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Third party logistics

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Third party logistics

  1. 1. Third Party Logistics(3PL) Kuldeep Uttam IIT Roorkee
  2. 2. Content of Presentation • • • • • • • • Introduction to 3PL Evolution of 3PL Benefits & Services Provided by 3PL Types of 3PL New Technology in 3PL Relationship Management in 3PL Environmental Concern in 3PL CASE STUDY: Selecting a 3PL using M.C.D.M. Kuldeep Uttam IIT Roorkee
  3. 3. Introduction • 1PL:These can be the shipper (such as a manufacturing firm delivering to customers) or the consignee (such as a retailer picking up goods from a supplier). They dictates the origin (supply) and the destination (demand) of the goods. • 2PL : A second-party logistics provider (2PL) is an asset-based carrier, which actually owns the means of transportation. Typical 2PLs would be shipping lines which own, lease or charter their ships; airlines which own, lease or charter their planes and truck companies which own or lease their trucks • 3PL: A firm which provides multiple logistics services for use by customers. These firms facilitate the movement of parts and materials from suppliers to manufacturers and finished products from manufacturers to distributors and retailers. Among the services which they provide are transportation, warehousing, cross-docking, inventory management, packaging and freight forwarding. • 4PL: The most innovative and upcoming form of outsourcing logistics is Fourth Party • • Logistics. 4PL can be considered as a comprehensive supply chain solution which combines the capabilities of management consulting, IT technology and 3PL-providers. 4PL not necessarily mean that four parties are involved. The number “4” refers to the fact that this kind of logistics services is one level higher than 3PL. Kuldeep Uttam IIT Roorkee
  4. 4. Evolution of 3PL The evolution of 3PL market is explained with reference to three distinct phases In 1980's many transportation and warehousing firms developed into 3PL providers( e.g. Excel Logistics ) In the early 1990's firms that specialized in express parcel deliveries entered the markets ( e.g. DHL, TNT , UPS and FedEx ) In the late 1990's , companies originally specializing in financial services , I.T. services and management consulting entered the market by developing competence in information systems and supply chain planning Kuldeep Uttam IIT Roorkee
  5. 5. Myth about 3PL 3PL is only concerned with transportation activities !!! Kuldeep Uttam IIT Roorkee
  6. 6. Services Provided By 3PL Kuldeep Uttam IIT Roorkee
  7. 7. Benefits of 3PL • 173 logistics professionals from manufacturing and retail companies responded to the survey, which was conducted by “Eye for transport”. • Responses were contacted in a targeted email campaign. Kuldeep Uttam IIT Roorkee
  8. 8. Why use 3PL Focus on core competences Providing better quality service Limiting investment opportunities Cost reduction > Control Political considerations Customers demand order accuracy , excellent service and timely delievery. Avoid Capital Expenditures Cut Costs Increase Flexibility (service/financial) Focus on Core Business Improve Service Lack of Scale Acquire Talent Avoid Labor Problems Source: A.T. Kearney Kuldeep Uttam IIT Roorkee
  9. 9. From Push to Pull Logistics Supplier Supplier Supplier Supplier Supplier Supplier Supplier Supplier Supplier Supplier Freight flow Manufacturer Manufacturer 3PL Distributor Distributor Customer Push Returns / Recycling Pull Kuldeep Uttam IIT Roorkee Point-of-sale data Customer
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  12. 12. Total Cost of Ownership • • • • • • Microsoft's huge economies of scale Rapid application development Lower costs of maintenance and support Rapid implementation and training Annual enhancements and upgrades Blazing fast data entry Kuldeep Uttam IIT Roorkee
  13. 13. Advanced Technologies • RF barcode scanning and RFID • EDI • Integrated interf aces f or wireless mobile devices • Web access and real-time data visibility • Tools to automate customer communications • Real-time business intelligence and reporting • Document imaging and management Kuldeep Uttam IIT Roorkee
  14. 14. Total Cost of Ownership • • • • • • Microsoft's huge economies of scale Rapid application development Lower costs of maintenance and support Rapid implementation and training Annual enhancements and upgrades Blazing fast data entry Kuldeep Uttam IIT Roorkee
  15. 15. Camelot: Partners Kuldeep Uttam IIT Roorkee
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  18. 18. Customers of 3PL’s Industry Global Costs Automotive Technology Retailing Consumer Products Food and Grocery Healthcare Industrial and Elements Other Total Costs $98.2 $156.4 $98.6 $13.6 $32.2 $38.4 $179.7 $63 $678.3 Kuldeep Uttam IIT Roorkee Domestic Costs (USA) $37.4 $77.4 $67.2 $13.3 $27.8 $34.0 $84 $25.3 $366.3
  19. 19. Figure 4-6 3PL Logistics Market Turnover Growth (US $Billion) $100 $80 $60 $40 $20 $0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Kuldeep Uttam IIT Roorkee
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  21. 21. Source: 2005 Tenth Annual 3PL Study, Georgia Tech and Cap Gemini LLC. Used with permission Kuldeep Uttam IIT Roorkee
  22. 22. Types of 3PL Providers • 3PLs are external suppliers that perform all or part of a company’s logistics functions, including: – Transportation – Warehousing – Distribution – Financial services • Terms contract logistics and outsourcing are sometimes used in place of 3PL. Kuldeep Uttam IIT Roorkee
  23. 23. Types of 3PL Providers • Transportation-Based – Services extend beyond transportation to offer a comprehensive set of logistics offerings. – Leveraged 3PLs use assets of other firms. – Nonleveraged 3PLs use assets belonging solely to the parent firm. – Examples: Ryder, Schneider Logistics, FedEx Logistics, and UPS Logistics are examples of 3PLs. Kuldeep Uttam IIT Roorkee
  24. 24. Types of 3PL Providers • Warehouse/Distribution-Based – Many, but not all, have former warehouse and/or distribution experience. – Transition to integrated logistics has been less complex than for the transportation based providers. – Examples: DSC Logistics, USCO, Exel*, Caterpillar Logistics, and IBM are examples of warehouse/distribution-based 3PLs. – * Exel regained their position as the world’s largest after an acquisition, recently purchased by DHL. Kuldeep Uttam IIT Roorkee
  25. 25. WMS / TMS RATHER THAN OFFERING WAREHOUSE AND TRANSPORTATION FACILITIES SEPERATELY , MANY 3PL PROVIDE INTEGRATED FACILITY Kuldeep Uttam IIT Roorkee
  26. 26. Types of 3PL Providers • Forwarder-Based – Essentially very independent middlemen extending forwarder roles. – Non-asset owners that capably provide a wide range of logistics services. – Examples: AEI, Kuehne & Nagle, Fritz, Circle, C. H. Robinson, and the Hub Group are examples of forwarder-based 3PLs. Kuldeep Uttam IIT Roorkee
  27. 27. Types of 3PL Providers • Financial-Based – Provide freight payment and auditing, cost accounting and control, and tools for monitoring, booking, tracking, tracing, and managing inventory. – Examples: Cass Information Systems, CTC, GE Information Services, and FleetBoston are examples of financial-based 3PLs. Kuldeep Uttam IIT Roorkee
  28. 28. Types of 3PL Providers • Information-Based – Significant growth and development in this alternative category of Internet-based, businessto-business, electronic markets for transportation and logistics services. – Examples: Transplace and Nistevo are examples of information-based 3PLs. Kuldeep Uttam IIT Roorkee
  29. 29. Shifts of Logistical Operations in the Internet Economy Traditional logistics E-logistics Orders Predictable Variable Order cycle time Weekly Daily or hourly Customer Strategic Broader base Customer service Reactive, rigid Responsive, flexible Replenishment Scheduled Real-time Distribution model Supply-driven (push) Demand-driven (pull) Demand Stable, consistent More cyclical Shipment type Bulk Smaller lots Destinations Concentrated More dispersion Warehouse reconfiguration Weekly or monthly Continual, rules-based International trade compliance Manual Automated TECHNOLOGY HAS ALLOWED 3PL TO OFFER COMPELX AND WIDE RANGING SERVICES TO THEIR CLIENTS Kuldeep Uttam IIT Roorkee
  30. 30. Nature of E Commerce Kuldeep Uttam IIT Roorkee
  31. 31. Case Study: ANCHOR 3PL Kuldeep Uttam IIT Roorkee
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  34. 34. Relationship Perspectives AS Supply chain MANAGER CAN YOU AFFORD TO KEEP A 3PL AT ARMS LENGTH OR SHOULD YOU BUILD A CLOSE STRATEGIC PARTNERSHIP WITH YOUR 3PL PROVIDER ? Kuldeep Uttam IIT Roorkee
  35. 35. Transactional Relationship • Both parties in a vendor relationship are said to be at “arm’s length” • There isn’t much discussion with the 3PL company. • Pricing is one of the Most important factors. • Contracts in this scenario are the shortest. Kuldeep Uttam IIT Roorkee
  36. 36. Collaborative Relationship The relationship suggested by a strategic alliance is one in which two or more business organizations cooperate and willingly, modify their business objectives and practices to help achieve long-term goals and objectives. • There is a greater interaction and discussion between the 3PL company as compared to transactional relationship. Kuldeep Uttam IIT Roorkee
  37. 37. Strategic Relationship • 3PLs are now assuming a more consultative role with customers, stretching beyond simply execution to more strategic designs. • Greatest interaction among the 3PL , business and customers are observed in the strategic relationship. • Represents an alternative that may imply even greater involvement than the collaborative partnership. • Transactional relationships have given way to strategic partnerships. Kuldeep Uttam IIT Roorkee
  38. 38. Case Study: Kenco Group • A 3PL based in Chattanooga, Tennesee. • More than 100 facilities and 30 million square feet across 25 states and Canada. • Kenco's client roster includes Whirlpool, Cummins, DuPont, Kohler, Green Mountain Coffee Roasters, and GlaxoSmithKline • The average customer relationship spans 17 years. • One of Kenco’s recent clients, switching to one service provider, is saving more than $10 million over the life of the initial contract. • Both 3PL and clients prefer long term partnership as it is the most beneficial. Kuldeep Uttam IIT Roorkee
  39. 39. Environmental Concern in 3PL • There has been rapid growth in the attention directed toward environmental burden, and it is now important to consider environmental issues. • The main purpose of companies such as shippers and 3PL providers is to reduce costs and secure more profits, which may not coincide with environmental concerns. • However, efforts to conduct business in an environmental manner have also been growing rapidly. Environmentally friendly logistics concepts such as green logistics and reverse logistics have been catching on. Kuldeep Uttam IIT Roorkee
  40. 40. Environmental Concern in 3PL • “ISO14001” certification is one example. Each firm has an incentive to acquire it to enhance the reputation and market value of the firm. Indeed, the number of shipping companies that address environmental issues in their CSR (Corporate Social Responsibility) activities is increasing. • Some 3PL providers have such certifications and promote themselves to shippers as environmental friendly companies. For shippers that are interested in environmental issues, certification seems to be an important factor in the selection of a 3PL provider. Kuldeep Uttam IIT Roorkee
  41. 41. 3PL BUYING PROCESS Kuldeep Uttam IIT Roorkee Multi criteria decision making (MCDM) process in which a decision maker chooses, under several selection criteria, the best option among alternatives.
  42. 42. Selecting your supplier using MCDM Evaluate Process Kuldeep Uttam IIT Roorkee Select
  43. 43. Objective Factors • • • • • Transportation Cost Insurance Cost IT Material Handling cost Reverse Logistics Kuldeep Uttam IIT Roorkee
  44. 44. Objective Factors Table Transportat ion Insurance IT Material Handling cost Reverse Logistics Sum OFM DHL 8.3 1.64 0.25 2 0.025 FedEx 6.3 1.26 0.2 1.5 0.065 Hitachi 7.4 1.42 0.35 3.6 0.034 12.804 0.58681 Nippon Express 9 1.8 0.56 6.3 0.085 17.745 Kuldeep Uttam IIT Roorkee 12.215 0.65677 9.325 1 0
  45. 45. Subjective Factors • • • • • Reliability Responsiveness Safety & Security Experience & Reputation Benefits & Risk Sharing Kuldeep Uttam IIT Roorkee
  46. 46. Subjective Factors Table Reliability Responsiveness Weights DHL FedEx Hitachi Nippon Express Safety & Security Experience & Reputation Benefits & Risk Sharing 0.25 0.35 0.2 0.1 0.1 3 2 4 4 2 4 4 2 3 4 2 1 3 2 3 1 3 1 4 1 4 : Extremely Favorable. 3: Moderately Favorable. 2: Unfavorable. 1: Bad Service. Kuldeep Uttam IIT Roorkee
  47. 47. Normalized Subjective Factors & SFM Reliablity Responsiveness Safety & Security Experience & Reputation Benefits & Risk Sharing Weights 0.25 0.35 0.2 0.1 0.1 DHL 0.75 0.5 1 1 0.5 SFM 0.7125 FedEx 1 1 0.5 0.75 1 0.875 Hitachi 0.5 0.25 0.75 0.5 0.75 0.4875 Nippon Express 0.25 0.75 0.25 1 0.25 0.5 Kuldeep Uttam IIT Roorkee
  48. 48. Final Decision Measure Decision Measure SFM Weights DHL FedEx Hitachi NipponExpress OFM 0.6 0.4 0.7125 0.656769596 0.69021 0.875 1 0.925 0.4875 0.586817102 0.52723 0.5 0 0.3 Kuldeep Uttam IIT Roorkee
  49. 49. 4th Party Logistics • 4PL is an emerging new outsourcing concept. • A supply chain integrator who assembles and manages the resources, capabilities, and technology of its organization with those of service providers to deliver a comprehensive supply chain solution. • 4PL can be considered as a comprehensive supply chain solution which combines the capabilities of management consulting, IT technology and 3PL-providers. Kuldeep Uttam IIT Roorkee
  50. 50. Future Concern • The total market for freight transportation intermediaries is still growing with the boom of e-commerce; • The conventional 3PLs will not fade, but will face with the competition from the online logistics providers; • The companies have to combine the logistics expertise with advanced technology to evolve. • Strategic alliance will be important to obtain comprehensive and integrated supply chain solution capability. • Medium sized and Large carriers may resist and try to continue business as usual or simply become e-commerce enabled using current business models Kuldeep Uttam IIT Roorkee
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