has its owninternal audit unit but employs an externalservice provider for various internal audittasks (e.g., project audit, site audit).

Parallel to the globalisation of a businessoperation, more and more companies

have begun to purchase outsourcedactivities in countries with lower wages(e.g., purchasing of call centre servicesfrom Indian service providers).This type of outsourcing is calledoffshore outsourcing, offsourcing oroffshoring. If these services arepurchased from a country that is closergeographically, then the process isdescribed as a nearshore outsourcing(also ‘nearshoring’ or ‘nearsourcing’).(For example, if a British companyoutsourced its accounting servicesto Ireland or the Isle of Man, it isconsidered nearsourcing, but if thesame service is outsourced to India,then it is offsourcing).

2.3 Logistics outsourcing

Some assert that the history of logisticsand outsourcing goes back to biblicaltimes. In his book WarehousingProfitability, Ken Ackerman considersJoseph the first logistics entrepreneurwho, having interpreted the Pharaoh’sdream, stored the products of the sevenabundant years into warehousesand granaries he built, and thenre-distributed them again in the sevenlean years.

In Europe, the first commercialwarehouses were built in Venice in theMiddle Ages, in the 14th century.Traders originating from Europe and theNear East used these warehouses ascollection and distribution points.

Although some famous logistics serviceproviders’ history may delve back intothe early Middle Ages (e.g., Gebrüder



2 Introduction

Executive Summary

Weiss goes back to 1330), themajority of internationally renownedtransportation, forwarding and logisticscompanies began their operations in the19th century: Danzas in 1815, P&O in1837, Schenker in 1872, and Birkart in1877; and in the 1920-30s: Rynart in1928, Liegl & Dachser in 1929, Giraud in1934, and Schneider in 1935.Most of these companies dealtwith transportation, forwarding, postaland courier, or even navigation.

Following World War II, other renownedtransportation and forwarding companieswere founded, e.g. TNT in 1946, Delacherin 1947, and Tibbet & Britten in 1958,but they also operated similarly to theirpredecessors, specialising in specificfields and maintaining a mainly short-termtransaction-type relationship withcustomers.

Until the 1950s, most productioncompanies also performed logisticsfunctions (apart from internationalforwarding, transportation andnavigation), leaving very little roomfor traditional logistics enterprisesto provide complex logistics services.

From the 1950s and 60s, productioncompanies began contracting externalservice providers for freighttransportation and warehousing, butmost of these contracts still involvedshort-term transactions.

In the 1970s, production companiesbegan to intensively focus on costcutting, productivity increasesand generally higher efficiency.Consequently, longer-term contractsemerged between logistics companiesand their clients primarily inwarehousing. Some serviceproviders specialised in contract-based warehousing in the US.

They consolidated volumes andmade operations more efficient.

From the 80s, logistics companiesextended their services by expandingtheir portfolio with more and morevalue-adding services (e.g., packaging,kitting, labelling, inventorymanagement, and system support).Socio-economic conditions formultimodal solutions began to developin more advanced countries, openingthe way to longer-term strategic-typeco-operation.

In addition, intensive capitalconcentration amassed in the 1980s,triggering a number of acquisitions andmergers, which had never beenexperienced before. As a result ofthese, several companies had morewarehouses, distribution centres andfacilities than they needed.

It seemed a natural option for thesecompanies to get rid of suchsuperfluous real estate properties andemployees through classic outsourcing(involving the transfer of assets andstaff), thus opening possibilities for thegrowth of logistics companies basedon longer-term predictable outsourcingcontracts.

The fashionable management theoriesof the 1990s (such as “streamlining” or“concentration on the core activity”),and further pressure on cost cutting andefficiency increases at enterprises led tothe spread of outsourcing and businessmodels in which logistics was anoutsourced function from the start.

The managers of large productioncompanies also overcame theirhesitation to outsource logisticsservices to companies that also provideservices for their competitors. This latter

process facilitated consolidation, basedon which logistics companies couldsignificantly improve their efficiency.

After the turn of the century, more andmore multinational companies set arequirement for global operation, notonly for their suppliers but also forlogistics service providers. This puthuge pressure on logistics companiesgenerally operating in a particularcountry, region or a language area toexpand geographically. Most of theseefforts could be achieved only throughacquisitions and mergers, which led tointensive concentration on the logisticsmarket. For example, since 2000Deutsche Post has gradually integratedDHL, Danzas, Airborne Express, andExel (which had acquired Tibbet andBritten not long before), thus creating theworld’s largest logistics service provider.

Similar concentration also took place onthe Hungarian market with the merger ofinternational logistics companies and theacquisition of Hungarian serviceproviders, e.g. Volán Tefu,Hungarocamion, Transcamion, RévészEurotrans, DeltaSped and RoyalSpedwere all integrated into the Waberer’sgroup, and Waberer’s Holding alsoacquired participation in BILK andSzabadkikötő.



2.4 3PL/4PL

The 3PL (Third Party Logistics) providerterm has been generally used sincethe early- to mid-1990s for companiesthat offer more complex and diversifiedservices (e.g. warehousing andcommissioning, inventory management,distribution, re-packaging, kitting)mostly in the form of long-termpartnerships besides the traditionalwarehousing and transportation services.

These logistics service providers haveoften joined the traditional customer-supplier relationship as third parties,making it possible and calling for there-interpretation of the customer-supplier relationship and thedevelopment of new processes, as wellas integrating 3PL service providers.

The term 4PL (Fourth Party Logistics)originates from Accenture (formerlyAndersen Consulting), who used theterm in a study made in 1996 andprotected it as a trademark. By thattime, Supply Chain Managementtheories had become generally wellknown and fashionable. According tothese theories “not individualcompanies, but the supply chainscompete with each other” and “thehighest efficiency and cost reductioncan be achieved if processes areoptimised along the entire supply chain”.

4PL service providers act as supplychain co-ordinators and integrators,planning, managing and controllingsupply chain processes using theresources and capacities of their owncompanies and of others operating inthe supply chain. 4PL service providersmust have experience, know-howand IT support that facilitate thisintegrator function.

As in this business model participants inthe supply chain depend on each otherand their 4PL service provider a greatdeal; a long-term partnership betweenthe key players in the chain (producers,customers) and the 3PL companiesperforming the logistics functions isessential. Although 4PL companies canin theory also be virtual companieswithout any physical assets, in practicepredominantly 3PL service providersposition themselves as supply chainintegrators.

Just as both 3PL and 4PL terms havebeen established in technical literature,subsequently definitions were alsocreated for 1PL and 2PL.

According to the definitions, 1PL (FirstParty Logistics) is a business model inwhich a manufacturer performs logisticsfunctions itself, using its own assets.

2PL (Second Party Logistics) representsa structure in which certain basiclogistics functions (warehousing,transportation) are performed bylogistics service providers, but thecomplexity of these transactions islower than in 3PL, and there is nopartnership with the service provider.

Opinions vary on the existence of a 5PL

business model as well as its definition.It is a fact that the expression appearedaround the turn of the century, whenthe e-Business wave was peaking.Some logistics service providers, whoapparently offered e-Business solutionsto their clients (for the purpose ofdistinguishing themselves fromcompetitors and under the influence ofan e-Business euphoria), began todescribe themselves as 5PL. However,other publications define operators oflogistics electronic marketplaces (e-marketplace) as 5PL, because theyconsider this business model a newstage in the evolution of PL.

Given that the 4PL model has notspread that widely it is likely too early touse the 5PL term, and it will not be usedfor our purposes in this document.



The external service provider manages and

controls supply chain processes as a supply

chain integrator.

External service providers perform complex

logistics functions in a partnership or in an

outsourcing contract.

Certain basic logistics functions are performed

by external service providers as transactions.

Logistics functions are performed in house,

using a company’s own assets.

4PL

3PL

2PL

1PL

Hig

her p

rofit

mar

gin G

reater complexity

Figure 1: Development of logistics service providers

Source: KPMG survey (2009)

We conducted our survey amongHungarian logistics service providersand manufacturing and tradingcompanies (shippers) that use or mayuse logistics services in their operations.

The questionnaire used in the surveywas prepared by KPMG professionals,relying on and updating the questionsused in the previous survey. Thequestionnaires contain 35 questions forlogistics service providers and 52qualitative and quantitative questionsfor shippers. Certain questions areincluded in both questionnaires forspecific purposes, in order to highlightthe divergent opinions of participantservice providers and shippers, andsupporting the analysis of related issues.

The questions addressed to shippers

and logistics service providers

covered the following topics:

• Purposes of logistics outsourcing,most frequently outsourced activities

• Criteria for selection of logisticsservice providers

• Contracting details (elaboration,term, service level agreement, pricing)

• Operational features (term,geographic scope, complexity,performance measurement, numberof partner relationships)

• Difficulties, success factors,obstacles, business risks

• Advantages received andachievement of expectations.

In addition to the above, we queriedservice providers on the following topics:

• Operational data (financial data,number of employees andsubcontractors, existence and typesof qualifications)

• Services (services provided,geographic scope, industrialspecialisation, company strengths)

• Asset base of operation(warehouses, fleet, IT applications).

The questionnaires were sent out tologistics and to high level managementat participating enterprises in Q1 2009.Most enterprises responded to thequestions individually, yet our advisorswere available for consultations byphone with respondents regardinginterpretation of the questions.A few survey participants tookadvantage of this.

KPMG has not verified data providedby participants in the survey but duringevaluation of the results we followedup with specific questions to answersthat diverged significantly from theaverage or that did not appear withinreason. Through this we believe wehave managed to significantly reducethe potential ratio of erroneousresponses.

Our results comprise averagescalculated from submitted results,so respondents’ individual data is notavailable in this publication inaccordance with maintaining theirconfidentiality.

Our survey targeted 154 enterprisesdirectly, of which 58 were logisticsservice providers. In total, 54companies (33 shippers and 21 serviceproviders) participated in the research, a35% response ratio which highlights thecurrent importance of the topic.



3 Methodology

Logistics outsourcing is planned andimplemented through the followingclosely related steps:

a. Development of a corporate strategyand definition of strategic objectives

b. Breakdown of the strategicobjectives to logistics objectives

c. Identification of the activities to beoutsourced

d. Identification of the criteria forservice provider selection

e. Selection of the service provider

f. Contracting (Outsourcing andService Level Agreement)

g. Planning of the operationand IT support

h. Implementation

i. Operation

j. Performance measurementand feedback

In order to provide orientation to thosecompanies outsourcing their logisticsprocesses during the planning andimplementation of the above steps, wequeried shippers on the following topics:

• Objectives for logistics outsourcingand the most frequently outsourcedactivities

• Selection criteria for a logisticsservice provider

• Features of outsourcingcontracts

• Specifics of logistics outsourcingoperations

• Critical success factors, risks andobstacles in the implementation ofoutsourcing

• Advantages of outsourcing.

Wherever possible, we have comparedthe results to responses from thelogistics service providers, the results ofour earlier survey and data from similarsurveys on outsourcing.

4.1 Outsourcing objectives,outsourced activities

4.1.1 Purpose of outsourcing

In the first part of our survey, weintended to identify the strategicand logistics objectives of companiesoutsourcing their logistics functions.

Among the strategic objectives,respondents identified “Cost cutting”,“Additional flexibility”, “Improved servicelevels”, and “Focus on core business” astheir most important objectives.

These same objectives were also thetop four objectives in the 2003 survey,but it is an important change that inrecent years “Cost cutting” hasbecame the number one priority,while the former top priority, i.e.“Concentration on the core activity”dropped to fourth place. This is likelybecause there has been a lot of cost

cutting pressure on companies inrecent years, which only increased inthe autumn of 2008 in relation to thecredit crunch.

The objectives of the Hungarianoutsourcing market appear to be inaccordance with the internationalmarket, as in numerous internationallogistics outsourcing surveys costcutting, improved service levels,additional flexibility and focus on corebusiness are typically identified as thetop priorities.

Among logistics objectives, cost cuttingis also included among the top fivepriorities in line with strategicobjectives. “Reduction in transportationcosts” is in first place, but the other fourlogistics goals are quality criteria:“Improved order accuracy”, “Improvedon-time delivery”, “Lead time reduction”,and “Additional flexibility”. These are fullyin line with the results of a KPMGsurvey conducted in Western Europe[1], as the five most important logisticsobjectives proved to be the same.

4.1.2 Outsourced activities

Based on the 2009 survey the top fiveoutsourced activities were “Domestictransportation” and “Internationaltransportation” (84% and 81%),“Warehousing” (69%), “Domesticforwarding” (69%), “Inwardsclearance/Outwards clearance”(63%). In addition, more than 50% ofparticipating enterprises outsourced“International forwarding”, “Value-addedservices” (e.g., packaging, labelling,bar coding, kitting) and “Domesticdistribution” activities.



4 Companies outsourcing logistics functions

Comparison of 2009 data with theresults from the 2003 survey clearlyindicates that in recent years companiesoutsourced most of their transportationand forwarding activities, either in partor in full. As one solution, numerouscompanies have formed their owntransportation companies (various Transand Sped Kft-s), or simply terminatedtheir internal transportation departmentand purchased the services from thetransportation market, which hadexcess capacity. This process has onlybeen strengthened by the developmentof rather fierce price competition on theliberalised transportation market, whichonly intensified when Slovak, Polish,and Ukrainian transporters, oftenoperating semi-legally, appeared on theHungarian market.

There have been no major changesin the outsourcing of warehousing,customs administration and domesticdistribution in recent years, as theseservices were already being intensivelyoutsourced in 2003 (at 55-65%).In addition, whenever enterprises’

business models made it possible orcalled for the outsourcing of suchactivities (e.g., FMCG companies),

they were most times outsourcedat the end of the 1990s.

On the other hand, in the last six yearsno progress has been made in theapplication of logistics planning andsupply change management functionsby companies as outsourcing services,so the 4PL model is practically nonexistent in Hungary. This finding is alsoin line with data from our former survey(2003), when none of the companiesindicated that they would outsourcesuch functions in the near future.

Comparing the outsourcing ratios ofvarious logistics activities in Hungaryand internationally, we can concludethat the degree of outsourcing inHungary is practically the same as theglobal average in basic logistics services(e.g., domestic transportation,international transportation,



0%

0%

0%

7%

7%

7%

55%

41%

28%

66%

28%

66%

41%

62%

0%

3%

6%

6%

9%

19%

53%

56%

59%

63%

69%

69%

81%

84% Domestic transportation

International transportation

Warehousing

Domestic forwarding

Inwards clearance/Outwards clearance

International forwarding

Value-added services

Domestic distribution

International distribution

Reverse logistics

Other

After sales logistics

Logistics planning

Supply chain management

0% 20% 40% 60% 80% 100% As a percentage of the responses

Figure 2: Outsourced logistics activities (2009 and 2003) � 2009 � 2003

Source: KPMG surveys (2009 and 2003)

69%

63%

69%

81%

84%

45%

56%

62%

70%

70%

70%

81%

75%

89%

91%

44%

57%

73%

89%

92%

48%

66%

70%

69%

78%

52%

65%

72%

81%

85%

Domestic transportation


Warehousing

Inwards clearance/ Outwards clearance

Forwarding

0 10 20 30 40 50 60 70 80 90 100 As a percentage of companies

� World � North America � Europe

� Asia, Australia � Latin-America � Hungary

Figure 3: Outsourced logistics activities in Hungary (2009) and the world (2008)

Source: KPMG survey (2009), Cap Gemini (2008)

warehousing, inwards/outwardsclearance), and it is even 17% higher inforwarding. Comparing present surveydata to European numbers, nearly 90%of European enterprises outsourceddomestic and internationaltransportation, which is approximately8% higher than the Hungarian average.The Hungarian figures correspond withthe European data in warehousing(around 70%), while in customsclearance and forwarding the degreeof outsourcing in Hungary are 7% and25% higher, respectively, than theEuropean averages. Hungary’soutsourcing indicators appear tocorrespond with global trends in the lastsix years.

Shippers outsourcing their logisticsfunctions were also queried about theirintentions to outsource logistics activitiesin the future. Based on their responses itseems that companies do not wish tooutsource new logistics activities as theyhave already restructured theiroperations and nowadays purchase thelogistics services required for theiroperations on the marketplace instead ofperforming them in house. (In the 2003survey, companies projected a 5-8%increase in three years’ time for almostall logistics activities.)

There are two areas where surveyparticipants indicate a potential smallincrease in outsourcing. In domestictransportation Hungary should reach theEuropean level of outsourcing within thenext three years, with a similar trendlikely for value-added services.

Logistics service providers also see asimilar future, as they do not expecteither to provide new logistics servicesto their clients in the next three yearsother than those included in theircurrent service portfolios.

Survey participants (includingmultinationals) appear satisfied with thecurrent degree of outsourcing and donot wish to outsource other logisticsactivities, yet intend to keep SupplyChain planning and co-ordinationfunctions as in-house activities.

4.1.3 Insourced activities

Insourcing as an option or practice didnot appear in the 2003 survey and nosurvey participants reported utilising itfor any logistics activity, nor had anysuch intention. Obviously, asoutsourcing spreads as a practice,opportunities for insourcing are likely todevelop. In our survey, 11% ofenterprises reported the insourcing ofsome activities.

Insourced activities includedwarehousing, certain production-typevalue-added services and freighttransportation by rail. Respondentsidentified the lower cost of performingthe activity within the company andbetter control over expenditures as themain reasons for insourcing.

Although insourcing has appeared inHungarian business practices as agenuine option, no major insourcingwave is to be expected in the future.

4.1.4 Importance of logistics

outsourcing

The majority of respondents (76%)recognised and were positive about theimportance of logistics outsourcing andthe opportunities involved with it,although 48% of respondents thoughtthat “Clear competitive advantagesoriginating from it have not yet beenwidely realised”. On the other hand,38% of participants in the surveythought that “Company objectivessimply cannot be achieved withoutlogistics outsourcing”.

No respondents indicated that outsourcing“Did not have any impact on our business”,although according to 14% of themoutsourcing is “A useful topic, but in fact itdoes not deliver competitive advantage”.

However, comparing the responsesto the results of the 2003 survey, aconsiderable change can be observedregarding the importance ofoutsourcing. While in 2003 19%of respondents said that businessobjectives could not be achievedwithout outsourcing, in 2009 twice asmany respondents – 38% – thought thesame, yet fewer respondents believethat the competitive advantages arisingfrom outsourcing have not yet beenwidely realised by companies.

There was no change in the number ofrespondents viewing the importance ofoutsourcing more sceptically (i.e. “itdoes not deliver competitiveadvantage”), as 14% of respondentsheld this opinion in both surveys.



Figure 4: Importance of logistics outsourcing

� It is a useful topic but in fact it does not

provide any competitive advantage: 14%.

� A clearly-delivered competitive

advantage has not yet been widely

recognized: 48%.

� A company simply cannot achieve

its objectives without logistics

outsourcing: 38%.

� It does not have any impact on the

business operations of our company: 0%

Source: KPGM survey (2009)

We can conclude that the importance ofoutsourcing for business has beenmuch more recognised in the recentpast, although a few enterprisesoutsourcing their activities still contendthat outsourcing as a tool does notprovide any competitive advantage.

4.2 Selection criteria forlogistics service providers

4.2.1 Client expectations,

selection criteria

It seems that both contractors andlogistics service providers share thesame views on clients’ expectationsfrom an outsourcing partner.According to both groups, the threemost important criteria are “Reliability”,“Efficient and responsive to customerrequests”, i.e. “Flexibility”, and“High level of customer service”.

These comprise fundamentalexpectations in logistics, although anyindicator can generally be improvedonly at the cost of another parameter(trade-off). Consequently, a compromiseneeds to be found between theexpected target values. (For example,if your enterprise requires a very highlevel of service, it can usually beachieved at the cost of reliability andflexibility). Naturally, the improvementof any of the three quality targetsinvolves costs.

It is not surprising, then, that thethree greatest expectations putservice providers into a rather difficultsituation.

On average, companies requestedoffers from five logistics firms (answersranged from 3 to 10) when selectingtheir service provider. In 2003, theaverage number was seven. This figuredecreased because concentration hasbegun on the logistics services market,and therefore there are fewer potentialpartners.

To the question “What were your majorreasons for choosing your currentoutsourcing partner?”, mostrespondents replied “Offered level ofservice” (72%), “Value for money (56%)and the “Low cost/price” (56%) as themost important factors.

Compared to 2003, there appears to bea clear shift towards quality, aspreviously low price was the primaryconsideration.

The trend has changed due to thestrong price competition in recentyears, prices have been ratherdepressed on the logistics market,and some logistics service providersoffering services below the marketprice faced serious operationalproblems (e.g., weak performance,weak and non-motivated staff, thefts,bankruptcies). These factorsgenerated business risks and oftenactual losses for their clients which,in some cases, exceeded even thecost advantage of the low price.Consequently, companies beganto look for logistics enterprisesproviding good services consistentlyand a history of good workingrelations took higher priority, as theymitigated risks.

4.2.2 Assessing the logistics

service providers’ market

The majority thought that “Manyservice providers offer high-qualityservices and there is supplycompetition” (57% of respondents).However, according to 25% of clients,“There is no real supply competition“as the available quality varies andfluctuates, and 11% thought that“There is neither real market offeringnor competition”. (Seven per cent ofrespondents did not have enoughinformation for evaluating the market.)

On the other hand, it is an importantchange since the 2003 survey that theratio of respondents who think that“Many service providers offer high-quality services and there is supplycompetition” increased from 38% to57%. This is clear recognition of thelogistics trade despite the fact thatnumerous logistics providersexperienced hiccups for shorter orlonger periods in the last 5-6 years (e.g.,temporary confusion after mergers,operating problems following theacquisition of a major client, or liquidityissues).

4.3 Contracting

4.3.1 Drafting of contracts

With regard to outsourcing contracts,first we checked whether or notcompanies had a detailed written policyor procedures for drafting outsourcingagreements.

Fifty-eight percent of them have writtenprinciples and processes for preparingcontracts. On the other hand, 42% ofrespondents rely only on the practiceand experience of management.Without doubting the expertise ofmanagers at the companies included in



Flexibility Reliability

Service level

Cost

Figure 5: Trade-off


the survey, we can generally concludethat the undocumented processes andpolicies, “existing only in people’sheads” are often not integrated ordetailed enough, do not cover allaspects and in many cases variousexpectations and evaluations frommembers of a management team canalso cause problems.

On the other hand, some progress canalso be observed in this area: in 2003,only one-third of survey respondentshad a written outsourcing policy andprocedures.

To the question “To what extent is theagreement on partner co-operationformalised?”, 88% of enterprises repliedthat contractual obligations were statedin formal written agreements, whileco-operation is regulated in gentlemen’sagreements in 9% of cases and thereare no contracts in 3% of such instances.

Similar proportions apply also to serviceproviders, as 85% of cases are coveredby a formal contract, 10% operate onthe basis of a “gentlemen’s agreement”,generally temporary agreement (e.g.,the outsourcing agreement signed twoyears ago has expired, the client intendsto renew the agreement with thelogistics service provider, butdeliberations take a long time and thetransitional, legally uncertain period iscovered by a gentlemen’s agreementtype of arrangement). There is nocontract for 5% of cases.

4.3.2 Service-level agreements

and sanctions

The contracts of 81% of respondentscontain detailed provisions on servicelevel requirements. Well elaborated andaccurately defined and reasonableservice level values create the basis of afair partnership between the client and

the logistics service provider. Theservice level agreement (SLA) hasbecome a tangible practice in Hungarianlogistics outsourcing.

Earlier some clients set unreasonable and

impossible “service level” requirements for

their service providers (as they did not have

enough experience). It often occurred

because prior to outsourcing the client did

not or was not able to measure certain key

performance indicators (KPIs), or did not

have a reasonable understanding of the

options available in Hungary. As clients

gained a better understanding of the service

levels that are available in Hungary, the

number of unreasonable requests has also

decreased.

Ninety per cent of clients think that theiroutsourcing contracts containprovisions for sanctions when a logisticsservice provider did not satisfy theconditions stated in a service levelagreement.

The most frequently applied sanctionsare “Penalties” (61%) and the“Termination of contract” (58%).According to the 2003 survey, thesewere the two most frequent sanctions.“Refund of the service fee” is the thirdmost frequently applied type of penalty,used by 23% of the companies,although its importance has recentlybeen decreasing. Most probably, this isbecause the deficient performance of aservice provider results in greaterdamage to clients than a repaid servicefee, therefore it is not an effectivesanction. “Compensation” (16%) andthe “Denial of the success fee” (19%)are relatively less used, although theirimportance has increased (primarily atthe expense of the fee refund). Clientsgenerally apply several sanctions (orfrom a different aspect, incentives) toservice providers who do not performaccording to requirements (in addition

to a penalty and termination of anagreement, they also apply furthersanctions).

4.3.3 Term of agreements

Forty-two per cent of logistics serviceproviders enter into service contractswith their clients for an indefinite term.The agreements of service providerspreferring definite-term contracts rangefrom 1-5 years, while the average termof a contract is 2.4 years.

Since 2003, we have found that therehas been a shift towards agreementsfor a definite term and that the numberof fixed-term contracts has increasedfrom the previous 50% to 58%.Simultaneously, the term of theseagreements has shrunk significantly,as on average it was 3.4 years in 2003,and is 2.4 years in our latest survey.

Clients’ responses are consistent withresponses from service providers –fixed-term contracts are established for1–5 years, while the average term ofcontracts is 2.3 years.

4.3.4 Pricing

Clients and logistics service providersmay apply various types of pricing andsettlements, or a combination thereof.

The two most widely used methodsfor settlement between the serviceprovider and the client are “Pricingbased on activity-based costing”and the “Open book”. In Hungary,“Pricing based on activity-basedcosting” is applied by 97%, and the“Open book” settlement is used by17% of respondents. The other threepricing methods can also be foundoccasionally. There has been norelevant change in the frequencyof use of the various categoriessince 2003.



4.4.2 Number of outsourcing partners, length of relationship

The number of outsourcing partners of participants in the survey varies widely(1–50). There are three fundamental categories:

The logistics services of participating companies are performed by one (13%) ortwo (13%) outsourcing partners and of those surveyed 26% each have 3–5 partners,or 6-10 partners. Twenty-two per cent of companies operate with more than10 logistics service providers. These ratios show some shifting compared to the2003 survey, where one-third of those surveyed had one logistics outsourcing partner.

We also queried the length of outsourcing co-operation between clients andlogistics service providers in years. The average was 4.3 years, and the length ofexisting relationships ranged from 1–20 years. Fifty per cent of such co-operativerelationships existed for 1–3 years, and the other 50% existed for more than fouryears (mainly from 4–8 years). This figure indicates that a relatively large numberof clients build a long-term relationship with their outsourcing partners.

4.4 Operational features

4.4.1 Geographic spread of

outsourcing relations

The Hungarian survey results indicatethat in terms of geographic coverage,currently logistics outsourcing contactsare mainly “Hungary based” (41% ofthe responses). On the other hand,the ratio of co-operation limited onlyto Hungary is gradually decreasing(it was 66% in 2003), and outsourcingcompanies expect it to drop to 33% inthree years’ time.

The ratio of “Regional” (coveringCentral and Eastern Europe or part ofCEE), “Pan-European” and “Global”co-operation is increasing. Currently,such contacts represent 59% and,according to projections, they willrepresent two-thirds of outsourcingcontacts in the future.

Since the 2003 base, mainly the ratio ofregional co-operation has increased.One of the reasons for this trend is thatfollowing EU accession on 1 May 2004,borders in Central and Eastern Europeopened up and a lot of multinationalcompanies established regionaldistribution services within the region.To achieve this objective, they soughtlogistics partners, who were capableof performing services at a regionallevel (or at least in the major countriesof the region).

Pan-European and global relations havenot developed as intensively as regionalones, because larger multinationalcompanies had already selected someof their logistics partners at theEuropean or global levels (in 2003).(For example, the head office issued atender for transportation by road invarious European relations, enteredinto a contract with the winner, and

companies operating in specific countries had to co-operate with the logisticsservice providers pursuant to these Pan-European or global contracts.)



41%

23%

66%

33%

13%18%18% 18%

13%

26%

8%

23%

70%

60%

50%

40%

30%

20%

10%

0% Hungary based Regional Pan-European Global

As a percentage of respondents

Figure 6: Geographic spread of outsourcing relations � 2003 � 2009 � Future

(2003, 2009 and the future estimates)

Source: KPMG survey (2009 and 2003)

One partner All of the client’s outsourced logistics functions are

performed by one logistics service provider, usually one

of the market leaders.

Two partners The client operates with two service providers (specialised in a

logistics function). One usually performs warehousing tasks,

while the other is responsible for transportation and distribution.

Several partners There may be various reasons for employing more than

two partners, depending on the operation and logistics

architecture of the specific company. For example, a company

may operate many warehouses, so national distribution is

covered by several small, local transport companies.

Main functions are performed by various specialised logistics

companies, etc.

4.4.3 Financial aspects of outsourcing

Classic outsourcing (as mentioned inthe Introduction of this report) mostlyinvolves the transfer of staff and assets.

In our survey, 21% of cases involved thetransfer of assets and 17% took placewith the transfer of staff. The value ofassets transferred in outsourcing variedwithin a wide range between HUF 0.5million and HUF 30 million. On average39 employees were transferred, whileaccording to respondents 20–100people were outsourced.

One of the reasons no assets or staffwere transferred in the majority of casesis that many companies included in thesurvey outsourced their logisticsfunctions many years ago (or began theiroperations in Hungary in this structure).Consequently, for them logisticsoutsourcing means only the replacementof the logistics service provider ratherthan classic resource outsourcing.

Based on answers to the question“What is the annual contractual valueof the outsourced activities?”, 39% ofrespondents spent between HUF 250million and HUF 1 billion each year. It wasalso remarkable that 29% of outsourcingcontracts cost over HUF 1 billion a year.

Based on the above, logisticsoutsourcing clearly appears to bea serious business, as the value oflogistics services outsourced bysurvey participants was higher thanHUF 40 billion a year.

4.4.4 Performance measurement

The performance of outsourcingpartners is most frequently measuredby the following indicators: “On-timedelivery” (87%), “Damages” (70%),“Arrival or pickup timeliness” (63%),“Transportation costs” (60%),“Warehousing costs” (50%), “Volumefill rate” (50%), “Order fill rate” (50%).

Although at first glance it seemssurprising that 50% of theseenterprises do not use the Order andVolume fill rate indicators to measurethe performance of their logisticspartners, it should be noted that atseveral companies included in thesample goods are commissioned withinthe company while only domestic andinternational transportation, forwardingand customs clearance services wereoutsourced. Consequently, in thesecases the measurement of fill rates atthe service provider is irrelevant. On theother hand, compared to the 2003survey, there has been an increase in

the number of companies who measurethe performance of their partners withsome complex indicator, such as, e.g.,“on-time in full” (OTIF).

Looking at the frequency ofperformance indicator measurement,we found that most companiesmeasured their performance indicatorsmonthly (as indicated by 50% of allrespondents). Daily and weeklyperformance measurements represent14-15%, which is explained by the factthat most companies measure criticalindicators (such as, e.g., arrival or pickuptimeliness, order fill rate, volume fillrate, on-time-delivery) daily, or at leastweekly.

For three important performanceindicators we compared theperformance indicator required byclients with performance indicatorsachieved by service providers.

Clients’ expectation for on-time deliverywas on average 97% calculated byeliminating outliers. The cleanedaverage service level achieved bylogistics service providers was 95.8%,i.e., it was lower than the averageservice level expected by clients.

On the other hand, clients’ expectationswere met both in the order fill rate andthe volume fill rate, as service providershad 99% and 99.3% performancecontrary to the expected 97.3% and98.4%.



3%

13%

19%

39%

16%

10%

Figure 7: Annual value of outsourcing contracts

40%

30%

20%

10%

0% Less than Between HUF 25 Between HUF 50 Between HUF 250 Between HUF 1,000 More than HUF HUF 25 million and 50 million and 250 million and 1,000 million and 2,500 million 2,500 million

As a percentage of the responses


4.5 Difficulties, risks, obstacles

4.5.1 Difficulties

To the question “How difficult arethe individual steps of logisticsoutsourcing?”, it is apparent thatcompanies consider outsourcingsteps as average complex processes.

The extent of difficulties was measuredon a scale of 1–5, where one waseasiest, and five the most difficult.

In the partner search and selectionphase clients thought it was easierthan average to “Identify potentiallogistics service providers” (2.7),but the decision on whether or not“The logistics service provider meetsthe requirements” seemed moredifficult than average (3.5). This isbecause in many cases clients cannotassess the operation, assets andstaff of the service provider on site(due to, e.g., lack of time, resourcesor methodology), and in many casesthe logistics service provider does noteven allow the client to do so (referringto the confidentiality of their existingcustomers).

In such cases, many clients employan external advisor in order to

mitigate business risk. The advisorconducts a logistics audit and helpsidentify problem areas and riskfactors. As the client’s negotiatingposition is the strongest prior tothe conclusion of a contract, thereis a good chance of setting therequirement of eliminating anydetected deficiencies as aprerequisite of the contract.

Designing the outsourcing partnershipmeans identifying applicableperformance indicators, elaboratingjoint processes, defining anIT infrastructure concept anddrafting contracts.

In this phase, clients considered the“Agreement on the provisions of acontract” (3.6), “Develop processes ofthe partnership” (3.2) and “Agreementon applied performance indicators ofpartnership” (3.1) as more difficulttasks than average.

Most steps in the implementation ofoutsourcing co-operation are easier thanaverage tasks. There are only two tasksof average difficulty: “Implementationof supporting IT infrastructure” (3.1)and “Aligning business processes ofinvolved companies” (3.3).

4.5.2 Risks

In logistics processes, both clients andservice providers face numerous risks.Clients and logistics service providersconsider risks and their extent similarly.

Both clients and logistics serviceproviders gave the highest rank to risksarising from the unacceptableperformance of a logistics serviceprovider (or a subcontractor of thelogistics service provider): clientsranked this at 3.6 points, serviceproviders at 3.9 points.

Shippers ranked the potentialbankruptcy of a logistics serviceprovider and theft as the second andthird most important risks (3.4 and 3.3points).

For logistics service providers, thefttook second place (3.6 points), andaspects related to the appropriation ofintellectual properties and businessinformation ended up in third place (3.2points).

The evaluation of other parameters wasvery similar, considering both the orderand the weights assigned.



97,0% 97,3%

98,4%

95,8%

99,0% 99,3%100%

99%

98%

97%

96%

95%

94%

93%

92%

91%

90% On-time delivery Order fill rate Volume fill rate

Figure 8: Performance indicators – clients’ expectationsand service levels of logistics service providers � Client � Service provider


4.5.3 Causes of dissatisfaction

To the question “Has your companyever terminated its contract with alogistics service provider?”, 65% ofparticipants in the Hungarian surveyanswered yes. This two-thirds ratio ismuch higher than the 52% measured inthe 2003 survey.

The main cause of dissatisfaction is stillthe “Lack of influence on the servicelevels of service provider”. Both in 2003and 2009, more than 42% ofrespondents specified this category.However, the “Length of time in gettingservice right” and “Limited/no controlover the partner” were consideredfactors causing significantly lower levelsof dissatisfaction than in 2003. As thesecategories decreased, the “Increasedoperating cost” took second place,although its percentage has notchanged since 2003.

4.6 Advantages ofoutsourcing, fulfilment ofexpectations

4.6.1 Fulfilment of strategic,

logistics objectives

In restructuring business processes,including logistics outsourcing theachievement of strategic objectivesis a key requirement. Our survey used

a scale of 1–3 – unachieved, achieved,achieved better than expected – tomeasure attainment of the five mostimportant strategic objectives.

Strategic objectivesAmong the five most importantstrategic outsourcing objectives,the first four were achieved at morethan 80% of survey respondents.



1.8

2.3

2.2

2.1

3.2

2.4

2.5

2.3

3.6

3.0

3.9

1.6

2.0

2.1

2.2

2.3

2.3

2.4

2.7

3.3

3.4

3.6

1 2 3 4 5 1 – Less critical 5 – Most critical

Figure 9: Risks in the supply chain � Clients � Service providers

Damages caused by inappropriate performance of a logistics service provider (e.g., lost business, delisting, fines, penalties, market loss)

Bankruptcy and liquidation of a logistics service provider

Theft at participants in the supply chain(e.g., logistics service provider, transport, cross-docking, production)

Soiling of foodstuffs or other goods and consequential health risk

Exchange of goods in the supply chain (e.g., exchange of goods for lower-quality products)

Strikes, border crossing and road blocks

Appropriation of intellectual property and business information(e.g., customer data, credit card information, planned promotions information)

Intentional damage caused in logistics devices (vandalism)

Placing smuggled goods to own consignment

Natural and other disasters (e.g., flood, fire, earthquake)

Terrorism and actions against terrorism (e.g., airport blocks, stricter controls)

Source KPMG survey (2009)

80%68%

56%63%

55%

3%

16%27%

27%

17%

-17% -16% -17%-10%

-28%

Figure 10: Achievement of strategic objectives

100%

80%

60%

40%

20%

0%

-20%

-40% Cost cutting Additional Improved Focus on core Measurable flexibility service level business service level

As a percentage of responses

� Achieved better than expected � Achieved � Unachieved


The picture was especially positive forthe categories “Improved service level”and “Focus on core business”, wherethe strategic objectives of more than25% of respondents were betterachieved than expected.

We also looked at the degree ofachievement of the requirements for

companies which considered the“Improved service level” and “Costcutting” objectives to be achievedsimultaneously. This double objectivewas achieved in 76% of cases,but for 24% either “Cost cutting”or “Improved service level” wentunachieved, or neither of themwere achieved.

However, the 83% performanceindicator calculated for the five strategicobjectives is rather good.

Logistics objectivesThe “Improved on-time delivery” andthe “Improved order accuracy” wereachieved at 93 and 86%, which arerather good results that representconsiderable progress since 2003, whenthe same indicators were 74% and 80%.

However, in the “Reduction oftransportation costs” the 2009 figuresare worse than those for 2003, as 75%of clients achieved such objectives thisyear compared to 85% achieving theirgoals in 2003.

There was a slight decrease in the“Increased flexibility in the logisticsnetwork”.

The average achievement indicator ofthe five logistics objectives was 81%.

Expectations for partnersMost expectations related to partnerswere achieved, reflecting the customerorientation of the majority of logisticsservice providers. On average, 89% ofthe five major expectations of partnerswere achieved.

Three of the five indicators - “Reliability”,“High level of customer service”,“No hidden costs or charges” - haveimproved significantly since 2003.The achievement of these indicatorsimproved by 9, 4 and 12%. On the otherhand, regarding flexibility, instead of theformer 95%, only 80% of respondentsindicated “Efficient and responsive tocustomer requests” was fully achieved.

There have been no significant changesin regard to “Unambiguous contract”since 2003.



71%83% 82% 77%

68%

4%10% 4%

0%

7%

-25%

-7%-14%

-23% -25%

Figure 11: Achievement of logistics objectives

100%

80%

60%

40%

20%

0%

-20%

-40% Reduction of Improved on-time Improved order Lead time Increased flexibility transportation delivery accuracy reduction in the logistics costs network




81%

63%74%

83% 83%

16%

17%

16%

3%7%

-3%-20%

-10% -13% -10%

Figure 12: Achievement of partner expectations

100%

80%

60%

40%

20%

0%

-20% Reliability Efficient and High level of Unambiguous No hidden costs responsive to customer service contract or charges customer request




4.6.2 Achievement of cost and

service-level expectations

This survey took a more detailed look atthe performance of cost cutting andcertain quality indicators.

Cost cuttingOutsourcing does not necessarilyinvolve cost cutting, as a company mayalso intend to reduce lead time,increase the frequency of deliveries orintroduce deliveries to the endpoint ofsale. In such cases, in theory a client iswilling to pay more for a higher servicelevel.

Some companies queried in the surveyalso followed such a strategy (costcutting was not included in theobjectives), but for 95% of respondentsreduction of logistics expenses was“Important” or “Expected”.

Fifty-five per cent of companiesoutsourcing their logistics activitieshave managed to cut their costs.There has been practically no changein this ratio since 2003 (54%). Howeverin 2009, logistics expenses haveincreased at one-tenth of thecompanies outsourcing logistics.This is a considerable change, becausein 2003 nearly one-third of thosesurveyed indicated that their expensesincreased after outsourcing.

Considering the specific figures, theaverage cost cutting achieved throughoutsourcing was 12.2%, but the actualfigures varied in a relatively broad range,5-20%. In 2003, the quantified averagecost reduction was 9.8%.

Improvement of service level“On-time delivery” (OTD) and “Orderfill rate” are two important performanceindicators regarding logistics.Companies participating in the survey

were queried how these indicatorsimproved or deteriorated afteroutsourcing.

“On-time delivery” improved for 44%of those outsourcing their logisticsfunctions, but it decreased for 11%.These ratios were practically identicalwith data from the 2003 survey(47% and 11%).

A very high percentage (19%) ofrespondents was not able to clearlyanswer the question because they didnot specifically measure this keyperformance indicator.

Those who were able to measurethis indicator both before and afteroutsourcing reported on average a13% improvement (in 2003, thefigure was 9%).

The “Order fill rate” is an importantindicator for companies outsourcingprimarily domestic distribution,warehousing and commissioning.Thirty-seven per cent of respondentsreported an improvement in thisindicator after outsourcing. The ratiodeteriorated for 11% and did not changefor 37% of them. Fifteen percentof respondents were not able tomeasure this parameter. In 2003,this indicator improved for 33%and deteriorated for 28%.

Respondents for whom the order fillrate improved reported on an average9% improvement (within a range of4–12%). This was slightly lower than the10% measured in 2003.

4.6.3 General satisfaction

The previous section showed that someclients’ expectations were not metthrough outsourcing. Consequently, oursurvey posed a direct question about

general satisfaction: “Are you satisfiedwith the achieved results ofoutsourcing?”.

Seventy-three per cent of companieswere satisfied with the results achievedthrough outsourcing, and 24% thoughtthat there was no significant change intheir situation. Consequently, similarlyto the former survey, the balance waspositive despite the fact that in 200382% were satisfied with theoutsourcing results, while 77%expected better results.

The real breakthrough was that in thisyear’s survey 23% of respondentsindicated that all their objectives wereachieved through outsourcing, whileonly 5% stated the same in 2003.

Service providers cannot always beblamed for the fact that half of clients“Expected better results” - in manycases this is attributable to theexaggerated expectations of companiesoutsourcing their processes.



This section outlines the features of theoperations of logistics service providersincluded in the survey based on the datasupplied by them.

The analysis was divided into threetopics. The first topic covers the mostgeneral indicators/features of operationof logistics service providers (e.g.,revenues, staff). The second topicfocuses on the services provided bylogistics companies in terms of, e.g.,activity type and geographic coverage.In the third topic, we reviewed thecharacteristics of the three keycomponents of the asset base requiredfor the supply of logistics services(vehicles, warehouse facilities andinformation technology).

5.1 General featuresof operation

The logistics service providers includedin the survey have been operating inHungary on average for 17 years,therefore most commenced theiractivities around the time of the politicalchanges or shortly after. Seventy percent of respondents indicated that theywere present on the Hungarian marketfor at least 15-20 years and only 10% ofthem reported less than five years’history of operation. These data indicatethat logistics service providers make upa stable group and have almost 20 yearsof experience on the marketplace. Thereare relatively few new entrants, andsome of them were even created asindividual logistics enterprise within alarger group with a longer history.

On average, companies have beenproviding logistics outsourcing servicesto their clients for 11 years.

In 2009, the average net revenues ofrespondents were HUF 5.2 billion. Sixper cent of logistics service providersearned less than HUF 1 billion, 47%between HUF 1-5 billion, 35% betweenHUF 5–10 billion and 12% between HUF10–20 billion.

In terms of the number of employees,responses varied within a wide range. Thesample contained forwarding companiesoperating with a few people as well ascomplex logistics service providersemploying nearly 500 employees.The average headcount figure was 168,compared to the 138 employees reportedin 2003. This increase is approximately20%, which was reassured measuring iton the same base as well.

The average number of years spent atan enterprise by its managers andemployees is a good indicator forreliability, stability and experience. In2009, managers spent on average 9.2years and employees 6.5 years atcompanies in our sample. Compared to2003, the figures were higher in bothcases: the number of years atcompanies increased on average by 2.4years for managers and by 1.1 years foremployees. This is a positivephenomenon, because it suggests thata majority of companies have stable andexperienced management. Additionally,there has also been some decrease inthe fluctuation of employee numbers inrecent years.

Some logistics companies employ partof their staff (e.g., drivers) assubcontractors, therefore the numberof subcontractors also depends on sizeand operational strategy. Respondents’data indicate that 40% do not employany subcontractors at all, 20% employ1-50, and one-third of them employmore than 100 subcontractors.

5.2 Logistics services andservice characteristics

5.2.1 Services

Service providers were also asked tospecify the main logistics service groupscurrently offered to clients or to be providedin the future (in the next three years).

In 2009, the most frequently providedservices were international forwarding(85%), warehousing (80%), domesticforwarding (75%), value-added services(70%), Inwards clearance/Outwardsclearance (70%) and domesticdistribution (65%).

The spectacular fall in the ratio ofcustoms clearance, from the top ofthe list to fifth place, was a significantchange since 2003. Obviously, thisrelates to the EU accession of Hungaryand others within the region.

On the other hand, the importanceof value-added logistics services hasclearly increased, as it moved fromseventh place to the fourth-fifth positionby 2009. At present, more than two-thirds of companies provide suchservices to their clients.



5 Features of Operationof Logistics Service Providers

Among the value-added logisticsservices, most companies provide“Repacking, labelling, tax labelling”,“Stock registration”, “Kitting”, “Barcoding” and “Assembling andconfiguring” services.

Logistics service providers were alsoasked about their plans for futurechanges in their product portfolios.Naturally, the responses reflect thecompanies’ expectations regardingchanges in their clients’ demand forspecific services and their projections ofnew services to be outsourced in thenext few years.

The survey revealed that logisticsbusinesses generally do not plan onadding new services to their portfolio inthe next three years. This concurs withthe opinion of their clients, who do notwish to outsource new logisticsfunctions, as they had earlier changedtheir model of operation and are alreadypurchasing the logistics servicesrequired for their operations from themarketplace.

It seems therefore that the logisticsoutsourcing market has reached aphase of maturity both on the demandand supply sides, a view shared bymarket players.

5.2.2 3PL/4PL

Enterprises’ positioning on the“evolutionary scale” of logistics serviceproviders (as reviewed in theIntroduction) relates to the complexityof logistics services provided to clients.The numbers below indicate howrespondents classified themselves inthe various categories in our survey.

The majority of respondents (55%)were complex logistics serviceproviders (3PL), while 27% classifiedthemselves in the supply chain co-ordinator, integrator category (4PL).

This represents significant progresssince 2003, as then 72% of thosesurveyed considered themselves 3PLservice providers and only 9% claimedto perform supply chain integrator (4PL)tasks.

Presently, several renowned serviceproviders describe themselves as 4PLor LLP (Lead Logistics Provider) on theirwebsites and in marketing materials.

The fact that more than 25% ofenterprises consider themselves 4PLdoes not necessarily mean that they infact provide such services on theHungarian market, because none of theclient businesses indicated that theyhad outsourced their supply chainmanagement, either in part or in full.The outsourcing of logistics planningwas also mentioned only by 3% ofrespondents.

5.2.3 Geographic coverage

We also asked logistics serviceproviders about the geographic areain which they provided services tocustomers.

Twenty-two per cent of logisticscompanies provide outsourcingservices only in Hungary. However,owing to the presence of multinationallogistics service providers, currentlythere are many companies that arecapable of satisfying such requestsfrom their clients, globally (22%) orwithin Europe (23%).

One-third of survey respondents canserve their clients on a regional scale.Most of these companies are Hungarianowned and primarily began to expand inthe region in Slovakia, Romania and inPoland over the last 4-5 years (followingEU accession).

Although it seems that the supply sideof regional, Pan-European or even globaloutsourcing co-operation is already inplace, clients face considerabledifficulties when they wish to enter intoan outsourcing contract coveringseveral countries and seek suitable



0%

35%

30%

30%

35%

45%

50%

50%

65%

70%

70%

75%

80%

85%

5%

30%

30%

30%

35%

45%

45%

50%

65%

70%

70%

75%

80%

85% International forwarding

Warehousing

Domestic forwarding

Value-added services

Inwards clearance/Outwards clearance

Domestic distribution

Domestic transportation

Logistics planning


Supply chain management

Reverse logistics

After sales logistics

International distribution

Other

0% 20% 40% 60% 80% 100%

Figure 13: Logistics services offered to customers(2009 and future expectations) � current � future


logistics service providers for theiroperations. Even the largest serviceproviders may not be present in aparticular country of Central EasternEurope (not even through partners)and/or they may provide rather weakservices in specific countries.Multinational clients also have tomake significant compromises if theywish to employ a global logisticsservice provider for their globaloperations. On the other hand, thereis no doubt that there has beensignificant progress in this field inrecent years and several Hungarian-owned logistics service providershave begun to successfully positionthemselves as Central Europeanlogistics service providers.

5.2.4 Industry focus

The demands and expectations ofclients towards service providers varysignificantly, depending on the industryin which the clients operate.

Such industry specific features generatespecial requirements for logisticsservice providers, in terms of, e.g.,the type of transport vehicle,frequency of transport and the size ofconsignments, monitoring, storage,hygiene, transportation temperature,information supply, etc. Such industry-specific requirements very often triggersignificant development needs at theservice provider, both in assets and inoperational processes. The followingfigure shows the breakdown ofrespondents by industry specialisation.

Respondents specified 10 industries(also including those specified under theOther category) in which theyspecialised their services. Serviceproviders specialise in and focus on theFMCG (17%) and automotive industry(17%) sectors the most.

5.2.5 Quality assurance

and other standards

Compliance with international standardsand obtaining related documentation hasbecome an increasingly important issue inalmost all industries (including, naturally,logistics services) in the last 10 years.

In our survey, we looked at the followingmajor international quality control,environmental and industrial certificatesheld by service providers and those whichwere in progress:

a) ISO 9001 Quality ManagementSystem

b) ISO 14001 EnvironmentalManagement System

c) ISO 27001 Information SecurityManagement System

d) ISO 22000 Food SafetyManagement System

e) HACCP Hazardous Analysis CriticalControl Points

f) ISO/TS 16949 Automotive QualityManagement System

g) AEO Authorised Economic Operator

Ninety-five per cent of logistics serviceproviders hold an ISO 9001 qualitycertificate. Back in 2003, 78% of themwere already in compliance with thethen prevailing ISO 9000:2000 qualitycontrol standard, but since then almostall service providers have obtained orrenewed their quality certificates.

There has been rather spectacularprogress in environmental awareness.While in 2003 only 4% of the logisticsfirms had ISO 14001 EnvironmentalManagement System certification, thefigure grew to 26% by 2009 and further11% of the companies are currentlyimplementing the system.

Twenty-one per cent of logistics serviceproviders operate an HACCP system(Hazard Analysis and Critical ControlPoints), generally required by clients inthe food industry. This also representsprogress since 2003. Fifty per cent ofcompanies specialised in the FMCGsector operate a HACCP system, butthe other 50% are not planning itsimplementation.

The ISO 22000 Food Safety ManagementSystem is a relatively new standard,which applies to anyone who takes anyposition in the food supply chain, i.e.,supplies or stores foodstuffs. Comparedto the HACCP system, ISO 22000 maybe certified, therefore it is more objective.In 2009, of all logistics companies 11%held an ISO 22000 certificate, butsuch companies also operated anISO 9001 and HACCP systems.



Figure 14: Breakdown of service providers by industry specialisation(as a percentage of responses)

� Pharmaceutical industry 3%

� Chemical industry/Oil industry 6%

� Retail (retail chains) 6%

� Other 8%

� Consumer durables 9%

� Agriculture 9%

� Electronics/Telecommunication 11%

� No specialisation 15%

� Automotive industry 17%

� FMCG 17%


Although other companies did notindicate that they were working on theimplementation of the Food SafetyManagement System, we can assumethat an increasing number of serviceproviders will introduce the ISO 22000as food safety issues come to the forefront.

Information security is also anincreasingly important requirement inbusiness; one need only think of businesscontinuity or the theft of bankcard data.Despite this, only 5% of logistics serviceproviders have the ISO 27001 InformationSecurity Management System, and afurther 5% are implementing it.

None of the logistics service providershas or is in the progress ofimplementing the ISO/TS 16949Automotive Industry QualityManagement System, although 5% ofthe companies indicated VDA 6.2 in the“other” category. This system containsthe requirements for service providersoperating in the automotive industry.

An authorised economic operator (AEO) isan economic operator with special status,classified by the customs authority as areliable partner enjoying preferences incustoms administration and customsclearance. The legal regulations on thestatus of an authorised economic operatorentered into force on 1 January 2008.The status of the authorised economicoperator is a fundamental interest of alllogistics service providers in our survey,therefore it is not surprising that it iscurrently being applied at 16% of serviceproviders and 5% already bear AEOstatus. It is obvious that as more and moreclient businesses demand AEO status,the value of authorised economic logisticscompanies will appreciate, which meansthat this status represents a considerablecompetitive advantage for a logisticsservice provider.

5.3 Asset base of operation

Depending on the nature of the offeredservice and the selected operationalstrategy, logistics service providers maybe asset based and non asset based(management based), or mixed-typecompanies.

In terms of the offered service, e.g.,forwarding or customs administrationare not asset-based activities, whiletransportation and warehousing aregenerally activities performed with theservice provider’s own assets.

Naturally, companies possessing theirown assets (e.g., vehicles, warehouses)can also pursue management-basedactivities, such as, e.g., forwarding,customs administration indicatedabove, etc. Such service providersare considered mixed-type providers.

The following figure reflects theclassification of companies includedin the survey in the above threecategories, as per their suggestion.

Respondents were equally dividedamong the three categories. 35–35%declared themselves asset based and

mixed, and 30% considered themselvesnon-asset based providers.

These figures show some change since2003, as then only 9% were non-asset-based service providers, while 52%were mixed-type service providers and39% classified themselves as asset-based providers.



95%

26%

5%11%

21%

5%11%

11%

5%

0%

16%5%

Figure 15: Compliance with international standards (as a percentage of respondents)� Already in use � In progress

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0% ISO 9001 ISO 14001 ISO 27001 ISO 22000 HACCP ISO/TS AEO Other (e.g., 16949 GMP, VDA 6.2) As a percentage of respondents


Figure 16: Types of logisticsservice providers (2009)

� Asset-based 35%

� Non-asset-based 30%

� Mixed-type 35%


5.3.1 Transport vehicles

Logistics enterprises have severaloptions regarding the source of supplyof transport capacity required for theirservice.

Generally logistics companies providethe transportation capacity required fortheir operations from several sources,such as, e.g., own fleet + subcontractors,charter fleet + subcontractors, own +charter + subcontractors. Relativelyfew companies had only own vehicles,and more companies employed onlysubcontractors, as they did not own orlease vehicles.

In a proportional breakdown, companiesparticipating in the survey provide 50%of their transportation device capacitythrough long-term subcontractors,while the rest is broken down to ownfleet (25%) and charter fleet (25%).

The size of respondents’ vehicle fleetsvaried significantly from a few vehiclesto fleets of thousands of vehicles. Invarious structures, the total averagetransportation capacity available for acompany was 140 vehicles .

The transportation capacity of 42%of respondents is smaller than 100vehicles, 29% have a fleet of 100-249vehicles, but 28% operate with a largefleet of more than 250 vehicles. Since2003, the number of companiesoperating with a fleet of 250–500vehicles has visibly increased.

The average age of fleets varied from2–7 years, where 4.8 years was theaverage. This average age was almosttwo years higher than the onemeasured in 2003 (3.0 years). Then, theaverage age of the youngest fleet was0.8 years and even the oldest fleet wasonly four years old.

Although between 2003 and 2009logistics service providers graduallymodernised their fleets, the averageage of vehicles has gone up by twoyears in the past seven years.

Sufficient utilisation of existingtransportation capacity is a fundamentalissue in terms of profitability. One of themost frequently-used indicators for thisis annual mileage. In 2009, averagemileage was 125,000 km for thoseincluded in the survey. This represents anegligible increase since 2003, when onaverage vehicles travelled 120,000kilometres.

5.3.2 Warehouse facilities

In Section 5.2 we previously indicatedthat the majority of the respondentlogistics service providers (80%) offereda warehousing service to their clients. Itis not surprising therefore that the samelarge number of respondents (80%) hadone or several indoor warehousefacilities.

In total, respondents ownapproximately 542,000 m2 of indoorwarehouse facilities in Hungary.On average, one service provider owns28,000 m2 of indoor warehouse area,which is 10,000 m2 more than in 2003.



21% 22%

6%

29%

7%

21% 21%

6%

38%

28%

Figure 17: Volume of transportation capacity

40%

30%

20%

10%

0% 2009 2003 2009 2003 2009 2003 2009 2003 2009 2003 Below 25 25–99 100–249 250–500 More than 500 Transportation vehicles (number)



0% 5%

40%

10%

20%

25%

6%

25%

38%

31%

Figure 18: Size of indoor warehouse space

50%

40%

30%

20%

10%

0% 2009 2003 2009 2003 2009 2003 2009 2003 2009 2003 Less than 1,000 1 000–4 999 5 000–9 999 10 000–29 999 More than 30,000 Warehouse space m²



Figures vary over a wide range(1,700-150,000 m2) depending on thesize of the company and the importanceof warehousing services compared toother services offered by a logisticsservice provider.

There has been practically no change inthe breakdown of warehouse spacesince 2003. The above figure shows thatservice providers can be divided intotwo categories in terms of the size ofthe warehouse space: one grouppossesses small or average warehousespace (less than 5,000 m2), while theother group has established significantwarehouse capacities (more than10,000 m2). There are relatively fewproviders (10%) who possesswarehouse space between these twocategories. The average size ofwarehouses over 30,000 m2 was morethan 100,000 m2.

Twenty-five per cent of respondents hadchilled or frozen warehouses, representing1.8% of total indoor warehouse space.The average area of chilled or frozenwarehouses was 2,060 m2.

5.3.3 Information technology

Advanced information technology,which is one of the key components ofeffective supply chain management, isessential for those logistics serviceproviders who intend to offer 3PL or 4PLservices. Future successful logisticsservice providers must have informationsystems supporting fast, accurate andintegrated processing of real-timeinformation and effective informationexchange within their company and atbusiness partners.

To the question of whether the logisticsservice providers consideredinformation technology primarily as asupporting function or a strategically-

important component of operation, theoverwhelming majority (83%) ofrespondents chose the latter. Thisindicates that the logistics firms clearlyunderstand the competitive advantageresulting from, and the strategicimportance of, information technology.

In regard to applied systems, more thanhalf of enterprises (53%) applied barcode technology and legacy systems.However, only 37% of them hadEnterprise Resource Planning (ERP)systems, although there has beenprogress in this area too since 2003.Then, only 25% of survey respondentsused ERP systems.

The ratio of route planning, Track & Traceand warehouse management systems(WMS) has practically not changedsince 2003. Those companies whichneeded such systems for operationalready had them in 2003. There has notbeen a major increase in the number ofelectronic data interchange (EDI) userseither. On the one hand, many clients donot have EDI connections and, on theother, other technical solutions (e.g.,

data transmission via e-mail, webapplications) have replaced EDIfunctions, either in part or in full.

Among the latest applications, thespread of global positioning systems(GPS) needs to be noted, as every thirdlogistics service provider uses such asystem. However, the dissemination ofRadio Frequency IDentification (RFID)technology has not yet taken place, asonly 11% of companies reported using itin 2009.

Interconnection of information systemsis absolutely necessary for the closerintegration of logistics service providersin their clients’ supply chains,supporting their effective operation.

Our survey asked to what extentlogistics enterprises’ IT applicationswere integrated with the systems oftheir clients. The service providers couldchoose among four levels of integration:

a) No integration - manual datatransmission between systems



Bar code system 53%

Legacy system 53%

Customs clearance system 47%

Freight management system 47%

Route and load planning system 42%

Track & Trace system 37%

EDI 37%

Warehouse Management System 37%

Enterprise Resource Planning (ERP) 37%

GPS 32%

Fleet management system 16%

RFID 11%

0% 20% 40% 60% As a percentage of responses

Figure 19: IT-systems at logistics service providers


b) Limited integration – certainelectronic data and transactions aretransmitted manually (e.g., from TXTfiles, Excel files) between the systemsof the client and the service provider

c) Integration and schedule – data aretransmitted between systemsthrough an intermittent on-lineconnection, but not in real-time

d) Full integration – a wide range of dataand information are transferredbetween the systems of the serviceprovider and the client, on-line and inreal-time.

None of the service providers indicatedthat there was no integration betweentheir systems and the client’s, or thatthey relied only on manual datatransmission.

The IT systems of most respondents(57%) are “Integrated to a limitedextent”, i.e., transaction data aremanually transmitted and imported froman electronic file (e.g., text or Excel file).

Twenty-nine per cent of surveyrespondents had an “Integrated,scheduled connection” with theirclients’ systems, representing an on-

line connection and data transmission inbatch mode (e.g., every hour, at the endof the day).

Only 14% of service providers said thatthey have a “Fully integrated” on-linedata connection with their partners’systems.

Based on this, we can conclude thatthere is still significant developmentpotential in this field, as the manualimport-export of electronic files involvesnumerous potential errors and oftencauses delays in data transfer.



29Logistics outsourcing in Hungary 2009


The conditions for logistics outsourcingbegan to evolve in Hungary in the mid-1990s, when the first large internationalservice providers appeared on themarketplace. Originally only a fewmultinational manufacturing companieschose to capitalise upon the benefits ofoutsourcing but, after the turn of thecentury, outsourcing began to beapplied widely, generating considerabledemand for such logistics services.

Between 2000 and 2005, serviceproviders made huge investments andexperienced fierce competition on theoutsourcing market (primarily in termsof price). In order to gain market share,many enterprises made promises thatexceeded their capabilities, while otherscould not keep up with the growth oftheir customers, which lowered thestandards of service (even if onlytemporarily). In addition, numerousclients (who lacked experience inlogistics outsourcing) set excessive,occasionally conflicting expectations fortheir service providers, and thereforemany of their objectives were notsatisfied at all, or only in part.

Price as a key selection criterion has hada negative impact on the quality ofservice providers, often forcing somelogistics enterprises into unfaircompetition on the marketplace. On theother hand, the bankruptcies of majormarket actors and the fluctuatingservice levels of other cheap serviceproviders has urged clients to reviewtheir positions, as a result of whichquality has become the main selectioncriterion, while in 2003 the chiefcriterion was clearly price.

A consolidation of the outsourcingmarket has taken place in the last fiveyears, accompanied also by a thinningout and considerable concentration ofthe market.

Currently, the degree of outsourcing inHungary corresponds with theinternational average for most logisticsservices. The market for outsourcedactivities is in balance both on thesupply and demand sides, clients do notwish to outsource new logisticsfunctions, and logistics enterprises arenot planning to add new services totheir portfolios.

A supply market has developed forlogistics services. Fifty-seven per centof companies outsourcing theiractivities think that many logistics firmsoffer high-quality services, i.e., there iscompetition in supply. In 2003, only38% of outsourcing companies heldthis opinion.

The strategic importance of logisticsoutsourcing has also increasedsignificantly in recent years. Currently,38% of companies outsourcing theirlogistics functions maintan that theirbusiness goals cannot be achievedwithout outsourcing. In 2003, only 19%of them held this opinion.

Seventy-five per cent of companiesoutsourcing their processes aresatisfied with the results of that activity.Although occasionally an outsourcedactivity is insourced, this is not afrequent phenomenon. Logisticsoutsourcing appears to be a long-termtrend. Once decided, those who have

elected to utilise logistics outsourcingdo not wish to perform the outsourcedactivities in house.

While companies outsourcing theiractivities are growing, no major furthergrowth can be expected on themarketplace This is because a majorityof companies have changed theirbusiness models in the last few yearsand they presently purchase thelogistics services required for theiroperations on the marketplace insteadof using their own resources.

6 Conclusion



1. Outsourcing Logistics, The transition to 4th party partnership in Europe 2000,KPMG-Financial Times

2. Outsourcing Logistics, Status, issues and trends in partnership 2001, KPMG

3. KPMG’s complex survey of the Hungarian outsourcing trends (Presentation,Figyelő Conference) 2002, KPMG

4. Logistics Outsourcing In Hungary 2003, KPMG

5. „Customer Perceptions on Logistics Outsourcing in the European ConsumerGoods Industry” International Journal of Physical Distribution & LogisticsManagement Vol. 34 No.8, 2004

6. Outsourcing Logistics – The latest trends in using 3PL providers 2005,eyefortransport

7. 2008 Third-party Logistics – results and findings of the 13th annual study,2008, Cap Gemini

7 References

kpmg.hu

The information contained herein is of a general nature and is not intended to address thecircumstances of any particular individual or entity. Although we endeavour to provide accurate andtimely information, there can be no guarantee that such information is accurate as of the date it isreceived or that it will continue to be accurate in the future. No one should act on such informationwithout appropriate professional advice after a thorough examination of the particular situation.KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative.

© 2009 KPMG Tanácsadó Kft., a Hungarianlimited liability company and a member firmof the KPMG network of independentmember firms affiliated with KPMGInternational, a Swiss cooperative. All rightsreserved.

Further information

For further information concerning thissurvey, please contact:

Mark Bownas, PartnerEmail: [email protected]

Dr. Károly Teleki, Research DirectorEmail: [email protected]

László Reich, AnalystEmail: [email protected]

KPMG Tanácsadó Kft.

1139 Budapest, Váci út 99.

Tel: (1) 887 7100Fax: (1) 887 7392

kpmg.hu

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