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Third-party Logistics

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by Cap Gemini. Users' Concerns about 3PLs. Growth of 3PL Industry in China ... Evolving 3PL relationships. What is 4th Party Logistics (4PL)? 3PL 2004 9th ... – PowerPoint PPT presentation

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Title: Third-party Logistics


1
Third-party Logistics
2
  • Third-party logistics (3PL) service providers are
    companies who provide a range of logistics
    activities for their clients. These are companies
    independent from the buyers and sellers but takes
    over some of their logistics function.
  • Benefits?
  • Concerns? Challenges?
  • Future?

3
Services Offered by Third-party Providers
  • Basic Service Providers
  • warehouse management
  • order processing
  • order fulfilment
  • transportation carrier selection
  • Value-added Service Providers
  • shipment/order consolidation
  • import/export customs
  • logistics information systems (EDI, reporting)
  • fleet management/operations (e.g. cross-docking)
  • product assembly/installation
  • Logistics Integrators
  • full responsibility for key supply chain
    operations
  • replenishment/order-filling policies
  • product returns
  • customer spare parts inventory replenishment
  • rate negotiation

4
Contract Warehousing
Bulk Warehouse
Distribution Center
Incoming Products
Customers Retailers
Outsourced
In-house
  • Activities
  • Labor supervision
  • Receiving, storage, shipping
  • Value Added Services
  • Traffic/transportation
  • Benefits
  • Lower capital investment
  • Lower fixed/variable cost ratio
  • Focus to the core
  • Professional service

5
Supplier Hub / Regional Fulfillment Center /
Regional Distribution Center
Incoming Materials Or Products
Bonded Warehouse
Mfg site/ Point of Use
Outsourced
  • Activities
  • Same as contract warehouse
  • Customs clearance
  • Freight consolidation
  • Shipment visibility
  • Inventory ownership
  • Order fulfillment
  • Value Added Services
  • Benefits
  • Lower capital investment
  • Focus to the core
  • Delayed payment of duties and taxes
  • Pay (for material) on production
  • Visibility of pipeline inventory

6
Shipment Consolidation and Transportation
Customs
Incoming Materials Or Products
Point of Sale/ Point of Use/ Customers
Consol. Center
De-con Center
Outsourced
  • Activities
  • Transport arrangement
  • Customs clearance
  • Freight consolidation
  • Shipment visibility
  • Carrier mgmt / rate mgmt
  • Merge in transit
  • Benefits
  • Shorter cycle time
  • Lower freight costs
  • Visibility of pipeline inventory
  • Inventory consolidation

7
Product Returns / Technical Services
Repair centers
Product Return Center
Customers
OEM Warranty Fulfillment
Outsourced
  • Activities
  • Testing / screening
  • Warranty program mgmt
  • Inventory ownership
  • Warehousing and inv mgmt
  • Fulfillment
  • Depot repair mgmt
  • Benefits
  • Centralization of inventory
  • Lower capital investment
  • Focus to the core
  • Reduced reverse logistics costs
  • Speedy response to customers

8
Critical Parts / Service Parts Logistics
Repair centers
Customers
OEM Warranty Fulfillment
Outsourced
  • Activities
  • Failed parts replacement
  • Warranty program mgmt
  • Inventory ownership
  • Warehousing
  • Depot repair mgmt
  • Visibility and TrackTrace
  • Benefits
  • Centralization of inventory
  • Lower transportation cost
  • Improved visibility of inventory
  • Lower capital investment
  • Better after-sales service support

9
Logistics Financial Services
Customers / Retailers
Manufacturers
Distributors
Supplier
  • Activities
  • Inventory finance (factoring, LOC)
  • Distribution finance (asset based
  • lending, receivable finance)
  • Payment solutions (COD)
  • Leasing
  • Benefits
  • Reduced cost of capital
  • Improved cash flow
  • Reduced capital investment

10
Total Logistics Management
Bulk Warehouse
Distribution Center
Incoming Products
Customers Retailers
Outsourced
  • Activities
  • Logistics planning
  • Network optimization
  • 3rd vendor mgmt
  • Information technology
  • Supply chain visibility
  • Benefits
  • Reduced total logistics costs
  • Global visibility
  • Single logistics solution and contact
  • Focus to the core
  • Reduced investment in logistics

11
Benefits of out-sourcing the logistics function
  • improve company focus
  • allows firm to focus on core functions and core
    competencies
  • cash infusion
  • selling assets to 3PL provider
  • access to world-class capabilities and new
    logistics technology
  • free-up resources
  • 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
  • cost of technology investment by 3PL provider
    shared among clients
  • achieves economies of scale and provides better
    service

12
Risks of Out-sourcing Logistics
  • Co-ordination costs
  • Loss of internal logistics management
    capabilities
  • Biased choice of service providers
  • Leakage of sensitive data and information
  • Service degradation
  • Less reliable? Longer order cycle time?
  • Emergency response?
  • Loss of control and representation
  • Reduced contact with final customer
  • 3PL for outbound logistics interact with your
    customers, you become less visible to your
    customers

13
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
1 warehouse 1 distribution network
Firm 2
3PL
? Zhi-Long Chen
14
Value Propositions of 3PL
Service, Retention market share
Revenue
Profit
Cost of Goods Sold Technology
Productivity Transportation/Warehousing/ Materials
Handling/Distribution
Cost
Shareholder Value
Working Capital
Lower Raws Finished Goods Inventory Shorter
Order to Cash cycles
Invested Capital
Fewer physical assets Warehouse, trucks,
Transportation
Fixed Capital
15
3PL Business Models
  • 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
  • Contract logistics model
  • Activity-based costing, i.e., Fixed
    management fee variable charges based on
    volume
  • Or, cost plus
  • Or, gain sharing model
  • Total logistics management
  • As for contract logistics
  • Risk/reward sharing
  • Partnership
  • Cost/gain measurement?
  • Savings distribution?

16
CEO Perspectives on 3PL Industry
Source Transport Logistics, Vol. 1, No. 1,
pp51-66 (1996)
  • Industrys most significant revenue generators
    (ranked in order)
  • Transportation management/services
  • Warehousing management/operations
  • Value added services
  • Dedicated contract carriage
  • Fleet management/operations
  • Logistics information services
  • Challenges for 3PL users
  • 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
  • Challenges for 3PL service providers
  • Finding qualified people
  • Development of systems which are flexible,
    adoptable and user-friendly
  • Development of a global logistics infrastructure

17
Ten building blocks for a successful 3PL
relationship
  • 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
  • Dont give up complete control of your supply
    chain

Source Survey of Fortune 500 manufacturers by
Accenture and Northeastern University (2003).
18
USA Logistics Market (2003)
  • 936 billion
  • 8.5 of GDP (lowest in 15 years)
  • Inventory
  • Inventory-to-sales ratio decline to 1.32 months
  • Transportation
  • Trucking services increase by 20 billion
  • 7.5 increase for intercity
  • 3 for local

19
Global Logistics Expenditures
Source Bowersox and Calantone, CSFB Estimates.
11.4 of Global GDP
  • Size of 3PL Industry (USA, 2003)
  • Companies spend 76.9 billion on logistics
    outsourcing
  • 8 of the total logistics expenditures
  • Up 8.2 from 2002
  • Key revenue growth areas dedicated contract
    carriage, domestic transportation management,
    warehouse-based services

20
From Modern Material Handling, Nov. 2003
21
Major 3PL Operators in USA
  • 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
  • Fritz Companies
  • J.B. Hunt Logistics, Inc.
  • HUB Group Logistics Services
  • Leaseway Logistics Services, Inc.
  • Maersk Logistics
  • Menlo Logistics
  • North American Logistics
  • Penske Logistics
  • Power
  • Roadway Logistics Systems
  • C.H. Robinson Company
  • Ryder Dedicated Logistics
  • Schneider Logistics
  • Standard
  • Tibbett Britten
  • TLC
  • TNT Contract Logistics, Inc.
  • UPS Logistics
  • USF Logistics
  • USCO Distribution Services
  • Yellow Logistics Services, Inc.

Source CSFB Industry Report, Sept. 2000
22
How many companies use 3PL?
  • 657 companies
  • Automotive, Consumer products, Food beverage,
    Hi-Tech electronics, Pharmaceutical Medical,
    Retail apparel
  • with sales revenues over 1 billion
  • 58 in North America, 57 in Western Europe, 33
    in Asia-Pacific, 11 in Latin America

From 3PL Study Results and Findings of 2004 9th
Annual Study
23
Out-sourced Logistics Activities
  • US Logistics Expenditures
  • Transportation 55
  • Distribution 32
  • Value-added services 13
  • In Europe, Asia-Pacific and Latin America,
    companies spend less percentage on transportation
    and more on the other two categories.

24
What 3PL functions do companies use?
From 3PL Study Results and Findings of 2004 9th
Annual Study
25
Why consider out-sourcing?
26
Ten Top reasons Companies Outsource
Source Fifth Annual Outsourcing Index Deloitte
Consulting, January 2003
27
Benefits of 3PL
From 3PL Study Results and Findings of 2004 9th
Annual Study by Cap Gemini
28
Users Concerns about 3PLs
29
Growth of 3PL Industry in China
  • Transport and logistics expenditure is US230
    billion (20 of GDP) in 2001,
  • with only 4.7 billion on outsourcing.
  • Key factors for stimulating growth
  • Increased operations of multi-national firms in
    China
  • Cost pressures
  • Government support in establishing national
    logistics centres
  • Reduced regulations Chinas entry to WTO

30
Mercers 3PL Survey in China (2002)
  • 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

31
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35
Hong Kong Logistics Industry and Major Local
Players
  • Container throughput in 2004 22 million TEUs
  • Air cargo throughput in 2004 3.1 million tonnes
  • Major Local 3PL Players
  • OOCL and Cargo Systems
  • Kerry Logistics
  • Jardine Logistics
  • IDS Logistics (Li Fung)
  • SUN Logistics
  • LINE
  • Power Logistics
  • TradePort
  • Some Major Chinese 3PL Players
  • COSCO
  • China Shipping
  • SinoTrans
  • EAS
  • China Merchant

36
Growth of 3PL Industry
  • In US, the growth rate for 3PL market is
    estimated around 15-20 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.
  • Future Trends?
  • Keys to Success?

37
Selection of 3PL providers
  • According to the 3PL 2004 9th Annual Study,
    users
  • Expect 3PL can execute on a set of core
    capabilities
  • Selection based on more unique value-added
    services
  • Customer service/order entry
  • Reporting
  • Metrics
  • Industry expertise
  • Regional coverage
  • Consulting
  • Postponement
  • Information management
  • Global capabilities
  • Strategic management skills

38
3PL Technologies Capabilities
  • We expect our 3PL provider to be able to provide
    the right technology solution for our needs.

39
Globalisation
  • State of Logistics Report
  • In 2003, world merchandise trade was 4.5 above
    that of 2002, global GDP rose by 2.5
  • Eastbound Pacific cargo increased by 6,
    straining ocean shipping capacity, prices for
    Pacific (US-bound) container service increased by
    40, another increase of 20 expected for 2004.
  • China imports expanded by 40 and exports grew by
    35 in value shipments to and from China account
    for more than one-quarter of all containerised
    cargo worldwide.
  • World Trade Organisation predicts growth of world
    trade of 7.5, and world GDP to increase by 3.7

40
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41
Keys to Success for Users
42
Evolving 3PL relationships
43
What is 4th Party Logistics (4PL)?
  • 3PL 2004 9th Annual Study
  • Q Is 4PL terminology confusing and ambiguous?
  • 70 respondents yes or somewhat !
  • Fourth Party Logistics supply chain
    co-ordination and management by an entity that
    does not supply (operate) underlying logistical
    services.
  • Accenture Modern supply networks are global and
    complex, there is a need for an independent
    organisation, who has the knowledge of supply
    chains and specialist 3-party service providers,
    to manage and integrate the complete end-to-end
    supply chain.

44
  • The ability to respond faster to changing
    customer need, combined with the flexibility to
    adjust manufacturing and delivery cycles, will
    provide the competitive edge in todays global
    environment
  • Rosalyn A. Wilson, State of Logistics Report
  • The 3PL providers that are going to win at the
    end game are those that have the ability to
    connect seamlessly, rapidly, and at low cost.
  • - Focus group participant for 3PL 2004 9th Annual
    Study

45
References
  • Third-party Logistics 2004 9th Annual Study, C.
    J. Langley, G.R. Allen and T.A. Dale, Georgia
    Institute of Technology, 2004.
  • The two faces of Globalization, J. A. Cooke,
    Logistics Management, July, 2004.
  • Third-party Logistics in China Still a Tough
    Market, D. Huang and M. Kadar, Mercer on Travel
    and Transport, Fall 2002.
  • Third-Party Relationships. Third-Party
    Solutions, Modern Materials Handling, November,
    2003.
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