2. Alliance & outsourcing
• Finished goods have to be transported to point of consumption. production &
consumption cycle never matches, storage becomes inevitable. But Stored
inventories have to be judiciously controlled for their carrying cost that is drain
on bottom line.
• Business organizations are struggling for competitiveness not only for growth
but also survival.
• Customer has become demanding & looks for value added service as he wants
value for the money he is spending.
• This can be done through outsourcing the no-core operations to expert in the
fields & concentrating on core business areas.
• Logistics operations is specialized area where majority of marketing &
manufacturing organizations do not have expertise.
• The opportunity cost ,which the traditional distribution system carries due to
lost time in dealing with multiple vendors, transporters, C&F agents, f eight
forwarders, octroi authority, custom agents is major hurdle on the company’s
overall competence. To overcome this hurdle & to bring effectivness,efficiency
to distribution system, outsourcing has become necessary.
3. • SCM is involved in planning& management of procurement, manufacturing,&
distribution activities. IT coordinates & collaborates, with channel partners i.e
suppliers , intermediaries ,& third party service providers.
• There are a number of strategic alliance amongst the above mentioned
players. A strategic alliance is formal relationship formed between two or
more parties to pursue a set of agreed upon goals or to meet a critical
business needs while remaining independent.
• Partners may provide the strategic alliance with resources such as products ,
distribution channels , manufacturing capabilities , project funding , capital
equipment , knowledge , expertise , intellectual property.
• The alliance is cooperation or collaboration which aims for synergy , where
each partner hopes that benefits from the alliance will be greater than those
from individual efforts.
• The alliance often involves technology transfer , economic specialization ,
shared expenses , shared risk.
Alliance & outsourcing
4. Drivers of Alliances & OUTSOURCING
• Globalization of markets
• Competitive pressure
• Changing customer demands
• Emerging technologies
5. Why (Outsourcing) Alliances?
• To focus on core competencies
• Resource constraints
• Cost-saving resulting from better management
• Cross pollination of better available practices
• Wider geographical coverage
• Reduction in risk and liability
• Extend superior customer service
• Source of process improvement
6. Which Logistics Activities
are Outsourced?
• Warehousing and warehouse management
• Transportation and freight management
• Freight payment and audit
• Inventory management
• Customs clearance
• Material handling
• Packaging
8. Types of Strategic Alliance
• Third Party Logistic (3PL) - It is use of an outside company to perform all or
part of the firm’s material management and product distribution functions.
• Fourth Party Logistics (4PL) – It refers to the evolution in logistics from
suppliers focused on warehousing 7 transportation third party logistics
providers) to suppliers offering a more integrated solution . Among other
services , fourth –party logistics providers include supply chain management &
solutions , change management capabilities ,value added services in their
offerings.
• Retailer-Supplier Partnerships – It is formation of stratgic alliance between
retailers & their suppliers.
• Distributor Integration – This appreciates the value of the distributors & their
relationship with the end users & provides hem with necessary support to be
successful.
9. Strategic Alliances: Benefits
• Access to partner’s distribution channels and markets
• Access to partner’s technology and IPR
• Access to partner’s capital
• Access to partners markets and their customers
• Increased brand awareness through partner’s
channels
• Speed to market due to joint efforts
• Reduced R and D costs and risks
• Rapidly achieve scale, critical mass and momentum
• Access to management skills
10. Improvement Areas Through
Strategic Alliance Relationships
• Management of supply channel conflict
• On-time product delivery
• Prompt response to complaints
• Greater quality and delivery consistency in inventory
• Improved handling of customer complaints
• Improved supply chain productivity
• Prompt response to quote requests and price problems
• Confidentiality of shared business strategy
11. Third- and Fourth-Party
Logistics Providers
• Third-party logistics (3PL) providers performs one or more of the logistics
activities relating to the flow of product, information, and funds that
could be performed by the firm itself
• A 4PL (fourth-party logistics) designs, builds and runs the entire supply
chain process
12. Third- and Fourth-Party
Logistics Providers
Service Category Basic Service Some Specific Value-Added Services
Transportation Inbound, outbound by
ship, truck, rail, air
Tendering, track/trace, mode conversion, dispatch, freight pay, contract
management
Warehousing Storage, facilities
management
Cross-dock, in-transit merge, pool distribution across firms, pick/pack,
kitting, inventory control, labeling, order fulfillment, home delivery of catalog
orders
Information
technology
Provide and maintain
advanced
information/computer
systems
Transportation management systems, warehousing management, network
modeling and site selection, freight bill payment, automated broker
interfaces, end-to-end matching, forecasting, EDI, worldwide track and trace,
global visibility
Reverse logistics Handle reverse flows Recycling, used-asset disposition, customer returns, returnable container
management, repair/refurbish
Other 3PL services Brokering, freight forwarding, purchase-order management, order taking,
loss and damage claims, freight bill audits, consulting, time-definite delivery
International Customs brokering, port services, export crating, consolidation
Special skills/handling Hazardous materials, temperature controlled, package/parcel delivery, food-
grade facilities/equipment, bulk
13. THIRD-PARTY LOGISTICS (3PL)
• Third-party logistics refers to the concept of outsourcing the
logistics and distribution of a manufacturing or service firm to
a logistics service provider so that the manufacturing firm
could focus on its core competencies of new product
development, manufacturing and marketing those products.
• Third party logistics is the activity of outsourcing activities
related to logistics and distribution. The 3PL industry includes
Logistics Solution Providers(LSP’s) and the shippers whose
business processes they support companies option for 3PL for
the following reasons:
14. i. Improved Strategic Focus:
ii. Resource constraints:
iii. Lowered costs: could be reduced inventory
management cost around 15-30%
iv. Expansion of markets:
v. More professional and scientific approach to
logistical problem
vi. Improvement in service levels with improved
response time
vii. Efficient management of inventory resulting in
better utilization of working capital
viii. Increased flexibility: A 3PL contract provides
freeing up resources for other uses.
15. 3PL
• Third-party logistics (3PL) refers to outsourcing
transportation, warehousing and other logistics related
activities to a 3PL service provider that were originally
performed in-house.
• Third-party logistics (3PL) or logistics outsourcing is
gaining importance as more and more corporations
across the world, unable to manage their complex
supply chains, are outsourcing logistics activities to the
3PL or logistics service providers.
• By outsourcing logistics activities, corporations are able
to not only concentrate on their core business
operations, but also achieve cost-efficiency and improve
delivery performance and customer satisfaction.
16. 3 PL Service Provider
• Wholesalers: The stand-alone operators, who extend only one type of
service in which they have an expertise, such as:
Warehousing
Transportation
Customs clearance
Packing
Equipment suppliers
IT support
• Integrators: One who provides entire logistics services and offers logistics
solutions to customer’s logistics problem.
17. Categories of 3PLs
• Standard Service Provider –Perform basic activities such as pick 7 pack up ,
warehousing , distribution – the most basic functions of logistics.
• Service Developer - They offer advanced services such as tracking & tracing ,
cross-docking , specific packing , providing unique security system.
• Customer Adapter – At the request of customer it essentially takes ver
complete control of company’s logistics activity. It improves logistics
dramatically , but do not develop new service.
• Customer Developer - This is the highest level that 3PL provider can attain
w.r.t. its processes & activities. This occurs when 3PL provider integrates itself
with customer & takes over their entire logistics function.Thes providers will
have few customers, but will perform extensive & detailed tasks for them.
18. 3PL – Benefits to Clients
• Reduction in the risk and the liability
• Value-added services to the customer
• Source of process improvement
• Wider market coverage
• Access to new technologies
19. • Cross docking
• Customs clearance
• Reverse logistics
• Assembly or mixing
• Freight consolidation
• Special packaging and labelling
• Logistics audits
• Stock financing
Value-Added Services by 3 PL
20. INFRASTRUCTURE REQUIRED FOR 3PL
The following type of infrastructure is a
prerequisite for a good 3PL:
i. Warehouse
ii. Fleet of vehicles
iii. Quality Hardware and software to take care of
information required by the system.
iv. Advanced material Handling capabilities
v. Competent consultants with good team of
spirits
vi. Trained Manpower
vii. Reach in terms of Geography.
21. STEPS WHILE CONSIDERING A 3PL SERVICE
PROVIDER
• The Mfg. company should consider the
following key points before proceeding any
3PL service:
i. Knowing where to go:
ii. Knowing the needs and objectives:
22. FACTORS TO BE CONSIDERED A 3PL
A. General company considerations
B. Capabilities
C. Quality
D. Client Relationship
E. Labor Relations
23. MEASURING & EVALUATING 3PL PERFORMANCE:
The following are the metrics of 3PL
1. Transportation
a. On-time shipment
b. On-time Delivery
c. Transportation cost per mile
2. Warehousing
a. Percentage of order ships in each consignment
b. Unit cost of warehousing
c. Pricing accuracy in warehouse
d. Order fulfillment
e. Item fulfillment
f. Inventory accuracy
g. Loss and damage
24. 3. Cost:
a. Service costs
b. Cost Reduction
4. Quality
a. Reports
b. Process Improvement
5. Availability:
a. Customer Satisfaction
b. Handling routine
25. 3PL market – World Scenario
• logistics cost around the world is about $2
trillion
• It constitutes to around 9% to 20% of the GDP
of the country
• 3PL revenues across the world in 2003: $141
billion, 2008: $426 billion
• Largest 3PL market is in US, share: 70%
26. Situation in India
• Market is least developed
• Highly fragmented
• Very few providers
27. Problems in growth
• Lack of trust and awareness
• 3PL is less than 20% of all logistical operations in
India
• Poor infrastructure
• Logistical firms offering limited services
• Differential sales tax policies
28. Prospects of 3PL
• Globalization
• Market is poised to grow at the rate of 20%
• Indian firms have started to realize the
importance of reducing costs & staying
competitive
• Government is taking initiative for
infrastructure development
• Uniform VAT
29. The objective..
• To assess the 3PL market in India,
• Its growth prospects,
• Opportunities and threats
• Services offered
• Industries served
30. Methodology
• Sources
• 3PL providers,
• Data collection was through questionnaire
• surveys, telephonic interviews
• The secondary sources were books, published
reports and the Internet
31. Questionnaire
• General information
• Services offered
• Industries served
• Asset base
• Extent of coverage
• Information systems used
• Threats & opportunities
35. 0 20 40 60 80 100
Warehousing
FTL
Freight frwd
LTL
Consulting
Customs clr
Reverse Logistics
Distribution
Freight Brokerage
Services offered by companies
Services offered by
companies
36. 0 20 40 60 80
Damaged Product
Pkg/Container
Warranty
Product Recovery
Product Recall
Seasonal Product
Expiry Date over
Services offered in reverse Logistics
Services offered in
reverse Logistics
37. 0 10 20 30 40
Poor Infra
Lack of awareness
Diseconomies of scale
Others
Threats to growth of 3PL
Threats to growth of 3PL
38. Findings..
• 3PL in India- new & fragmented
• Major reasons:
– Poor Infrastructure
– Red tapeism
– Delay in Govt. clearances
– Container corporation (CONCOR) has a monopoly
– Lack of trust and awareness
39. Findings..
• High cost, low margin business
• Complicated Tax structure
• Stiff competition from MNC 3PL providers
• Issue an authority over the local logistics
providers
40. Latest Developments..
• Golden Quadrilateral
• SEZs
• Use of latest technologies
• Need for more MN 3PL providers to invest in
Domestic logistics
41. FOURTH-PARTY LOGISTICS (4PL)
• The 4PL was a term coined by Accenture Consulting in the mid
90’s.
• The term was coined as a result of an extensive survey carried
out by the organization on customer satisfaction, which
indicated that the customer expectations regarding costs by
using 3PL service providers were not up to the mark.
• According to the Accenture Consulting the 4PL defines as:
• “An integrator that assembles the capabilities, technology and
resources of it’s own organization and other organizations to
design, build and run comprehensive supply chain solutions”
• For any firm to establish the 4PL must have enhance skills in
investing and maintaining the infrastructure and resources
that makes it the manager of multiple 3PL service providers
crucial to the client organization.
42. Fourth Party Logistics
• These are 3pl firms that have invested in technology , human resources,&
alliance in order to present a single point contact for operation of a
customer’s supply chain.
• In essence the 4PL provider is a supply chain integrator of all 3PL service
providers. 4pl service provider coordinates , aligns ,& manages the
capabilities of 3pl vendors.
• 4PL is an asset less vendor. 4PL operates on IT platform & deliver a
comprehensive supply chain solution using capabilities of 3PL vendors.
• Third party logistics suppliers are providing logistics solutions to their
clients , based on their domain knowledge they have developed or
acquired over the years of experience in logistics business.
• Today a new trend is emerged where in IT firms providing logistics
solutions built around domain knowledge provided by 3PL companies.
These new breeds of companies are called as Fourth – party logistics.
43. 4PL Alliance
The genesis of 4pl lies in forming collaborative relationship amongst various
logistics service providers on IT backbone. Hence Network arrangement can be
termed as 4PL , provided it fulfils the following requirement.
• Covers the entire supply chain of the customer.
• Collaboration between multiple logistics service providers on the resources
sharing basis to extend SC solution to a customer.
• Alliances to be led by integrator with IT based and not asset based service
provider.
• Flexible arrangement.
• Helwlett Packard appointed Circle International as their 4PL partner for Asia
Pacific region.CI is operating from their central hub located in Singapore where
it buys & stocks the HP inventory requirement in the region. The network of
warehouse hubs spread across countries in the region takes care of
distribution. The local HP office in the country draws its inventory requirement
by buying from CI local hub.HP does not block its funds in inventory. Thus 4pl
provides logistics services by blocking their own money in HP PRODUCTS &
components.
• 4PL works on Increasing revenue , Reduce cost , Reduce Working capital ,
Reduces fixed cost.
44. 4PL : SC Solution
Re-organizing – It is synchronization of planning &
execution across all partners in areas of consultation
skills , business strategy alignment ,creatively
redesign & integrate supply chain participants.
Transformation – It focus on specific supply chain
function. It covers Ares of strategic planning , analysis
, process redesign ,organization change management
, technology to integrate the client’s supply chin
activities & processes.
Execution.
45. MAJOR TECHNOLOGY COMPONENT OF 4PL
SERVICES
i. Global Positioning System: GPS is the only
technology which could be used for determining the
position of any object on earth with a high amount of
accuracy and in any climate.
ii. Global Information System: GIS technology is a
computerized system capturing the position of an
object and then processing, enhancing, querying,
analyzing and storing it with spatially referenced data
containing the consumer profile of that particular
area which can be definitely help a sales organization
in creating consumer demographics.
46. The key components of modern GIS are the
integrated Hardware and software.
By using GPS and GIS improves the
transportation management system which
shows the real time data of the traffic
conditions or the conditions of the weather.
These two technologies could be used for
effective route optimization and modern
fleet management operations.
47. FOUR KEY COMPONENTS IN 4 PL SOLUTIONS
Architect or
Integrator
Control Room
(Intelligence)
Supply –Chain
Info mediatory
Resource
Provides
4 PL
48. 1. The Architect/Integrator: Supply chain visionary, Multiple
customer relationship, supply chain re-engineers, project
management and continuous innovation.
2. The Control Room: Experienced logisticians, decision
support, managing multiple 3PL’s and continuous
improvement.
3. The Supply Chain Inform diary(Information Nervous
System): IT infrastructure, IT system integration, Real time
data tracking, conversion of data to information and
technical support.
4. The Resource Providers: Transportation & warehouse
assets provider, Cross-dock, property facility,
Manufacturing outsourcing, Procurement and co-packing
services.
49. CHALLENGES FACED BY THE 4PL INDUSTRY
i. Indian mindset is itself a great challenge: Application
of 4PL needs a lot of understanding & support from
the top management.
ii. Low awareness regarding the 4PL concept: Some 3PL
firms have either misunderstood the definition by
Accenture or purposely ignore for other reason.
iii. Some 3PL players offering additional IT services &
started marketing as 4PL, which could be referred as
“3PL plus”.
iv. The relevant technology and the resource required
for any 4PL are not available in India easily.
50. 4PL Alliances: Benefits
• Reduced logistics cost.
• Concentration on core competencies.
• Release of management capacities.
• Reduced assets.
• Economies of scale.
• Increase of process quality.
• Access to latest technologies.
51. Logistics Outsourcing Issues for 3PL & 4PL
• Switching cost
• Degree of control
• Human and electronic interface
• Tuning logistics to the need of channel partners
• Degree of outsourcing
• Legal aspects
52. Logistics Outsourcing Issues for 3PL & 4PL
• Switching cost-outsourcing results in the reorganization of existing
assets(warehouse , transportation fleet if any ) to get attuned to the
working methodology of the service provider which includes.
• Management of existing assets fully or partly by service provider.
• Deployment of existing assets on lease to service provider.
• Divesting the existing assets & fully switching over to the usage of logistics
infrastructure provided by service provider.
• Risk involved if partnership breaks which will cause greater loss in terms of
time in stabilizing in the new system & loosing the customer.
• Degree of control – Direct control over the activities of the service
provider’s employee is not possible. But outsourcing firm should ensure
the timely availability of information to monitor the activities of service
provider.
53. • Human & electronic interface
• For the organization in partnership proper coordination is required to
achieve common goal.
• As work culture differs in partnership organization there is mismatch in
degree of empowerment of employees ,speed , flexibility in making
decision , precision in operations , technologies used & access to
confidential information.
• Proper interface between the employees of two organization is essential
to resolve the issues on account of miscommunication or
misunderstanding.
• Job of coordination from both the organization is crucial in formulating the
policies & guidelines. The coordinator should be empowered to make on-
the-spot decision to resolve the issues.
• Problems arises due to mismatch in technologies used in communications
,material handling, storage arrangements , inv management.
Logistics Outsourcing Issues for 3PL & 4PL
54. • Tuning logistics to the need of channel partners – Meshing channel &
logistics management requires good coordination & intelligent interface.
• There are four major areas of interface between channel & logistics
management .
– Defining logistics standards as per required by channel members.
– Designing logistics programs as per standards
– Implementation of programs
– Monitoring the programs.
• Any logistics program that is beyond the demand of channel members
creates mismatch & increases the cost of operation without tangible benefits.
• Degree of Outsourcing.
Company resorts to logistics outsourcing in totality or part depending upon
Following
Existing logistics infrastructure of the company
company's product portfolio
Management policy for third party involvement
The anticipated benefits.
Logistics Outsourcing Issues for 3PL & 4PL
55. • The limited involvement of logistics service provider may be only for
regional operations or for transportation , for warehousing. This will create
a problem in identifying the source of mistake in the event of customer
complaint.
• Areas of responsibility & authority should be clearly demarked.
• Service provider should be given a free hand in complaint resolution &
curtailment decision.
• He should be given access to company knowledge pool.
• Legal Aspects – Reverse logistics policy guidelines have to be prepared to
sort out the excise & sales tax problems relating to rejected goods,
warranty period ,goods wrongly dispatched or return of goods damaged in
transit.
Logistics Outsourcing Issues for 3PL & 4PL
56. Service Provider Selection
• Define logistics problems
• Identify problem areas
• Establish objectives
• Search for service provider
• Proposal evaluation
• Selection of service provider
61. Service Provider Selection
Search for service provider
• Integrator
• Wholesaler
• Consultants
Proposal evaluation and selection
• Credentials
• Logistics infrastructure
• Experience and customer base
• Technology
• Cost of service
• Reliability
• Government liaison
62. Logistics Service Contract Agreement
• Date and place of the contract
• Names and addresses of contracting parties
• Scope of services
• Geographical coverage
• Logistical services ( in full or part )
• Management and usage of customer’s existing logistics asset.
• Delivery requirements
• Payment terms
• Extra services from service providers
• Charges for services offered
• Value proposition by service provider
• Damage liability
1. Loss ( due to pilferage ,fire ,rains ,accident ,act of nature ,
negligence)
2. Insurance
3. Damage calculation basis ,demurrage due to delays in loading
unloading.
63. Logistics Service Contract Agreement
• Responsibilities
• Employees
• Asset management
• Warehouse management
• Inventory , transportation , communication
• Performance measures criteria
• Risk sharing
• Termination of contract
• Notice period
• Notice for claims and filing suits
• Authority and jurisdiction of dispute settlement
• Governing laws
