Transcript Lecture 1

Third-party Logistics
4/12/2003
Richard Zhu/ECT 7030
1
Services Offered by Third-party Providers
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Basic Service Providers
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Value-added Service Providers:
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warehouse management
order processing
order fulfilment
transportation carrier selection
shipment/order consolidation
import/export customs
logistics information systems (EDI, reporting)
fleet management/operations (e.g. cross-docking)
product assembly/installation
Logistics Integrators:
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full responsibility for key supply chain operations
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replenishment/order-filling policies
product returns
customer spare parts inventory replenishment
rate negotiation
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Contract Warehousing
Incoming
Products
Bulk
Warehouse
Distribution
Center
Outsourced
In-house
Activities:
Benefits:
Labor
Lower
& supervision
Receiving, storage, shipping
Value Added Services
Traffic/transportation
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Customers
Retailers
capital investment
Lower fixed/variable cost ratio
Focus to the core
Professional service
Richard Zhu/ECT 7030
3
Supplier Hub / Regional Fulfillment
Center / Regional Distribution Center
Incoming
Materials
Or
Products
Bonded
Warehouse
Outsourced
Activities:
Same as contract warehouse
Customs clearance
Freight consolidation
Shipment visibility
Inventory ownership
Order fulfillment
Value Added Services
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Mfg site/
Point of Use
Benefits:
Lower
capital investment
Focus to the core
Delayed payment of duties and taxes
Pay (for material) on production
Visibility of pipeline inventory
Richard Zhu/ECT 7030
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Shipment Consolidation and
Transportation
Customs
Incoming
Materials
Or
Products
Consol.
Center
arrangement
Customs clearance
Freight consolidation
Shipment visibility
Carrier mgmt / rate mgmt
Merge in transit
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Point of Sale/
Point of Use/
Customers
Outsourced
Activities:
Transport
De-con
Center
Benefits:
Shorter
cycle time
Lower freight costs
Visibility of pipeline inventory
Inventory consolidation
Richard Zhu/ECT 7030
5
Customers
Product Returns / Technical Services
Repair centers
Product
Return
Center
OEM Warranty
Fulfillment
Outsourced
Activities:
Benefits:
Testing
Centralization
/ screening
Warranty program mgmt
Inventory ownership
Warehousing and inv mgmt
Fulfillment
Depot repair mgmt
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of inventory
Lower capital investment
Focus to the core
Reduced reverse logistics costs
Speedy response to customers
Richard Zhu/ECT 7030
6
Customers
Critical Parts / Service Parts Logistics
Repair centers
Tier 1
Tier 2
Tier 2
Tier 2
OEM Warranty
Fulfillment
Tier 3
Outsourced
Activities:
Benefits:
Failed
Centralization
parts replacement
Warranty program mgmt
Inventory ownership
Warehousing
Depot repair mgmt
Visibility and Track&Trace
4/12/2003
of inventory
Lower transportation cost
Improved visibility of inventory
Lower capital investment
Better after-sales service support
Richard Zhu/ECT 7030
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Logistics Financial Services
Supplier
Manufacturers
Activities:
Inventory
Benefits:
finance (factoring,
LOC)
Distribution finance (asset based
lending, receivable finance)
Payment solutions (COD)
Leasing
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Distributors
Customers /
Retailers
Reduced
cost of capital
Improved cash flow
Reduced capital investment
Richard Zhu/ECT 7030
8
Total Logistics Management
Incoming
Products
Bulk
Warehouse
Distribution
Center
Customers
Retailers
Outsourced
Activities:
Benefits:
Logistics
Reduced
planning
Network optimization
3rd vendor mgmt
Information technology
Supply chain visibility
4/12/2003
total logistics costs
Global visibility
Single logistics solution and contact
Focus to the core
Reduced investment in logistics
Richard Zhu/ECT 7030
9
Benefits of out-sourcing the logistics function
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improve company focus
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cash infusion
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no capital investments in logistics
resource not available internally
accelerated reengineering benefits
reduce and control operating costs
eliminate labor problems
pushes risk to 3PL provider
risk pooling
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selling assets to 3PL provider
access to world-class capabilities and new technology
free-up resources
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focus on core functions and core competencies
cost of investment in technology by 3PL provider shared among
clients
achieves economies of scale and provides better service
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Risks of Out-sourcing Logistics
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Co-ordination costs
Loss of internal logistics management capabilities
Biased choice of service providers
Leakage of sensitive data and information
Service degradation
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Less reliable? Longer order cycle time?
Emergency response?
Loss of control and representation
Reduced contact with final customer
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3PL for outbound logistics interact with your customers, you
become less visible to your customers
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Why 3PL can achieve economy of scale & provide better service?
• Consolidation is the key!
Example: 2 independent firms, 2 independent supply chains
Consider 2 scenarios
Scenario 1: The firms performs their own logistics functions
Firm 1
2 warehouses
2 separate distribution networks
Firm 2
Scenario 2: A 3PL takes care of both firms’ logistics functions
Firm 1
Firm 2
 Zhi-Long Chen
3PL
1 warehouse
1 distribution network
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Value Propositions of 3PL
Service, Retention &
market share
Revenue
Profit
Cost
Shareholder
Value
Cost of Goods Sold
Technology & Productivity
Transportation/Warehousing/
Materials Handling/Distribution
Working
Capital
Lower Raws & Finished
Goods Inventory
Shorter “Order to Cash”
cycles
Fixed
Capital
Fewer physical assets
Warehouse, trucks,
Transportation
Invested
Capital
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Richard Zhu/ECT 7030
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3PL Business Models
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Transactional model
– Carriers – per shipment, per container unit, per weight /
volume unit
– Freight forwarders – per shipment, per weight / volume
unit
– Public warehouse operators – per weight / space area
unit
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Contract logistics model
– Activity-based costing, i.e.,
Fixed management fee
+ variable charges based on volume
– Or, cost plus
– Or, gain sharing model
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Total logistics management
– Fixed management fee
+ variable charges based on volume
– Or, cost plus
– Or, gain sharing model
CEO Perspectives on 3PL Industry
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Industry’s most significant revenue generators (ranked in order)
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Transportation management/services
Warehousing management/operations
Value added services
Dedicated contract carriage
Fleet management/operations
Logistics information services
Top 3 most important opportunities in the industry
– Further integration of supply chain activities
– Transportation management
– Further information systems development
Source: Transport Logistics, Vol. 1, No. 1, pp51-66 (1996)
4/12/2003
Richard Zhu/ECT 7030
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Challenges of 3PL
 Setting
up internal benchmarks and performance
measures before finding a 3PL partner
 Development of appropriate and sustainable pricing
systems
 Developing an interactive and collaborative partner
relationship
– IBM: no more outsourcing, but “optimized sourcing”
 Finding
qualified people
 Development of systems which are flexible, adoptable
and user-friendly
 Development of a global logistics infrastructure
Ten building blocks for a successful 3PL relationship
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Carefully develop internal costs
Develop key performance indicators
Seek broad company inputs at the Request for Proposal (RFP)
stage
Solicit multiple RFPs
Only select the services you really need
Make sure that you understand the technology issues before
you sign a contract
Prepare to change your assumptions after the start-up
Avoid cost-plus contracts
Find out if the cultures are similar
Don’t give up complete control of your supply chain
Source: Survey of Fortune 500 manufacturers by Accenture and Northeastern University.
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European Logistics Market
Market
Definition
Estimated
Market Size
Transportation
Warehousing
Loading/unloadi
ng
(all above)
Order processing
Log admin
Inventory cost
Euro 315
billion
4/12/2003
Euro 450
billion
% of
European
GDP 1999
4.2%
Estimated
Annual
Growth
15-25% for
the next 3
years
6%
15-25% for
the next 3
years
Richard Zhu/ECT 7030
Source: Deutsche Bank
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Global Logistics Expenditures
Total Logistics Expenditures ($ Billions)
Region
1992
1996
1999
North America (inc. Canada)
837
941
1,062
Europe
876
941
1040
Pacific Rim
516
652
674
Others
662
916
930
Total
$2,891
$3,450
$3,706
Source: Bowersox and Calantone, CSFB Estimates.
11.4% of Global GDP
Size of 3PL Industry
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In 1999, around $40-45 Billion – 5% of the total logistics expenditures
In US, the growth rate for 3PL market is estimated around 15% annually
4/12/2003
Richard Zhu/ECT 7030
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From Modern Material Handling, Nov. 2003
Major 3PLs
Company
Revenues
($ million)
Ryder Integrated Logistics
$1,300
Penske Logistics
959
Schneider
875
Tibbet & Britten Group
659
Americold
650
North American Logistics
650
Fritz Companies
578
UPS Logistics
488
APL Logistics
420
Federal Express
360
Source: Logistics Magazine (07/00)
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Major 3PL Operators in USA
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Airborne
Americold
APL Logistics
Arnold
BAX global
Burnham Services Corp.
Caterpillar Logistics Services
Circle International
Cardinal
DSC Logistics
Eagle Global Logistics
EXEL Logistics, Inc.
Expeditors
Federal Express Logistics Services
J.B. Hunt Logistics, Inc.
HUB Group Logistics Services
Leaseway Logistics Services, Inc.
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Maersk Logistics
Menlo Logistics
North American
Penske Logistics
Power
Roadway Logistics Systems
C.H. Robinson Company
Ryder Dedicated Logistics
Schneider Logistics
Standard
T& B
TLC
TNT Contract Logistics, Inc.
UPS Logistics
USF Logistics
USCO Distribution Services
Yellow Logistics Services, Inc.
Source: CSFB Industry Report, Sept. 2000
4/12/2003
Richard Zhu/ECT 7030
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How many companies use 3PL?
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93 companies
Covering
automotive,
chemical,
computer,
consumer products,
& electronics
52% with sales
revenues over $1B,
10% between
$500M to $1B
From “3PL Study: Results and Findings of 2001 Annual Study”
by Cap Gemini Ernst & Young
 Zhi-Long Chen
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What 3PL functions do companies use?
 Zhi-Long Chen
From “3PL Study: Results and Findings of 2001 Annual Study”
by Cap Gemini Ernst & Young
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Benefits of 3PL
 Zhi-Long Chen
From “3PL Study: Results and Findings of 2001 Annual Study”
by Cap Gemini Ernst & Young
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Ten Top reasons Companies Outsource
1. Improve company focus
2. Reduce and control operating costs
3. Free resources for other purposes
4. Gain access to world-class capabilities
55%
54%
38%
36%
5. Resources not available internally
6. Accelerate engineering benefits
7. Reduce time to market
25%
20%
18%
8. Share risks
9. Take advantage of offshore capabilities
10. Function difficult to manage or out of control
12%
12%
10%
Source: Fifth Annual Outsourcing Index – Deloitte Consulting, January 2003
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Leading Global Air Freight Forwarders
1998
Company
Estimated Global Market Share
Danzas Intercontinental – AEI
6.9
Panalpina
4.2
Schenker (a Stinnes company)
4.0
BAX Global
4.0
MSAS
4.0
Kuehne & Nagel
2.9
Fritz Companies
2.1
Expeditors
2.1
Others
69.8
Source: Stinnes, MergeGlobal, IATA figures and Deutsche Bank
4/12/2003
Richard Zhu/ECT 7030
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Leading Global Sea Freight Forwarders
1998
Company
Estimated Global Market Share
Kuehne & Nagel
6.3
Schenker (a Stinnes company)
5.0
Danzas Intercontinental – AEI
4.6
Panalpina
3.5
Fritz Companies
3.1
MSAS
2.5
BAX Global
1.0
Expeditors
1.0
Others
73.0
Source: Stinnes and Drewry
4/12/2003
Richard Zhu/ECT 7030
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Growth of 3PL Industry
In US, the growth rate for 3PL market is estimated around 1520% annually.
 In Asia and the rest of the world, the growth rate is estimated
to be even higher in the range of 20-30% annually.
China:
 2001 Transport and logistics expenditure is US$230 billion
(20 % of GDP), with only $4.7 billion on outsourcing.
 Key factors for stimulating growth:
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Increased operations of multi-national firms in China
Cost pressures
Government support in establishing national logistics centres
Reduced regulations; China’s entry to WTO
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Mercer’s 3PL Survey in China (2002)
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20 logistics providers and 50 shippers in 8 sectors
85% of providers’ revenue comes from basic services such as
transportation, management and warehousing
Nearly 70% of providers believe clients are not ready for
outsourcing, while almost half of the shippers surveyed cite
obstacles for outsourcing, especially 3PL service quality
The market is very fragmented: No 3PL provider interviewed
has a market share over 2%. About 80% of providers’
revenues come from the Yangtse River and Pearl River Delta
regions
MNC shippers prefer MNC providers for their IT systems,
industry/operational expertise, and standardized operations
Chinese shippers prefer Chinese providers for their lower
prices, local knowledge and national network coverage
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Hong Kong Logistics Industry and Major
Local Players
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Container throughput in 2001: 17.9 million TEUs
Air cargo throughput in 2001: 2.1 million tonnes
Major Local 3PL Players
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4/12/2003
Some Major Chinese 3PL Players
OOCL and Cargo Systems
Kerry Logistics
Jardine Logistics
IDS Logistics
Seapower Resources Int’l
SUN Logistics
LINE
Power Logistics
TradePort
Richard Zhu/ECT 7030
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COSCO
China Shipping
SinoTrans
EAS
China Merchant
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Course Review – Topics Covered
7/16/2015
36
Topics Covered
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Introduction to logistics management
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what is logistics management
importance of logistics management
Supply Chain Structures
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Modularization, postponement
Strategic orientation: market, product or process focussed
Site competence vs. process technology complexity
Transportation strategy
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Transport modes and cost components
Tradeoffs in transportation design
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Transportation costs vs. inventory
Transportation costs vs. responsiveness and service
Transportation Network Design
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Pros and Cons of Direct Ship, centralized DC, etc.
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Vehicle routing and scheduling
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Shortest path
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Travelling salesman problem
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Dijkstra’s algorithm
Heuristics
Vehicle routing
Clarke-Wright savings methods
 Gillette & Miller’s Sweep Method
 Generalized Assignment Model for Vehicle Routing
 Set Partitioning Model for Vehicle Routing
 Optimization-based heuristics techniques
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Full truckload vs. LTL
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Location strategy
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factors to consider
quantitative models for analysis
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network optimization models
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Location-allocation models
supply chain network design: selective evaluation heuristic, guided
linear programming, multi-echelon multi-product networks
Covering models
other approaches
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Center of Gravity Method
Heuristics
p-median problem, p-center problem
Regression analysis
Factor rating system, Delphi method
AHP
dynamic location models
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Process Choice and Facility layout strategy
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Process flow analysis
Critical Path method
Process types: project, job, batch, line
Layout planning
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Product vs. process layout
Assembly line balancing
CRAFT (Computerised Relative Allocation of Facilities
Technique)
Systematic Layout Planning
Matching products and processes
Storage and Material Handling
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Order picking
Warehouse layout and stock location
Cross docking
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Global logistics
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E-logistics
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Internet impact on logistics
E-logistics services; market opportunities
Achieving Strategic Fit
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Drivers and challenges
How leading edge companies manage logistics
New organizational paradigm for the supply chain of the future
Competitive dimensions: cost, quality, speed, flexibility
Order qualifiers and order winners
Efficient vs. responsive supply chains
Benchmarking the supply chain
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Supply chain mapping and throughput efficiency
Supplier and distributor benchmarking
Supply Chain Operations Reference Model (SCOR)
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E-fulfilment
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Acceptance Sampling (not covered in the final)
E-procurement
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On-line auctions and exchanges
Quick response logistics
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Online retailing
Bricks-&-mortar stores vs. e-tailers
Apparel industry and Quick Response
Grocery industry and Efficient Consumer Response
Automotive industry and Lean Manufacturing
Reverse logistics
3rd party logistics
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Services offered
Benefits and risks, Growth and challenges
3PLs in China
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