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3 pl & 4pl final

Strategic alliances and outsourcing logistics operations to third-party logistics (3PL) providers is an emerging trend. Companies are outsourcing non-core logistics functions like transportation, warehousing, and inventory management to focus on their core business areas and gain access to specialized expertise. Using 3PL providers allows companies to improve efficiency, reduce costs, gain access to new technologies and markets, and obtain value-added services. Common logistics activities that are outsourced include warehousing, transportation, customs clearance, and inventory management.

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Strategic Alliance Logistics Outsourcing: An Emerging Trend
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.
• 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
Drivers of Alliances & OUTSOURCING • Globalization of markets • Competitive pressure • Changing customer demands • Emerging technologies
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
Which Logistics Activities are Outsourced? • Warehousing and warehouse management • Transportation and freight management • Freight payment and audit • Inventory management • Customs clearance • Material handling • Packaging
Outsourcing Warehousing Transportation Inventory Order processing Self-reliant Organization performing all logistics operation Alliance with 3 PL Service provider IT Organization IT/Logistics Consultant 4 Party Logistics 3 Party Logistics In-house logistics Logistics Evolution
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.
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
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
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
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
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:
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.
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.
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.
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.
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
• 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
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.
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:
FACTORS TO BE CONSIDERED A 3PL A. General company considerations B. Capabilities C. Quality D. Client Relationship E. Labor Relations
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
3. Cost: a. Service costs b. Cost Reduction 4. Quality a. Reports b. Process Improvement 5. Availability: a. Customer Satisfaction b. Handling routine
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%
Situation in India • Market is least developed • Highly fragmented • Very few providers
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
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
The objective.. • To assess the 3PL market in India, • Its growth prospects, • Opportunities and threats • Services offered • Industries served
Methodology • Sources • 3PL providers, • Data collection was through questionnaire • surveys, telephonic interviews • The secondary sources were books, published reports and the Internet
Questionnaire • General information • Services offered • Industries served • Asset base • Extent of coverage • Information systems used • Threats & opportunities
Analysis.. 32 25 22 9 12 Location of HQ of companies Delhi Mumbai Chennai Kolkata others
0 20 40 60 80 Asia US Europe Africa % of respondants having operations outside India % of respondants having operations outside India
46 28 17 9 3PL turnover in Rs less than 10 between 10 & 50 between 50 & 100 Above 100
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
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
0 10 20 30 40 Poor Infra Lack of awareness Diseconomies of scale Others Threats to growth of 3PL Threats to growth of 3PL
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
Findings.. • High cost, low margin business • Complicated Tax structure • Stiff competition from MNC 3PL providers • Issue an authority over the local logistics providers
Latest Developments.. • Golden Quadrilateral • SEZs • Use of latest technologies • Need for more MN 3PL providers to invest in Domestic logistics
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.
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.
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.
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.
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.
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.
FOUR KEY COMPONENTS IN 4 PL SOLUTIONS Architect or Integrator Control Room (Intelligence) Supply –Chain Info mediatory Resource Provides 4 PL
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.
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.
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.
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
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.
• 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
• 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
• 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
Service Provider Selection • Define logistics problems • Identify problem areas • Establish objectives • Search for service provider • Proposal evaluation • Selection of service provider
Service Provider Selection Define logistics problems • High logistics cost • Longer performance cycle • Increased customer complaints • Reverse logistics • Route selection
Service Provider Selection Identify problem areas • Warehousing • Material handling • Storage arrangement • Transportation • Packaging
Service Provider Selection Establish objectives • Cost reduction • Performance cycle compression • Customer complaints resolution • JIT delivery • Freight optimization • Route planning • Inventory carrying cost
Service Provider Selection Establish objectives • Cost reduction • Performance cycle compression • Customer complaints resolution • JIT delivery • Freight optimization • Route planning • Inventory carrying cost
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
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.
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

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3 pl & 4pl final

  • 1.
  • 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 isinvolved 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 areOutsourced? • Warehousing and warehouse management • Transportation and freight management • Freight payment and audit • Inventory management • Customs clearance • Material handling • Packaging
  • 7.
    Outsourcing Warehousing Transportation Inventory Order processing Self-reliant Organization performingall logistics operation Alliance with 3 PL Service provider IT Organization IT/Logistics Consultant 4 Party Logistics 3 Party Logistics In-house logistics Logistics Evolution
  • 8.
    Types of StrategicAlliance • 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 StrategicAlliance 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 LogisticsProviders • 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 LogisticsProviders 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 StrategicFocus: 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 ServiceProvider • 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 – Benefitsto 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 FOR3PL 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 CONSIDERINGA 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 BECONSIDERED A 3PL A. General company considerations B. Capabilities C. Quality D. Client Relationship E. Labor Relations
  • 23.
    MEASURING & EVALUATING3PL 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. Servicecosts 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.. • Toassess the 3PL market in India, • Its growth prospects, • Opportunities and threats • Services offered • Industries served
  • 30.
    Methodology • Sources • 3PLproviders, • 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
  • 32.
    Analysis.. 32 25 22 9 12 Location of HQof companies Delhi Mumbai Chennai Kolkata others
  • 33.
    0 20 4060 80 Asia US Europe Africa % of respondants having operations outside India % of respondants having operations outside India
  • 34.
    46 28 17 9 3PL turnover inRs less than 10 between 10 & 50 between 50 & 100 Above 100
  • 35.
    0 20 4060 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 4060 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 2030 40 Poor Infra Lack of awareness Diseconomies of scale Others Threats to growth of 3PL Threats to growth of 3PL
  • 38.
    Findings.. • 3PL inIndia- 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.. • GoldenQuadrilateral • 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 genesisof 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 : SCSolution 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 COMPONENTOF 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 componentsof 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 COMPONENTSIN 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 BYTHE 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 Issuesfor 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 Issuesfor 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 logisticsto 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 limitedinvolvement 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
  • 57.
    Service Provider Selection Definelogistics problems • High logistics cost • Longer performance cycle • Increased customer complaints • Reverse logistics • Route selection
  • 58.
    Service Provider Selection Identifyproblem areas • Warehousing • Material handling • Storage arrangement • Transportation • Packaging
  • 59.
    Service Provider Selection Establishobjectives • Cost reduction • Performance cycle compression • Customer complaints resolution • JIT delivery • Freight optimization • Route planning • Inventory carrying cost
  • 60.
    Service Provider Selection Establishobjectives • Cost reduction • Performance cycle compression • Customer complaints resolution • JIT delivery • Freight optimization • Route planning • Inventory carrying cost
  • 61.
    Service Provider Selection Searchfor 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 ContractAgreement • 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 ContractAgreement • 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