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ThirdParty

Logistics(3PL)

Kuldeep Uttam IIT

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

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.

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
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Myth about 3PL


3PL is only concerned with
transportation activities !!!

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Services Provided By
3PL

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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.

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Why use 3PL


Focus on core
competences Providing
better quality service
Limiting investment
opportunities Cost
reduction > Control
Political considerations
Avoid Capital
Expenditures
Customers demand
order
accuracy , excellentCut Costs
Increase Flexibility (service/financial)
service and timely
Focus on Core Business
delievery.
Improve Service
Lack of Scale
Acquire Talent

Source: A.T. Kearney

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Avoid Labor
Proble
ms

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
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Point-of-sale data

Customer

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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
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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
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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
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Camelot: Partners

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Industry

Customers of 3PLs

Automotive
Technology
Retailing
Consumer Products
Food and Grocery
Healthcare
Industrial and Elements
Other
Total Costs

Global
Costs

Domestic Costs
(USA)

$98.2
$156.4
$98.6
$13.6
$32.2
$38.4
$179.7
$63
$678.3

$37.4
$77.4
$67.2
$13.3
$27.8
$34.0
$84
$25.3
$366.3

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Figure 4-6 3PL Logistics Market Turnover Growth (US


$Billion)
$10
0
$80
$60
$40
$20
$
0

1996 1997 1998


1999

2000 2001 2002


2003 2004

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200
5

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Source: 2005 Tenth Annual 3PL Study, Georgia Tech and Cap Gemini LLC.
Used with permission
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Types of 3PL Providers


3PLs are external suppliers that
perform all or part of a companys
logistics functions, including:
Transportation
Warehousing
Distribution
Financial services

Terms contract logistics and


outsourcing are sometimes used
in place of 3PL.
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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.
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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
worlds largest after an acquisition,
recently purchased by DHL.
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WMS / TMS

RATHER THAN OFFERING WAREHOUSE AND


TRANSPORTATION FACILITIES
SEPERATELY , MANY 3PL PROVIDE INTEGRATED
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FACILITY
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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.
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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.
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Types of 3PL
Providers

Information-Based

Significant growth and development in


this alternative category of Internetbased, business- to-business,
electronic markets for transportation
and logistics services.
Examples: Transplace and Nistevo are
examples of
information-based 3PLs.
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Shifts of Logistical
Operations in the
Internet Economy
Traditional logistics

E-logistics

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

Orders

TECHNOLOGY HAS ALLOWED 3PL TO OFFER


COMPELX AND WIDE RANGING
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SERVICES
TO THEIR CLIENTS
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Nature of E
Commerce

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Case Study: ANCHOR


3PL

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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 ?

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Transactional
Relationship
Both parties in a vendor relationship are
said to be at
arms length
There isnt much discussion with the 3PL
company.
Pricing is one of the Most important
factors.
Contracts in this scenario are the shortest.

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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.

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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.
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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 Kencos recent clients, switching to
one service provider, is saving more than
$10 million over Kuldeep
the Uttam
lifeIIT of the initial
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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.

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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.

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3PL BUYING
PROCESS

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Multi
criteria
decision
making
(MCDM)
process
in
which a
decision
maker
chooses
, under
several
selectio
n
criteria,
alternati
the

Selecting your supplier using


MCDM

Evalua
te

Proce
ss

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Sele
ct

Objective Factors
Transportation
Cost
Insurance Cost
IT
Material Handling
cost
Reverse Logistics

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Objective Factors
Table

Transpo
rtat Insuranc
ion
e

IT

Material
Handlin
g cost

Rever
se
Logist
ics

Sum OFM

DHL

8.3

1.64

0.25

0.025

12.21 0.656
5
77

FedEx

6.3

1.26

0.2

1.5

0.065

9.325

Hitac
hi
Nipp
on
Expr

7.4

1.42

0.35

3.6

0.034

12.80 0.586
4
81

1.8

0.56

6.3

0.085

17.74
5

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Subjective Factors

Reliability
Responsiveness
Safety & Security
Experience &
Reputation
Benefits & Risk
Sharing

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Subjective Factors
Experienc
Table Safet
y&
e&

Reliabil Responsiven
Securi
ity
ess
ty

Reputatio
n

Benefits &
Risk
Sharing

Weights

0.25

0.35

0.2

0.1

0.1

DHL

FedEx

Hitachi

Nipp
on
Expre
ss

4 : Extremely
Favorable. 3:
Moderately
Favorable.
2: Unfavorable.
1: Bad Service.

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Normalized Subjective Factors &


SFM
Safet
Experien
Benefits &

Reliablity Responsiven
ess

y&
Secur
ity

ce &
Reputati
on

Risk
Sharing

Weights

0.25

0.35

0.2

0.1

0.1

DHL

0.75

0.5

0.5

FedEx

0.5

0.75

Hitachi

0.5

0.25

0.75

0.5

0.75

SFM

0.71
25

0.87
5

0.48
75
Nipp
on
Expre
ss

0.25

0.75

0.25

0.25
0.5

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Final Decision Measure

Weights
DHL
FedEx
Hitachi
NipponExpr
ess

SFM

OFM

0.6

0.4

0.7125

0.656769596

0.69021

0.875

0.925

0.4875

0.586817102

0.52723

0.5

0.3

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Decisi
on
Measu
re

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.
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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
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