Outsourcing 3 Pl 4 Pl Challenges Final
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    Outsourcing 3 Pl 4 Pl Challenges Final Outsourcing 3 Pl 4 Pl Challenges Final Presentation Transcript

    • Presentation on Outsourcing - 3PL / 4PL Challenges Industry 2.0 Conference Arif A. Siddiqui General Manager February 8, 2005
    • Content • Understanding the Outsourcing Landscape • Establishing the Outsourcing Strategy • Case Study 1 - Consumer Durable • Case Study 2 - Hi-tech • Challenges
    • Content • Understanding the Outsourcing Landscape • Establishing the Outsourcing Strategy • Case Study 1 - Consumer Durable • Case Study 2 - Hi-tech • Challenges
    • Landscape Integrated Supply Chain Management Logistics Globalization Outsourcing Contract Transportation/ Distribution 1985 - 1995 1995 - 2000 2000 + Single function Integrated multi-functions Transactional Strategic partnerships Local, regional Global, door-to-door coverage Asset heavy, process Information/knowledge focus, execution integrated IT solutions 80% of Fortune 500 Manufacturers use 3PL services accounting to 40% of the logistic outlay. This is likely to reach 50% by 2006
    • Logistics Today Logistics Then Logistics Today Orders Variable, Small Lots Predictable Order Cycle Time Weekly or Daily Monthly or Fortnightly Customer Channel End Customer Customer Service Time Reactive, Rigid Responsive, Flexible Replenishment Scheduled Real Time Distribution Model Demand Driven, Pull Supply Driven, Push Demand More Cyclical Stable, Consistent Shipment Type Smaller Lots Bulk Destinations Geographically Dispersed Major Towns - Concentrated Warehouse Type Go-downs Custom Built ource: Logistics The way it is today - Sajal Kabiraj
    • Asia-Pacific Logistics Overview Mature Unique Mid-Level Developing Hong Kong China Malaysia Sub-Continent l l l l Singapore Thailand l Vietnam l Markets l Japan l Indonesia l Cambodia l Australia l Philippines l Laos l New Zealand l l Myanmar India l Korea l l Etc Taiwan l Poorer Developed Rapid Developing l l l l Characteristics infrastructure Logistics Development sophistication Lower l High Competition Undeveloped Increasing l l l competition High Service domestic mkt.. competition l Regulatory l levels Increasing Increasing l l hurdles Lead time service levels service levels l Ownership l pressure High Growth Varied Growth l l Issues Lower Growth l High Growth l
    • Outsourcing in India • Emerging Trends – Current India Logistics Market approximately Rs. 40,200 crore (Euro 6.7 bn) * – In-sourced Logistics accounts for 45% – Out-Sourced Logistics forecasted to increase • Driving factors – Supply Chain Management - Not a core competency – Changes in Regulatory Framework (e.g. Free Trade Zones, Exemptions, Customs EDI, VAT, etc.) – Supply Chain integration intra-entities – Emergence of Global Logistics Service Providers – Improvement in infrastructure ource: *ATKearney Estimate
    • Extent of Outsourcing in India Importance Rating and Extent of Outsourcing of Logistics Activities (2001) ource : Third Party Logistics Practices: An India Perspective, B. S. Sahay and Ramneesh Mohan
    • Content • Understanding the Outsourcing Landscape • Establishing the Outsourcing Strategy • Case Study 1 - Consumer Durable • Case Study 2 - Hi-tech • Challenges
    • Outsourcing Strategy Develop a business case Select a service providers
    • Business case What to Why outsource? outsource? How to outsource?
    • Why to outsource? Developing a business case helps logistics managers to determine if the decision has strategic, financial and operational justification Fin ct an ors Fa cia l l Strategic Factors Re duce l du Re ce capi Focus on core competencies co tal l sts req Improve customer service l Enhance flexibility l uir em Operational Factors en ts Improved process execution l Improved technology l
    • What to outsource? Dimension Transportation Distribution Import/Export Network design Facility design Coordination of l l l Planning global freight Carrier contracting Project management l l movements Shipment l optimization Carrier selection/ Core warehouse Customs clearance l l l Execution tendering activities Freight forwarding l Shipment tracking Value added l l services Freight payment l
    • How to outsource? Potential Partner Capabilities Implementati Structure Decision to Perform Evaluate on & Select Partner Operating Strategic form Alternative Continuous Model Assessment relationship Options Improvement Company Needs & Priorities
    • Vendor Selection Geographic Value Growth Management Integrated (3PL/ 4PL) Jack of One-Stop All Trades Shop tyle S nt Functional Service Providers me Scope of Service Growth e ag an M National Local Expert Operator Multi-vendor Management Niche (Transporter/ Landlord) Service Providers Local National Geographic Breadth
    • Content • Understanding the Outsourcing Landscape • Establishing the Outsourcing Strategy • Case Study 1 - Consumer Durable • Case Study 2 - Hi-tech • Challenges
    • Scope • Warehousing - 20 locations – Finished Goods – Project Material • Primary Transportation • Secondary Transportation - Inter-city/ inter-region • Secondary Transportation - Intra-city
    • Existing - SCM Model Limitations One region of Customer • Push Model resulting in huge inventory Imports across the system and sub-optimal FTL utilization of warehousing space Dealer/ LST billing IBST Warehouse Distributor/ FTL EXPRESS • Low inventory information visibility due to s1 Customers Import Locations decentralized system • High logistics cost due to movement to and from multiple warehouses to same Imports Factory/ FTL market Plant Dealer/ Warehouse LST Billing IBST Distributor/ • Factory feeding the market directly 2 FTL EXPRESS Customers leading to longer lead-time CST Billing • Port of clearance not completely in EXPRESS alignment with cost and consumption market Imports Domestic MULTIPLE TRANSACTION TRANSACTION VENDOR AND • Lack of standardization resulting in WAREHOUSES IN DISTRIBUTION MODE DISTRIBUTION MODE longer lead-time for policy roll-outs, MIS HE SAME REGION generation, etc.
    • Expectations and Challenges Expectations Logistics Challenges • Uniform processes across country • Initiating change management and implementation of new process across the • Visibility of inventory through the entire organization supply chain • Vendor re-evaluation on proper SLAs and • Shorter order to delivery TAT cost optimization - 4PL • Reduction in inventory holding • Integrating systems, standardizing process • Facilitating right stock at right place based & MIS across multiple locations on pull system • Framing stringent KPIs/ SLAs and • Reduction in working capital through implementing the same as part of the increased inventory turns operations • Optimization of warehousing space across • Flexibility in offering dynamic services the country required due to seasonality of demand • Shift from Static to Dynamic model • Facilitating movement based on pull as • Over all reduction in logistics cost against push system • Manage smooth transition • Reduction in total logistics cost to turnover
    • Recommended - SCM Model Imports FTL Regional State/ Satellite Dealer/ IBST LST Billing Warehouse Flow-through Distributor/ EXPRESS EXPRESS 1 Warehouses Customers IBST FTL Imports FTL Regional State/ Satellite Dealer/ IBST LST Billing Import Warehouse Flow-through Distributor/ Locations EXPRESS EXPRESS 2 Warehouses Customers IBST FTL Imports FTL Regional State/ Satellite Dealer/ Factory/ IBST LST Billing Warehouse Flow-through Distributor/ Plant EXPRESS EXPRESS 3 Warehouses Customers IBST FTL IBST FTL Regional State/ Satellite Dealer/ IBST LST Billing IBST Warehouse Flow-through Distributor/ FTL EXPRESS EXPRESS 4 Warehouses Customers CST Billing EXPRESS Imports Domestic TRANSACTION TRANSACTION SINGLE 3PL VENDOR DISTRIBUTION MODE DISTRIBUTION MODE
    • Highlights of the Implemented SCM Model • Integrated operation and standardized logistics policies across the country facilitating better MIS and inventory visibility through the supply chain • Two step distribution model - RWH for stocking and state warehouse for LST billing with state warehouses essentially holding low inventory only of fast moving SKUs • Movement from factory to RWH to be on FTL mode, onward movements on express mode facilitating economies of scale • Slow moving manufactured items to be stocked primarily at RWH • Non-saleable/ damaged stock cleansing on regular intervals • Single point accountability across services across country • Considerable reduction in lead time envisaged in servicing orders of finished goods across India • Movements based on pull as against push will result in lower inventory at regional/ state warehouse, thus reducing inventory holding cost
    • Content • Understanding the Outsourcing Landscape • Establishing the Outsourcing Strategy • Case Study 1 - Consumer Durable • Case Study 2 - Hi-tech • Challenges
    • Scope • Warehousing - 4 mother warehouses, 17 state-warehouses, 24 tertiary warehouses – Finished Goods – Infrastructure Material - open space – Defective Returns Management • Intra-country distribution • Rapid Fulfillment
    • Existing - SCM Model Drivers Few Geographical Markets • Strategy of expanding PAN India on short notices, with focus on B Class cities apart from metros Port of Imports Entry FTL • Rapid Fulfillment - last mile deliveries Dealer/ LST billing • Increase in volume of transactions Warehouses Distributor/ EXPRESS 1 Customers • Barcode integration to capture serial nos. Factory/ IBST of goods Plant FTL • Shorter product life cycle and increased CST Billing importance of logistics during new EXPRESS product/ service launches • Postponement logistics - product activation at warehouses Imports Domestic TRANSACTION TRANSACTION • Cost optimization through refurbishing MULTIPLE C&F VENDOR DISTRIBUTION MODE DISTRIBUTION MODE and reuse of returned material
    • Expectations and Challenges Logistics Challenges Expectations • Managing transition, systems integration & • Large mother/ regional warehouses and process standardization across three small satellite warehouses across India entities within client organization • Process standardization at national level • Implement SCM across 45 locations in India including roll-out of closed and open • Integration of systems like Oracle, SAP, warehouses etc. • Formulating and implementing investment • Logistics support during new product/ plan to scale up service launches • Managing logistics during new product/ • Equipment Serial Nos. capture for service launches integrated billing and AMC • Ability to provide value added services like • Rapid fulfillment product activation, kitting, etc. • Reverse Logistics Management including • Value added services refurbishing activities • Reverse Logistics • Managing rapid fulfillment and tatkaal • Dynamic Cost model (pay-by-use) deliveries
    • Recommended - SCM Model Cluster Circle Mother warehouse warehouse warehouse Local Material Receipt Pick List Generation Supplier Material Retrieval Quantity Check Agent Serial Nos. Capturing Dispatch Customer Generate System Report Put Away Reverse Logistics System Update Conduct inspection and segregation Equipment Activation Equipment refurbishing Systems Updation Overseas Supplier Receive Order-STN/Invoice System Update In-Bound Out - Bound
    • Highlights of the Implemented SCM Model • Surrogate customer account management (single window - Program Mgmt) • Standardized logistics policies across the country • Customized SCM reports for effective inventory management through bar- coding technology • Warehouses scaled across 45 locations in India within 6 months • Rapid fulfillment mechanism from warehouses to meet immediate demands • Standard Operating Procedure to manage distribution during new service and product launches • Value added activities conducted at warehouse • Reverse logistics management within warehouse • Implementation/ Roll-out of customer’s ERP within warehouses
    • Content • Understanding the Outsourcing Landscape • Establishing the Outsourcing Strategy • Case Study 1 - Consumer Durable • Case Study 2 - Hi-tech • Challenges
    • Outsourcing Challenge - Internal to the Organization • Strategic – Management buy-in – Cultural fit – Scope of outsourcing • Organizational – Restructuring organization – Re-deploying existing resources – Anticipating quantum and timing of change – Managing change • Operational – Reengineering existing processes in view of outsourcing strategy – Framing KPIs/ SLAs both for internal resources and for external agencies – Implementing processes across the organization and initiating MIS generation – Measuring performance and benefits of outsourcing
    • Outsourcing Challenge - Vendor Selection • Selection Challenges – Ability to understand and assess customer’s requirement – Project management and roll-out capabilities – Framing appropriate performance measurement system – Information technology integration and interface – IT and communication infrastructure upgradation – Managing relationship with customers/ vendors/ authorities/ employees – Developing short-term and long-term infrastructure – Developing strong intra-country dependable distribution service – Ability to scale-up/ down depending on customer’s requirement – Developing and enhancing Intellectual Capital – Continuously enhancing and expanding service offerings – Developing and implementing industry-specific SCM solutions with tangible measurable results
    • Outsourcing Challenge - External Business Environment • External Challenges – Optimizing within infrastructure constraints • Poor road conditions • Lack of dependable communication infrastructure • Real estate hurdles – Managing multiple government authorities • Sales tax authority • Octroi Authorities/ Entry Tax Authorities • Local bodies (Gram Panchayats, etc.) – Understanding and adopting laws of land • Sales Tax • Entry Tax • Excise Laws • Octroi rules • Other documentation like permits, etc.
    • Future Expectations from 3PL • Forth Party Logistics - managing multiple 3PLs and technology partner • Transportation Excellence Production Distribution Transportation Control & Management Management Production • National Footprint Management • Advanced IT Application - WMS,Track and Trace, RFID, etc. Customer Logistics • Optimizing Decision Support Tools Network Service and Management/ Order Optimization Management • Transition and relationship management capabilities • 24/ 7 Service Capability Procurement • Managing ‘Mission Critical’ installations Strategy Information & Inventory Technology & Planning Management during high cost machine down time scenarios • Value added services and Postponement Getting the right combination logistics
    • Key Success Factors • Management Buy-in • Project Management Capabilities (Service Provider & Customers end) • Flexibility in scaling and adapting to changes • Standardized service and processes across the country • Strict adherence to performance management - KPIs/ SLAs • Cost reduction and resource optimization initiatives • IT integration and upgradation capabilities • Change management capabilities • Adequate trained and skilled manpower
    • “MANUFACTURING QUALITY IS NO LONGER THE KEY COMPETITIVE DIFFERENTIATOR, SUCCESS NOW DEPENDS ON THE ABILITY TO MEET CUSTOMER DEMANDS FOR DELIVERY, QUANTITIES AND OPTIONS AS A RESULT, COMPANIES ARE SCRAMBLING TO IMPROVE SUPPLY CHAIN PERFORMANCE SIMPLE TO REMAIN COMPETITIVE.” - JIM SHEPHERD - V. P. RESEARCH, ADVANCE MANUFACTURING REASEARCH • When quality is given and customer order fulfillment becomes a key differentiator between products/ organizations, SCM design and efficient outsourcing becomes the buzzword. • 80% of Global Fortune 500 manufacturers use 3PL services as compared to 55% of Indian manufacturers • With booming Indian economy where infrastructure and tax reforms are being implemented, SCM will be the prime focus for organizations
    • Future competitive weapon Competitive Weapons Competitive Weapons of the 1990’s of the 2000’s Speed Costs Speed Economy of Skill Economy of Scale Collaboration Openness Collaboration Command (CPFR), and Control Communities of Interest (Service Providers & Industry) Time Trust Skills
    • Thank you