Third party logistics

Third Party Logistics(3PL)

Kuldeep Uttam IIT Roorkee

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.


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.


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


Myth about 3PL 3PL is only concerned with transportation activities !!!


Services Provided By 3PL


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.


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

Increase Flexibility (service/financial)

Focus on Core Business

Improve Service

Lack of Scale

Acquire Talent

Avoid Labor Problems

Cut Costs

Source: A.T. Kearney Kuldeep Uttam IIT Roorkee

Supplier Supplier Supplier

Manufacturer

Customer

Distributor

Supplier Supplier Supplier Supplier

Supplier Supplier Supplier

Manufacturer

Distributor

Customer

3PL

Returns / Recycling Point-of-sale data

Freight flow

Push Pull

From Push to Pull Logistics




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


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


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


Camelot: Partners




Customers of 3PL’s Industry Global

Costs

Domestic Costs

(USA)

Automotive $98.2 $37.4

Technology $156.4 $77.4

Retailing $98.6 $67.2

Consumer Products $13.6 $13.3

Food and Grocery $32.2 $27.8

Healthcare $38.4 $34.0

Industrial and Elements $179.7 $84

Other $63 $25.3

Total Costs $678.3 $366.3


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

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

$100

$80

$60

$40

$20

$0



Source: 2005 Tenth Annual 3PL Study, Georgia Tech and Cap Gemini LLC. Used with permission Kuldeep Uttam IIT Roorkee

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.



• 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.



• 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.


WMS / TMS

RATHER THAN OFFERING WAREHOUSE AND TRANSPORTATION FACILITIES SEPERATELY , MANY 3PL PROVIDE INTEGRATED FACILITY



• 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.



• 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.



• Information-Based

– Significant growth and development in this alternative category of Internet-based, business-to-business, electronic markets for transportation and logistics services.

– Examples: Transplace and Nistevo are examples of information-based 3PLs.


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


Nature of E Commerce


Case Study: ANCHOR 3PL




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 ?


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.


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.


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.


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.


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.


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.


3PL BUYING PROCESS

Multi criteria decision making (MCDM) process in which a decision maker chooses, under several selection criteria, the best option among alternatives. Kuldeep Uttam IIT Roorkee

Selecting your supplier using MCDM

Evaluate Process Select Kuldeep Uttam IIT Roorkee

Objective Factors

• Transportation Cost

• Insurance Cost

• IT

• Material Handling cost

• Reverse Logistics


Objective Factors Table

Transportation Insurance IT

Material Handling cost

Reverse Logistics Sum OFM

DHL 8.3 1.64 0.25 2 0.025 12.215 0.65677

FedEx 6.3 1.26 0.2 1.5 0.065 9.325 1

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 0


Subjective Factors

• Reliability

• Responsiveness

• Safety & Security

• Experience & Reputation

• Benefits & Risk Sharing


Subjective Factors Table

Reliability Responsiveness Safety & Security

Experience & Reputation

Benefits & Risk Sharing

Weights 0.25 0.35 0.2 0.1 0.1

DHL 3 2 4 4 2

FedEx 4 4 2 3 4

Hitachi 2 1 3 2 3

Nippon Express 1 3 1 4 1

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


Normalized Subjective Factors & SFM

Reliablity Responsiveness Safety & Security

Experience & Reputation

Benefits & Risk Sharing

SFM

Weights 0.25 0.35 0.2 0.1 0.1

DHL 0.75 0.5 1 1 0.5 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


Final Decision Measure

SFM OFM Decision Measure

Weights 0.6 0.4

DHL 0.7125 0.656769596 0.69021

FedEx 0.875 1 0.925

Hitachi 0.4875 0.586817102 0.52723

NipponExpress 0.5 0 0.3


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.


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



Third party logistics

Education

pl evolution

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pl providers

pl types

pl benefits services

pl relationship management

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